According to Hamouni, debt securities have never experienced a default, but the current status of the guarantee of these securities and banks as their guarantors is very tricky given the challenges the banking industry is grappling with these days.
This was why the debt market was first formulated and why the government itself took the risky role of guaranteeing these bonds. Likely failure by these entities to comply with their obligations would pressure the Rouhani administration to pile up the debt burden on the ensuing fiscal years, thus blowing a hole in the annual budget balance.
Unfortunately, in the Iranian fiscal year 2016-17, the government permitted various ministries to issue debt securities on their own. This led to a disparity in the rate of returns on bond markets. Indeed, so far, government debt issuance has been essentially concentrated on clearing its debt burden and financing government-priority projects. But the important point to be made here is that there is no prospect of a decline in the size of government debts by solely sticking to the current state of the government’s fiscal policies.
An analysis of budget figures shows that the government is always forced to settle the past matured securities with the issuance of new ones in a bid to balance annual budgets. This means that government commitments are accumulated and rolled over to later years. In the same vein, different administrations in Iran have always faced a surplus of capital and financial assets while witnessing operational budget deficits.
As the excess of capital assets leads to a decline in state investment in the economy, this could, in turn, have negative consequences for Iran’s much-anticipated economic expansion.