Iran’s Debt Market emerges as Key to Economic future

Additionally, owing to lack or absence of debt statistics and studies on debt sustainability analysis in Iran, it seems that there is insufficient awareness about the stability or instability of such analysis in the country’s public sector economics. Debt sustainability analysis assesses how a country’s current level of debt and prospective borrowing affects its present and future ability to meet debt service obligations.

According to figures available on emerging countries — being used here as benchmark for the Iranian economy — the ratio of debt to gross domestic product (GDP), as well as the ratio of GDP to gross financing needs (GFN), is moving beyond the standard thresholds of 50% and 10%, respectively. This is likely to put the country’s macroeconomic situation in peril and to call for higher scrutiny of the nation’s debt stock.

In the Iranian economy, the ratio of debt to GDP is larger than 60%, and the GFN to GDP ratio is 30%. This means that the debt balance combined with the financing required to pay the current debt is high compared with the government’s financial capability.

Given the government’s inability to finance its commitments in the course of the next few years, it is unlikely that Rouhani’s administration will be able to service its financial commitments. Therefore, limiting the GFN is the only policy tool available to stabilize outstanding obligations in the short term.

Furthermore, the downward slide of oil prices alongside the rising costs for plans such as Rouhani-care and the government’s promise to pay wheat farmers, have led to the overhang of insurmountable financial obligations. A survey of the status of government debt sales indicates that the balance of issued securities spiked from $3.5 billion at the beginning of the preceding Iranian year to about $12.5 billion at the end of that same year.

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