Most of this surge emerged in the second half of fiscal year 2016-17, specifically the final months of the mentioned period. Of note, the administration is due to pay its outstanding debt obligations, totaling $7 billion, this current Iranian year. However, based on this year’s budget, the government can issue about $10 billion worth of Islamic sukuk, or bonds. Nonetheless, there is no separate publication engaged in debt sustainability analysis. There are concerns that being unable to settle debts might trap future governments in a chain of defaults.
Even though more than six months have passed since the beginning of the current Iranian year, the schedule for new debt sales has not yet been finalized. So, again, in the second half of the year, we can expect to see a rapid and high-volume circulation of government securities. This would accelerate the assumed yield on the Iran Fara Bourse debt market. Given the prevalence of the one-year bonds, this vicious circle of debt and deficit could run to next year’s debt sales.
Furthermore, Iran’s banking reforms have not earnestly started yet. The banking system is susceptible to problems in the debt and currency markets, and such problems might spill over to banks in the absence of a well-organized strategy to insulate them against possible crises.
Indeed, properly estimating Iran’s budget deficit and introducing practical plans for reforming the budget system could partly pave the way for strengthening discipline and integrity of the young Iranian bond market. Doing so is deemed as an important measure to underpin the interest rate reduction policy stressed by the officials of the Central Bank by keeping bond yields in check.