Government Borrowing Through State-Owned Companies

The Open Data Iran database is an innovation project aimed at collecting data related to Iran in one place and presenting it in easily accessible formats. Radio Farda, in collaboration with this institution, publishes a series of articles. An examination of the composition of government debts to the Central Bank and banks shows that the government's debt to banks is always greater than its debt to the Central Bank. Conversely, in the case of debts from 'state-owned companies and institutions,' these entities have turned to the Central Bank for more funding to cover their budget deficits. In fact, the 'government' has indirectly borrowed from the Central Bank here. This is not the end of the story; state-owned companies and institutions have not limited their borrowing to the Central Bank and have also approached other banks. Although, according to the chart below, the amount of debt these entities owe to banks is much less compared to their debt to the Central Bank, this aspect also has an interesting narrative. The issue of state-owned companies and institutions' debts to banks resembles a circle that grows larger each year. Recently, under the pretext of reviewing the budget bill for the year 1396, the Research Center of the Islamic Consultative Assembly of Iran published an article titled 'The Unsustainable Financial Impact of the Government Budget on the Business Environment.' This research indicates that forecasts made within the framework of next year's budget show that state-owned companies intend to use 69.7 trillion tomans from bank facilities and other domestic loans next year while also repaying 39.3 trillion tomans of previous years' facilities. Thus, a net addition of 30.4 trillion tomans will be added to the new debt for these companies, which can be termed as demand pressure on the money market. On the other hand, the Research Center has assessed that assuming a growth rate of 15% (equivalent to the growth rates of 1393 and 1394), this figure will reach 121 trillion tomans in 1395 and likely 140 trillion tomans in the following year, 1396. According to information from the Research Center, state-owned companies account for more than 22% of the facilities that could have been allocated to non-governmental companies. Although borrowing for state-owned companies is not prohibited by law, and these companies can benefit from bank facilities, the impact of their borrowing on the replacement of state-owned companies instead of private companies must be considered. One side puts pressure on the monetary base, while the other side puts pressure on business. An examination of a decade of debts of state-owned companies and institutions to banks and the Central Bank shows that between 1385 and 1394, the average debt of these entities to the Central Bank increased by 32% annually, while their debt to banks decreased by 4% annually. If we divide this time frame into two parts, we see that between 1385 and 1390, in contrast to an average annual decrease of about 17% in debts of state-owned companies to banks, there was a 40% increase in the same entities' debts to the Central Bank. Conversely, from 1390 onwards, the debts of state-owned companies and institutions to both the Central Bank and banks have shown an upward trend. As previously mentioned, if these entities are indebted to banks, they indirectly exert pressure on the business market, and if they are indebted to the Central Bank, they directly exert pressure on the monetary base, which has inflationary consequences. This phenomenon, viewed from any angle, is detrimental to the country's economy.