Hemmati: Reviving Production Depends on Reducing Government Budget Deficit Pressure on the Central Bank

Abdolnaser Hemmati, the Governor of the Central Bank of Iran, stated in a message on his Instagram page that "reviving production and strengthening the national currency" depends on several factors, including reducing mandatory loans, efforts to alleviate the pressure of the government's current budget imbalance on the banking system and the Central Bank. In this Instagram message published on Thursday, the first of Farvardin, Hemmati outlined the Central Bank's approach for the new year as focusing on financing production projects and providing working capital for production units through the country's banking system, emphasizing the Central Bank's focus on securing foreign currency for raw and intermediary production materials. According to the Central Bank Governor, "serious confrontation with methods and decisions that use foreign currency from oil and non-oil exports for unnecessary imports and anti-production purposes" is another approach of the Central Bank in the year 198. Hemmati also referred to the designation of the year 98 as the year of "reviving production" by Ayatollah Ali Khamenei, considering this designation as increasing the responsibility of the Central Bank and the Iranian banking system. Khamenei, the leader of the Islamic Republic of Iran, also criticized the banking system's performance during his annual Nowruz speech in Mashhad on Thursday. According to Khamenei, "the misuse of the wrong policy of developing banking and financial centers to acquire illicit wealth from people's money" is among the actions that must be addressed. The leader of the Islamic Republic expressed dissatisfaction with the years-long delay in presenting the government's bill for banking reform to the parliament. Khamenei also insisted on "strengthening the national currency" and considered the way to achieve this through efforts to revive production. Hemmati identified several important points for reviving production and strengthening the national currency, including "reducing mandatory loans that diminish the banks' capacity" and "efforts to alleviate the pressure of the government's current budget imbalance on the banking system and the Central Bank." Governments in various periods resort to using banking system resources and borrowing from the Central Bank to cover their budget deficits, which ultimately leads to increased liquidity and inflation. Hemmati also mentioned "reducing banking arrears and selling surplus bank assets" as other points that he has emphasized, a topic that has been repeatedly highlighted in recent years but has not yet resulted in resolving this issue. The Central Bank Governor deemed "actively pursuing the reform of the country's banking imbalances" as essential for reviving production and strengthening the national currency. In recent years, reports have emerged about the losses of some Iranian banks. According to financial reports from the Iranian Securities and Exchange Organization, in the first half of last year, banks such as Saderat, Tejarat, Qarz al-Hassaneh Resalat, Post Bank of Iran, Sarmayeh, and Novin Economy, which are among the listed banks, had poor performance with losses. Additionally, Hemmati considered the "return of foreign currency from exports to the economic cycle" as one of the necessary points for the aforementioned goals. In 1397, with the unprecedented rise in foreign currency prices in the free market and the launch of the NIMA system to regulate this market, the government and the Central Bank faced ongoing challenges with exporters to return export currencies to the country's economic cycle. Exporters were obligated to supply currency in the NIMA system, but due to the higher price of currency in the free market compared to the NIMA market, they were not very inclined to return the currency obtained from selling their goods and services to the NIMA market. The sixth point of focus for the Central Bank Governor in this Instagram message was the "reform of the country's trade map and import and export destinations," which he stated is aimed at "reducing the country's need for currencies targeted by U.S. sanctions." Following the U.S. withdrawal from the JCPOA and the imposition of sanctions against Iran, the Iranian economy has faced challenges in finding markets for selling and exporting its goods and services, especially markets for selling oil and diverse import sources to meet its import needs.