President Hassan Rouhani has officially ordered the implementation of amendments to the Budget Law of 2016-17 to pave the way for the clearance of government debts to public-sector banks.

In a letter to Mohammad Baqer Nobakht, the head of Management and Planning Organization, the president issued the order for the implementation of a number of features in the budget amendment to clear the government's debts to the banking system, increasing the lenders' capital and settling the banks' debt to the Central Bank of Iran, reports Banker.ir.

Amendments to the annual budget, which were passed by lawmakers in late August, allow the government to settle its debts to the banking sector by using CBI's foreign exchange resources. They permit the Rouhani administration to repay up to 450 trillion rials ($14.1 billion) of its debts to the lenders.

"Following the notification number 72469 of the amendments to the Budget Law of 2016-17 on September 5, the following directive numbered 118/53417 is communicated in line with the Article 123 of the Islamic Republic Constitution on October 15," Rouhani wrote.

By approving the budget amendments, the parliament also allowed the government to issue up to 400 trillion rials ($12.5 billion) of treasury bonds or other Islamic debt instruments with five-year maturity to clear its hefty debts to banks, contractors, municipalities and farmers.

Penalty Relief

Nobakht provided new information about another dimension of the budget amendments, heralding the enforcement of interest relief for certain bad loans within a month.

"The loan relief directive will be approved and officially communicated by the government within a maximum one-month timespan," he said in reference to the loan relief proposal that is part of a provision passed by the parliament in the budget amendments.

The provision states that if debtors return the principal amount of their loans of under one billion rials ($31,400) to banks, all interest and penalties pertaining to the interest on the loans will be forgiven.

As previously confirmed by the spokesman of Majlis Planning and Budget Commission, Mohammad Mehdi Mofatteh, the interest on loans will be reimbursed to lenders from the revaluation of foreign exchange resources of the CBI and the fines will be forgiven.

On Saturday, 169 members of parliament penned a letter to the president, officially asking the government not to charge interest and late payment penalties on overdue loans worth one billion rials or less.

Reacting to the missive, Nobakht said in the amendments to the annual budget law, "an executive directive has been defined for the implementation of the article and this directive, which has been jointly drawn up by the Economic Affairs and Finance Ministry, the Management and Planning Organization and the Central Bank of Iran, is in the final stage of review."

Nobakht, who doubles as the government spokesperson, also commented on one of the main promises of the government, saying CBI is working to unify the foreign exchange rates and the plan "will probably be implemented by the [Iranian] yearend [March 20, 2017]".

Economy Minister Ali Tayyebnia was the latest official to talk about the longstanding plan of bringing an end to Iran's dual forex rate regime.

"A multi-rate currency system has many downsides and creates the groundwork for corruption and that (among other things) is why forex rates will be unified within the next two or three months," he said in early October.

By Financial Tribune