Improving Public Debt Management
In the OIC Member Countries
140
C) Policy RecommendationsIt is recommended to further improve the institutional framework of public debt management
in Iran, clearly defining and making public the operations, members and competencies of the
newly created DMU. The relations and interactions between the various entities integrated in
debt management might also be strengthened. In particular, the precise division of
competencies between the DMU, the CBI and the MCC remains rather vague. This specifically
includes the tasks of the CBI which should remain its independence. Moreover, a transparent
legal framework for debt management is required (Hansen 2015). The development of a
general strategy for debt management and a mediumterm debt management strategy by the
DMU following international standards would make the framework more comprehensive.
One of the most pressing issues concerns collecting, managing and publishing debt data. For
example, government finance statistics should go beyond the coverage of the central
government and also include subordinate public entities. The role of semipublic institutions,
especially those lead by members of the military or religious community, may be better
clarified, given their importance with regards to economic activities and public debt holdings.
Statistics may be released more regularly (IMF 2015a). Although data on public and publicly
guaranteed debt is published, further improvements are still necessary as the classifications do
not meet the standards of the IMF External Debt Guide (IMF 2015b).
Moreover, more transparency regarding the supervision of the banking sector as a large
creditor to the government is recommended, at it currently lacks clear transparency on
ownership and operations. It is advisable to restructure the high number of nonperforming
loans and banks in general, and solve issues with unlicensed financial institutions, which are
partly responsible for these high borrowing cost rate levels threatening macroeconomic
stability (IMF 2015a). Given the importance of the banking sector for public borrowing needs,
the government should ensure sufficient liquidity in the market. This may be of special concern
given that banks mostly hold illiquid assets in the housing and construction sector, while
simultaneously managing comparatively high debt.
It is important to reevaluate the nexus between fiscal and monetary policy regarding the
concerns connected to the implementation of Islamic banking in Iran. The fact that the
government is the only actor that is allowed to borrow at a fixed rate, also influences the other
bank charges which are supposed to reflect actual profits of the borrowing entities (Iqbal and
Mirakhor 1987). Various solutions have been presented to solve this issue, among others the
replacement of the fixed rate by a variable rate of return tied to nominal GDP growth or the
allowance for the government to access a portion of the demand deposits at the central bank
on a noninterest basis (Iqbal and Mirakhor 1987). Despite these issues related to Islamic
banking practices, the IMF supports Iran’s transition from loan markets towards marketbased
approaches to finance government debt, which include explicitly the issuance of sukuk and
other Islamic debt instruments (IMF 2015a).
Finally, the expected lift of sanctions provides great opportunities for international
cooperation. Foreign direct investments may lessen the pressure on public accounts to finance
needed investments in the oil and gas sector. Moreover, it opens room for a deepened
economic cooperation within the region and with other OIC member states.