The governor of the central bank introduced four healthy options for financing the budget deficit: “reducing financial costs”, “increasing tax revenues”, “selling government shares and property” and “issuing bonds or pre-selling goods such as oil”.
Abdul Nasser Hemmati’s remarks show that the first three options face limitations; Because the capacity to increase tax revenue and reduce spending for the government and parliament in the shadow of the corona is limited, the issuance of bonds is being pursued despite obstacles. But from the point of view of the monetary policymaker, the fourth option, known as the economic opening plan, has two advantages: first, it can manage inflation expectations, and second, it can bring more profit to bondholders at a lower cost than bonds. .
Rejecting the hypothesis of indebtedness of future governments, the governor of the central bank stressed: “The issuance of any bonds is an tried and tested method for smoothing government spending and reducing economic fluctuations at the macroeconomic level.” Yesterday, the President strongly defended the “economic opening”.
*** Ways to finance a healthy budget deficit
The governor of the central bank believes that sound financing of the budget deficit has no more than four options: “reducing expenditures”, “increasing tax revenues”, “selling government shares and property” and “issuing bonds or pre-selling goods such as oil”. But the first three options can not be chosen as the final key to financing, because in the first two options, “the capacity to increase tax revenue and reduce costs for the government and parliament this year with regard to the corona is clear and limited.”
On the other hand, “the sale of shares is being carried out with all obstacles, and bonds have been sold for 52,000 billion tomans so far.” By proposing these four options, Hemmati emphasizes that the oil pre-sale plan could be the key to the budget deficit in the current situation. Regarding the advantages of these two issues, he stressed: “the ability to manage inflation expectations” and “more profit for the people and less cost for the government.” Rejecting futures trading through securities based on economic literature, he cited borrowing from the central bank as an alternative, which could have far more inflationary effects.
*** Latest details of oil opening
The economic opening plan case is still open and seems to be in the final stages of hammering. But it seems that some resistance has caused the plan to face ups and downs for now. According to the latest reports, in the initial draft of this plan, the government was supposed to offer parallel futures bonds backed by crude oil. In the first step, 220 million barrels were to be pre-sold in a one-year period, which calculations showed that if this plan is implemented, 190,000 billion tomans will be financed from this plan.
On the other hand, the government had set a minimum and maximum interest for these bonds, which made deposits attractive. The minimum profit of this plan was equal to the maximum figure of bank interest rate, but the maximum profitability of this plan was determined based on the increase of exchange rate and oil prices. This plan can become a win-win game for society and policymakers. Of course, at present, some experts and members of parliament are announcing this plan as futures, while in all developed countries, the issuance of bonds is used as a way of balancing the budget, and even studies show that when issuing budgets in Some countries can be as long as two or three decades, while some critics do not allow the publication of biennial statistics.
*** Four healthy options to cover the budget deficit
The governor of the central bank in a quadruple note on his Instagram page made remarks about liquidity management. “Managing the foreign exchange and money markets, and ultimately controlling inflation, is the central bank’s main task in today’s economic climate,” he said at the beginning of the statement, stressing the need for sound financing of the budget deficit. “The government’s budget deficit is a fact due to the embargo on oil exports, and” healthy financing “of this deficit without borrowing from the central bank is also a necessity.
” He went on to outline four common options for budget deficits: “Reduce spending, increase tax revenues, sell government stocks and assets, issue bonds or pre-sell commodities such as oil, under sanctions.” Regarding the problems and limitations of the first three options, he points out that “the capacity to increase tax revenue and reduce spending for the government and parliament this year, given the corona, is clear and limited.
“Stocks are being sold with all obstacles, and bonds have been sold for 52,000 billion tomans so far.” In another part of his speech, he announced details about the new plan of economic opening, which is the first news from an official, and confirms that the duration of these bonds is two years: It will be another year, it has two characteristics: 1- It manages inflation expectations. “It is less costly and more manageable than bonds, and at the same time it is more profitable for the holder of these bonds.” These are the two characteristics that Hemmati emphasizes that the economic opening plan is a good option for monetary policymakers.
*** Reject futures sales by issuing bonds
Of course, in his view, the guarantee of the success of this plan is the agreement of all elements of the system, relying on the accurate opinions of experts. This statement of the Governor of the Central Bank emphasizes that in the implementation process of this policy, all institutions must be in harmony with each other, otherwise this policy will face difficulties in implementation.
In recent days, many experts have emphasized that the implementation of the policy of economic openness can be considered as futures trading. So the life of this policy must be in time Government, be limited. However, less than a year remains in the life of the government and as a result, its implementation in this limited time can not open the door for policymakers and the people. In this regard, the Governor of the Central Bank stressed: “The issuance of any securities is a tried and tested method all over the world to smooth government spending and reduce macroeconomic fluctuations, and discussions such as futures sales or debt of future governments are not in line with economic literature.
“Governments are always present in the economy with fiscal policies.” Hemmati warns in another part of his speech that in any case, if the budget deficit is not provided with the above four sources, borrowing from the central bank, even if indirect, will lead to more liquidity growth and inflation in the coming years and people will suffer in the future.
*** Why does the central bank support “economic opening”?
The statement from the governor of the central bank shows that it supports the government’s economic opening plan. The central bank is trying to implement its inflation policies given the current situation in the economy. Currently, liquidity growth and the monetary base are at a high level, which could threaten the central bank’s inflation targeting.
But the advantage of economic openness is that the government can finance it in a non-inflationary way, thus reducing the pressure on the central bank’s resources. On the other hand, the central bank intends to implement its plans to control liquidity by using tools such as bonds, open market operations and reforming the banking system, after reducing the pressure of fiscal policies on monetary policies.
Therefore, in the first step, it is necessary to choose the best option to finance the budget deficit, and in the second step, the central bank should be free to control inflation. But the realization of this plan requires the green light of other institutions, and there is a danger that the shadow of political games will be spread due to the economic effect of this plan, and as a result, this option will be removed from the policy-making table.
این مطلب بدون برچسب می باشد.