The financial imbalance of the government, by transferring financial costs to the balance sheets of banks, has become one of the main challenges of the Iranian economy. This process starts in a chain from the debts of the government and state-owned companies to the banking network and ultimately leads to an increase in the monetary base and inflation.
Channels of Financial Imbalance Transfer
The first channel of financial imbalance transfer is the debt of the government and state-owned companies to the banking system. According to published data, the outstanding debt of the public sector to the banking system has increased from about 20 trillion tomans at the end of 2002 to about 2828 trillion tomans at the end of 2025. Between the end of 2021 and 2025, this debt has nearly quadrupled. By the end of 2025, according to reports, the debts of the government to banks and credit institutions were about 439 trillion tomans.
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Consequences of Mandatory Loans and Hidden Debt
The second channel is the mandatory loans that the government imposes on banks. These loans can act in a quasi-budgetary manner, which seemingly exempts the government from spending financial resources, but in reality, the financial burden falls on the banks. Additionally, the hidden debts of state-owned companies to banks can also lead to financial imbalance. If these companies fail to settle their debts on time, these debts initially remain on the banks' balance sheets and ultimately become government debt.
Ultimately, the financial imbalance of the government can turn into liquidity imbalance for banks. If banks cannot meet their obligations due to a lack of reserves, they may be forced to borrow from the central bank or the interbank market. In this case, the financial relationship between the government and banks turns into a monetary relationship that will lead to an increase in the monetary base and liquidity.
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