January 22-2016
President Rohani submitted his draft budget to the Majlis Sunday, saying he delayed the submission until sanctions had been lifted.
The budget was supposed to have been submitted by December 6. But officials at that time said the plummeting price of oil prompted them to keep the budget in hand while they decided what oil price to base the budget on.
The government’s general budget, not including state-owned enterprises, totals 2,670 trillion rials ($74 billion at the free market rate). This is a 13.1% increase compared to the year before in rial terms and generally in line with inflation. In other words, it does not provide for more spending in real terms. Iran’s budget for the current year stands at 2,360 trillion rials ($66 billion).
Iran also separately budgets some 6,817 trillion rials ($189 billion) for hundreds of government banks and state-owned companies.
President Rohani also presented his draft for the Sixth Five-Year Plan along with the budget. The plan outlines the Iranian government’s strategy through March 2021 to reach the declared 8 percent annual economic growth target. The Islamic Republic has never reached the growth goals in any of its Five-Year Plans.
“Iran needs foreign investments of $30 billion to $50 billion to achieve its 8 percent annual growth target,” Rohani told the Majlis, setting out one of the markers by which the post-sanctions era will be judged economically.
The budget’s reliance on crude oil has been trimmed, reflecting the continuing plunge in the crude oil price. Oil revenues will make up less than 25 percent of the proposed budget, down from 33 percent in the current year’s budget. This was the major feature that government officials touted about the budget draft, since it has been a goal of the revolution for 37 years to reduce the state’s dependence on oil revenues. But the reduced dependence has nothing at all to do with government efforts and simply recognizes the reality of the market.
But in reality, the government is not even recognizing the reality of the market. Officials said the government drafted the budget with an assumption of the oil price averaging $35 to $40 a barrel in the year beginning next March. But, first, one cannot write a budget based on a price range; a solitary number is needed and was not given. And, second, the price of an OPEC barrel of oil fell below $25 the last market day before the budget was submitted.
The government ran a 500-trillion-rial ($14 billion) deficit in the first half of the current fiscal year, a source told Financial Tribune. If that is true, it means the government didn’t have enough revenue to cover 40 percent of its spending, an immense deficit.
The government is counting on higher non-oil exports to help out. The budget says the government expects a 15 percent rise in non-oil exports to help cover foreign exchange needs. “We are resolute in raising the non-oil export growth rate exponentially,” said the president.
Furthermore, taxes are projected to rise 1,010 trillion rials ($28 billion) in the upcoming year, up a lofty 17.3 percent from the current budget’s 861 trillion rials ($24 billion)._The president also said the government will use up to $50 billion in foreign financing to further stimulate the economy. Any figure on foreign financing can only be a pure guess at this point.
Rohani said he chose to delay the budget submission until after sanctions were lifted. The government drafted the budget on the premise of complete removal of sanctions. But due to the international sensitivity of the issue, it did not want to assume anything before the relief came, he said. But that was just mythology as each sanction to be lifted was listed in the agreement released July 14.
