December 31, 2021
hands his draft budget over to the speaker of the Majlis.
The first budget drafted by President Raisi calls for an end to all foreign exchange subsidies, with about a quarter of the funds now spent on those subsidies being paid directly to the public as an addition to the monthly “welfare” checks.
Raisi, in presenting his budget to the Majlis December 12, also said the budget would be balanced and the government would no longer take funds from the Central Bank, which then prints more money and feeds inflation. “Borrowing from the Central Bank and raising the monetary base are the government’s red lines,” Raisi said firmly. “Budget deficits have been “the root cause” of the country’s economic problems.
Economists and budget analysts, however, almost uniformly said that was nonsense and government could not spend all the money it plans to spend without raiding the Central Bank.
The new budget shows the priorities of the new government and how they differ from the Rohani years.
The proposed budget for the Space Agency is twelve times that of the current year. Rohani had played down the space program and even tried to kill it early in his administration. Raisi has enthusiastically endorsed the program.
The proposed budget for the Pasdaran is 2.3 times the budget for this year and four times the budget for last year.
The operations budget of the Telecommunications Ministry, whose main project is the creation of the National Information Network (NIN), as a rival to the internet, is to increase 170 percent.
The budget proposes raising the retirement age for both men and women by two years.
It also contains a 10 percent pay raise for civil servants, which is less than one-third the inflation rate for the past year. But the head of the Plan and Budget Organization, Masud Mir-Kazemi, wrote the president saying there was not enough money in the budget to fund that pay raise.
Raisi also said that the gross domestic product (GDP) would grow by 8 percent in the coming year, as a result of his budget. In the 21st Century, Iran’s growth rate, according the International Monetary Fund (IMF), has only reached 8 percent in two years, 2002 (8.2 percent ) and 2003 (8.1 percent), both under President Mohammad Khatami. Average annual economic growth since the 1979 revolution has been just 2 percent.
The government now gives almost every Iranian a monthly cash payment of 440,000 rials, the princely sum of $1.50 at the current open market rate of exchange of around 300,000 rials to the dollar, although that payment amounted to more than $40 when it was created more than a decade ago.
Masud Mir-Kazemi, head of the Plan and Budget Organization (PBO), told reporters the government planned to top off that payment with an additional 900,000 to 1,200,000 rials ($3 to $4) each month.
At the high end, that would come to $3.8 billion a year, far less than the $15 billion Iran is on track to spend subsidizing “essential” imports this year. Essential imports are mainly food, pharmaceuticals and medical equipment. That would free up more than $11 billion for the government to spend elsewhere—and leave the public with higher food and medical bills.
Economists, budgeteers and others, however, have long called for an end to subsidized imports, arguing that the public sees little of the subsidies as much of the subsidized money has been diverted by corruption. Also, many of the imported goods are selling at market rates, with little or no reduction because of the subsidy.
The subsidized dollars for “essential” imports are sold to importers at the rate of 42,000 rials per dollar or just 14 percent of the current open market rate. A recent Majlis investigation found many of those dollars were being spent to import consumer goods.
Raisi’s skimpy budget submission put the government budget (i.e., not including the budgets for state-owned businesses and banks) at 15.052 quadrillion rials ($50.2 billion). This is an increase of 9.2 percent or only one-fourth of the current inflation rate of 36 percent. The budget for New York City, released by Mayor Bill de Blasio in November, is $103 billion or more than double the budget of the Islamic Republic, although the population of the Islamic Republic is 10 times that of New York City.
The main new revenue that is proposed would be from a new tax on high-end houses and cars.
In recent years, the Rohani Administration has tried to cover the annual deficit by selling more bonds. That has now caught up with the government. Masud Mir-Kazemi, the head of the Plan and Budget Organization, tweeted that the entire income gained this year from bond sales will be used to pay for bonds that will come due in the coming year.
As for oil sales, the current year’s budget assumes sales of 2.3 million barrels a day, which is about four times actual sales. Raisi’s budget assumed exports of 1.2 million barrels a day in the coming year. This is still far in excess of actual exports. But more to the point, a forecast of just 1.2 million barrels a day (well below the pre-sanctions sales of 2.5 million barrels) indicates that the Raisi Administration is assuming there will be no resolution of the nuclear issue this coming year and no lifting of sanctions.
The budget assumes an oil price averaging $60 a barrel in the coming year. That is not unreasonable, as the OPEC price has averaged more than $60 every month of this year.