Iran Budget Deficit Tops $8b (Mar-Dec 2017)

EghtesadOnline: The government’s overall revenues during the first nine months of the current fiscal year (March 21-Dec. 21, 2017) stood at 340.3 trillion rials ($7.24 billion), registering a rise of 27.8% compared with last year's corresponding period, while its spending hit 725.7 trillion rials ($15.44 billion) during the period to record a 35.6% growth year-on-year, the Central Bank of Iran's latest report said.

News ID: ۷۴۴۹۳۲

12 February 2018

As a result, the government had to issue 74.8% more bonds in the nine months compared with the corresponding period of last year to cover its widening deficit of 385.4 trillion rials ($8.2 billion). As much as 601.4 trillion rials ($12.79 billion) worth of bonds were issued during the period under review.

The Iranian government has a record of experiencing budget deficits. To cover that, it has grown accustomed to issuing bonds–the simplest way out albeit controversial, considering the payback implications as it risks drowning more and more into debt.

During its Sunday meeting, Majlis Joint Commission decided to allow state-owned companies, ministries, universities, higher education organizations and science and technology parks to issue up to 70 trillion rials ($1.61 billion) worth of Islamic bonds, also known as sukuk, during the next fiscal year (starting March 21), according to Financial Tribune.

The funds raised are to be used in “economically and technically feasible” development projects designated by the government’s Economic Council.

The joint commission is a parliamentary body responsible for reviewing the budget bill as well as five-year development plans proposed by the government.

The government was also given the go-ahead for issuing 260 trillion rials ($6 billion) worth of debt securities to complete unfinished projects, develop universities and implement provincial projects.

Municipalities and their subsidiary companies can also issue up to 80 trillion rials ($1.84 billion) of bonds. At least 50% of the money raised must be allocated for the expansion of urban rail transportation.

The commission also allowed the government to issue up to 15 trillion rials ($346.42 million) worth of Islamic Treasury Bonds with a maturity period of three years to repay its creditors, including but not limited to project contractors, farmers involved in the guaranteed purchase of strategic agricultural products, health insurance companies and electricity producers.

Decisions made in the joint commission need the approval of lawmakers and the verification of Guardians Council before their enforcement.

Lawmakers are concerned that the government is becoming increasingly dependent on raising money by issuing debt to cover widening budget deficits while showing no signs of cutting expenditures.

“The fact is that issuing debt securities requires a dependable source of revenue for future payback, otherwise this will not be acceptable for covering mandatory government spending,” a member of the joint commission, Fatemeh Hosseini, wrote in an article published in the Persian economic daily Donya-e-Eqtesad.

Hosseini emphasized that debt issuance to cover budget deficit was an exception, but the practice is becoming more and more commonplace.

“This was first introduced in 1394 (the fiscal 2015-16) … for accelerating the move to quit an economic recession … but was unfortunately repeated in the following years’ budget bills,” he said.

The parliament’s original premise to allow government debt issuance, the MP argues, was to revive dormant development projects, but it has since distorted into a tool for keeping the messed-up government finances afloat.

“The overarching concern is the government not cutting its expenses and sticking with debt instruments for running its operations,” she said.

> Oil Revenues Rise 51%, Tax Income Up 4.4%

According to the CBI report, revenues associated with the sales of oil and petroleum products reached 639.6 trillion rials ($13.6 billion), indicating a 51.6% YOY rise, but less than the projected 861.3 trillion rials ($18.32 billion).

Although tax revenues were estimated to hover around 880.6 trillion rials ($18.73 billion), they only reached 683.8 trillion ($14.54 billion), registering a 4.4% increase YOY.

The government’s tax revenues consist of returns from direct and indirect taxation. Direct taxes include three groups of “tax on legal entities”, “income tax” and “wealth tax”.

Overall, direct tax revenues stood at 336.3 trillion rials ($7.1 billion) during the nine months, registering a decline of 3.4% YOY.

Indirect taxes, including “tax on imports” and “tax on goods and services”, reached 347.5 trillion rials ($7.39 billion), indicating a 13.2% rise YOY.

The report also shows tax on imports generated 87.2 trillion rials ($1.85 billion), 15.5% more than last year’s corresponding period while tax on goods and services earned the government 260.3 trillion rials ($5.53 billion), up 12.5% YOY.

Value added tax, which is a subcategory of tax on goods and services, increased by 12.2% to reach 163 trillion rials ($3.46 billion).

The government spent 302.2 trillion rials ($6.42 billion) on development projects during the nine months, 90.9% more than in the similar period of last year but much lower than the projected 539.7 trillion rials ($11.48 billion).