Iran Lowers Reliance on Oil Revenues in 2019-20 Annual Budget Bill

EghtesadOnline: The Plan and Budget Organization of Iran submitted the government's budget bill for the next fiscal (March 2019-20) to the parliament in time on Thursday (known as Budget Day).

News ID: ۷۴۶۳۰۵

08 December 2018

The timely submission comes as Majlis is in recess until Dec. 16, so discussions on the nitty-gritty of the bill will have to wait till then, Fars News Agency reported.

Hamid Reza Pourmohammadi, the deputy head of Plan and Budget Organization, said the government has taken into account restrictions on utilizing its budgetary resources in drawing up the bill, given the US sanctions against Iran.

The United States has reimposed "the toughest sanctions ever" against Iran's economy after US President Donald Trump announced his decision to unilaterally pull out of the nuclear deal that Tehran signed with world powers, including the US, Financial Tribune reported.

The nuclear deal, officially known as Joint Comprehensive Plan of Action, was signed in 2015 and saw years of international sanctions against Iran removed upon its implementation in early 2016. In exchange, Iran agreed to limit the scope of its nuclear program.

Now with the US out of JCPOA, other signatories of the deal, especially those in Europe, are working to keep the landmark agreement alive.

“The government has focused special attention on policies designed to improve Iranian people’s livelihood and healthcare, protect producers and create youth employment,” Pourmohammadi said.

About $14 billion have been allocated for the supply of essential goods at the foreign exchange rate of 42,000 rials per dollar

The reimposition of US sanctions, the first round of which took effect in August and the second in November, has led to a steep depreciation of Iran's national currency and rise in consumer prices. But the government is adamant it will be able to handle a crisis in the making.

“About $14 billion have been allocated for the supply of essential goods at the foreign exchange rate of 42,000 rials per dollar. An estimated 70 trillion rials (608.69 million) will be earmarked to support needy households and 370 trillion rials ($3.21 billion) will be channeled into the health sector.

A key part of US sanctions against Iran is related to the oil sector (that supplies a substantial percentage of the budget's revenues) and restrictions on crude sales.

Washington had been pushing governments to cut imports of Iranian oil to zero. But, fearing a price spike, it granted Iran’s biggest buyers—China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey—sanctions waivers.

That will allow the eight, which account for about 75% of all Iran’s oil exports, according to trade data, to import at least some oil for another 180 days.

Washington and recipients of waivers, with the exception of Turkey, have not disclosed how much oil they are allowed to import, or under what conditions deals can still be made.

“We insisted that the budget be devised and sent to the parliament in due time to send the message inside and outside the country that Iran can be managed without reliance on oil revenues,” First Vice President Es'haq Jahangiri said recently.

Among key features proposed by the government in the next year’s budget bill, according to Pourmohammadi, are keeping fuel price unchanged and dollar’s exchange rate at 58,000 rials.

"To counter US sanctions and limits on petroleum sales, PBO has decided to reduce next year’s budget reliance on oil revenues to 27% and set average oil prices at $54 a barrel, with an estimated sale of 1.5 million barrels per day," he added.

"Although the parliament might set higher rates, the government cannot afford to increase wages by more than an average of 20% next year,” he added.

Long History of Running Deficit

The governments in Iran have had a long history of running deficits and it remains to be seen how the incumbent administration balances its affairs, given the economic hardship it is facing as a result of the reimposition of sanctions and the ensuing difficulties.

Latest data released by the Central Bank of Iran show Iran’s budget deficit came in bigger than expected in the first half of the current year (March 21-Sept. 22) to reach 372.3 trillion rials ($2.84 billion).

The shortfall was larger than the budget law’s forecast of 164.3 trillion rials ($1.42 billion) for the six-month period while it is 105.5% more compared with the deficit of the preceding year’s corresponding period.

To cover the deficit, the government sold 65.5% more bonds—a total of 419.3 trillion rials ($3.64 billion)—in H1 compared with last year's first half.

The government’s overall revenues during the six months amounted to 356.5 trillion rials ($3.1 billion), indicating a decline of 3.8%, while its spending hit 728.8 trillion rials ($5.2 billion) to register a 32.1% growth year-on-year.

Revenues associated with the sales of oil and petroleum products were more than the projected budgetary figure of 514.7 trillion rials ($3.67 billion) and reached 630.6 trillion rials ($6.3 billion), indicating a 41.2% rise YOY.

The budget law estimate of revenues from sales of oil and petroleum products for the whole year is 1,010.1 trillion rials ($8.78 billion).

The government spent 266.4 trillion rials ($2.31 billion) on development projects in the six-month period, which shows a 240.5% growth YOY, yet lower than the target of 316 trillion rials ($2.74 billion) in the budget law for H1.

As per the budget law, the government is expected to spend 620 trillion rials ($5.39 billion) on development projects this year.

One sign of hope as the government is scrambling to give its budgetary resources a boost under the current circumstances is that latest figures point to a rise in tax revenues.

The CBI report for H1 shows tax revenues were estimated to hover around 724 trillion rials ($6.29 billion), but they reached 503.4 trillion ($4.37 billion) to register a 16.8% increase YOY.

The budget law estimate of tax revenues for the year is 1,420.8 trillion rials ($12.35 billion).