Iran Budget Deficit Widens 74% YOY

EghtesadOnline: Iran’s budget deficit came in bigger than expected in the first seven months of the current fiscal year (March 21-Oct. 22) to reach 391.4 trillion rials ($3.83 billion), the latest data released by the Central Bank of Iran show.

News ID: ۷۴۶۳۴۶

18 December 2018

The shortfall was larger than the budget law’s forecast of 9 trillion rials ($1.87 billion) for the period and is 74.8% more compared with the deficit in last year's corresponding period.

The deficit came in 9.6% smaller in fiscal 2017-18 than the year before.

CBI's previous budgetary report showed the deficit stood at 372.3 trillion rials ($3.65 billion) in the first half of the current year (March 21-Sept. 22), Financial Tribune reported.

The latest report also shows the government sold 42.7% more bonds—a total of 498.2 trillion rials ($4.88 billion)—in the seven months compared with the corresponding period of last year to cover its widening budget deficit.

The government’s overall revenues during the period amounted to 415.7 trillion rials ($4.07 billion), indicating a rise of 25.8% year-on-year, while its spending hit 807.2 trillion rials ($7.91 billion) to register a 45.6 % growth YOY.

A total of 313.8 trillion rials (about $3.07 billion) were spent on development projects from March 21 to Oct. 22 to register a 122.2% growth YOY, which is lower than the target of 366.9 trillion rials ($3.59 billion) set in the budget law for the seven months.

As per the budget law, the government is required to spend 620 trillion rials ($6.07 billion) on development projects this year.

Rise in Oil, Tax Revenues

Revenues associated with the sale of oil and petroleum products were more than the projected budgetary figure of 597.8 trillion rials ($5.86 billion). They reached 727.8 trillion rials ($7.13 billion), indicating a 55.1% rise YOY.

The budget law projection for revenues from the sale of oil and petroleum products for the whole year (ending March 20, 2019) is 1,010.1 trillion rials ($9.9 billion).

Tax revenues were estimated to hover around 840.8 trillion rials ($8.24 billion), but they reached 600.9 trillion ($5.89 billion), registering a 14.2% increase YOY compared with last year's same period.

The budget law's estimate of tax revenues for the whole year is at 1,420.8 trillion rials ($13.92 billion).

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 264.1 trillion rials ($2.58 billion) during the seven months, registering an uptick of 1.1% YOY.

Tax on legal entities yielded 139.1 trillion rials ($1.36 billion) for the government, 11.1% less than the same period of last year. The seven-month budget target for tax on legal entities was 240.5 trillion rials ($2.35 billion).

The government collected 104.5 trillion rials ($1.02 billion) from income tax and 20.5 trillion rials ($200.98 million) from wealth tax, which show a respective growth of 16.5% and 35.6% over last year’s corresponding period.

Indirect taxes, including “tax on imports” and “tax on goods and services”, reached 336.8 trillion rials ($3.3 billion), indicating a 27.1% rise YOY.

The report also shows tax on imports generated 84 trillion rials ($823.52 million), 53.4 % more than the year before while tax on goods and services earned the government 252.8 trillion rials ($2.47 billion), up 20.2% YOY.

According to the Islamic Republic of Iran Customs Administration, a total of 18.92 tons of non-oil goods worth $26.3 billion were imported into Iran during the same period to register a 11.7% decline YOY.

According to the CBI data, value added tax, which is a subcategory of tax on goods and services, increased by 10.2% to reach 161.8 trillion rials ($1.58 billion).

The government earned 3.6 trillion rials ($35.29 million) from cigarette tax in the period, which indicate a rise of 34% YOY. The budget target for the current year’s revenues from cigarette tax is 5.3 trillion rials ($51.96 million).

During the same period, the government earned 5.9 trillion rials ($57.84 million) from departure tax, which it charges outbound tourists. The figure indicates a rise of 170.5% compared with the same period of last year. The budget target for the current year’s revenues from departure tax is 8 trillion rials ($78.43 million).

Next Year's Budget Bill Under Revision

The Plan and Budget Organization of Iran unveiled the government's budget bill for the next fiscal (March 2019-20) in time on December 6.

Fars News Agency reported a few days later, citing a leaked version of the bill, that the budget proposed by the government stands at 17,300 trillion rials (about $170 billion), which puts it 41.5% more than the 12,225 trillion rials ($about 120 billion) passed into law for the current year.

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

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

Pourmohammadi noted that $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 (more than 680 million) will be earmarked to support needy households and 370 trillion rials ($3.6 billion) will be allocated to the health sector.

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

"To counter US sanctions and limits on petroleum sales, PBO has decided to reduce the new budget's reliance on oil revenues to 27% and based the budget on an average oil price of $54 a barrel, with an estimate sale of 1.5 million barrels per day," he said.

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

Though the budget bill was unveiled in time, it has yet to be submitted to the parliament for discussions and approval, as the Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei has ordered a revision of the bill.

The Leader has called for corrections of certain parts, mainly pertaining to the share of National Development Fund of Iran (the country's sovereign wealth fund) from oil sales as well as the military budget.