Sources of Financing Essential Imports Narrow in New Budget

EghtesadOnline: The government was allowed to tap into revenues gained from the export of crude oil, gas condensates and natural gas to allocate cheap foreign currency at the rate of 42,000 rials per US dollar to import essential goods as per the budget laws of the fiscal years ending March 2020 and 2021.

News ID: ۷۵۱۵۸۲

26 November 2020

However, it will only be allowed to use resources generated from crude oil exports to subsidize these imports in the next fiscal year (March 2021-22).

The Plan and Budget Organization of Iran submitted the draft of next year’s budget bill to the government last week and the Cabinet has started its review.

Earlier, President Hassan Rouhani had underlined the highlights of the new budget bill’s structural reforms.

“Reducing expenditure, improving revenues, curbing government intervention [in economic activities], expanding electronic government, boosting production and implementing the policies of Resistance Economy [a set of principles outlined by the Leader aimed at bolstering domestic production and cutting dependence on oil revenues] are grounds on which the next year’s budget will be based,” he was quoted as saying by the Persian daily Iran.

Mohammad Baqer Nobakht, the PBO chief, said last week that three resources to finance the next year’s budget will be oil, tax and treasury bonds.

“The allocation of subsidized forex to import essential goods will continue; the US dollar’s conversion rate will be set at 115,000 rials and the oil price has been projected to be $40 per barrel in next year’s budget,” he said.

Nobakht announced that the government will submit the budget proposal to the parliament before Dec. 5.

Following the US withdrawal from the Iran nuclear deal in 2018 and the depreciation of local currency against foreign currencies, the government initiated the policy of subsidized imports and intends to pursue it next year as suggested in the draft budget bill.

However, what will be different next year compared with the past two fiscal years is that the resources to finance the plan would be narrowed down to oil export revenues.

The government supplied $15 billion to import essential goods in the year ending March 2020 and was supposed to allocate $10.5 billion in the current year. However, as per the decision of the government’s Economic Coordination Headquarters in the month ending May 20, the sum has been reduced to $9 billion, Fars News Agency reported.

In the draft of next year’s budget bill, PBO has not provided a specific figure for crude oil revenues, suggesting that the projected figure will be finalized when the government submits the bill to the parliament.

One of the key clause in the next year’s budget bill pertains to the ceiling of income tax exemption. Government and private sector employees earning less than 480 million rials ($1,860) annually (40 million rials or $155 per month) will be exempted from paying income tax.

The current year’s cap on public and private sector income tax exemption has been 360 million rials ($1,395) annually (36 million rials or $139 per month).

A 25% increase in government employees’ salaries has been included in the draft of next year’s budget bill. The salary of government employees and pensioners should not be less than 35 million rials ($135) per month, marking a 25% increase compared with the current year’s 28 million rials ($108).

The Iranian National Tax Administration recently reported that the government earned 55,450 billion rials ($214.92 million) from the income tax levied on public sector employees and 52,330 billion rials ($202.82 million) from private sector employees in the first half of the current fiscal year (March 20-Sept. 21).

PBO has recommended that the government withdraw €4.28 billion from the National Development Fund of Iran (the country’s sovereign wealth fund) to meet some of its budgetary commitments next year, which show a 53% growth compared with the current year’s corresponding figure.

Another key recommendation of PBO is the allocation of €1 billion to tackle the associated health and economic consequences of the new coronavirus pandemic, as in the current year.

Notably, the budget figures await the approval of parliamentarians and the final verification of Guardians Council.