Planners Target Budgeting Flaws

EghtesadOnline: As the government is busy drafting the budget for the upcoming fiscal year (March 2018-19), director general of the Supreme Audit Court of Iran, Adel Azar, has homed in on the deficiencies of Iran's budgeting system.

News ID: ۷۸۰۴۳۵

14 November 2017

"Over the years, the government and the parliament have focused on committing resources to meet all but 100% of the operating budget rather than the capital budget," Azar was quoted by IRNA as saying.

Government Spokesman and President of Planning and Budget Organization Mohammad Baqer Nobakht said the government will submit the budget bill to the parliament on Dec. 5.

“One of the features of next year’s budget is the performance-based allocation of budget to each governmental body and not the traditional method of distributing the money according to the treasury inflows,” Financial Tribune quoted him as saying.

The parliament-approved budget needs the final endorsement of the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.

Addressing an open session of the parliament on Monday, Azar said the current budget approach in Iran has reached an impasse and it needs to undergo extensive alterations.

"A total of 87% of the budget is used as operating expenditure of governmental entities against their rapidly shrinking capital budget," he said.

According to Azar, capital expenditure accounted for 25% of the budget in the fiscal 2011-12 compared to 13% last year (March 2016-17), while the share of operating budget increased by 87% last year from 74% in 1390.

"If the current approach persists, we’ll have to put an end to capital expenditure budget altogether. The government issues bonds, sells oil and shares of public companies only to finance its operational spending,” he said.

Referring to indiscipline, lack of transparency and deviation from planned objectives as the main features of the Iranian budget, the official said there are 27 development projects in Iran which will take more than 41 years to complete, 44 projects requiring between 31 and 40 years to finish, 284 projects to take between 21 and 30 years, 658 projects will last for between 11 and 20 years and 755 projects without a timeline across the country.

"For these projects to become operational, as much as 5,080 trillion rials ($127 billion) are needed at the national level and 490 trillion rials ($12.25 billion) at the provincial level," he said.

About money squandered on development projects, Azar said only about half of the disbursements on development budget turns out to generate favorable outcome while the rest is misspent due to lack of transparency in planning.

"About 3% of the budget bill submitted to the parliament for the fiscal 2012-13 underwent changes by the lawmakers, 16% in 2013-14 and 8.7% for the budget bill of 2017-18. Often, the government is on target in its estimation of spending, but not the revenues it will generate over the year," he said.

“Unlike any other country, Iranian governments usually keep the information on their debts’ and claims’ records confidential, which is one of the troubles of the audit oversight body,” Azar concluded.

Budget Shortfall

Iran’s budget deficit came in wider than expected in the five months of the current fiscal year (March 21-Aug. 22) and reached 182.7 trillion rials ($4.56 billion), the latest data released by the Central Bank of Iran showed.

The shortfall for the period was higher than forecast, which amounted to 136.5 trillion rials ($3.41 billion).

To cover the widening deficit, the government has been issuing bonds. The five-month data show 231.3 trillion rials ($5.78 billion) worth of bonds were issued during the period, 8.2% more than the corresponding period of the year before.

Spending stood at 893.9 trillion rials ($22.34 billion) during the period under review, indicating a rise of 15.1% year-on-year. The figure is around 83% of the expenditure predicted by the government in the budget.

The government only spent 47.6 trillion rials ($1.19 billion) on development projects, not only 8.2% less than the similar period of last year but also much lower than the projected 303.1 trillion rials ($7.57 billion).

The current fiscal year’s budget stood at 11.5 quadrillion rials ($305 billion) as per the law approved by the parliament back in March just before the beginning of the year. It includes 3.98 quadrillion rials ($90.5 billion) earmarked as “general revenues”, in addition to a whopping 8 quadrillion rials ($211 billion) to fund state companies, institutions and banks.