Iran's H1 Budget Deficit Tops $5.5b

EghtesadOnline: Iran’s budget deficit in the first half of the current year (March 21-Sept. 22) hit 632.8 trillion rials ($5.59 billion), Mohammad Hosseini, a member of Majlis Plan and Budget Commission said.

News ID: ۷۸۴۹۵۱

21 October 2019

The government’s overall revenues during the period amounted to 776.690 trillion rials ($6.86 billion), as its spending stood at 1,409.49 trillion rials ($12.45 billion), according to data provided by Fars News Agency.

Revenues associated with oil and petroleum sales stood at 210 trillion rials ($1.85 billion) whereas the projected budgetary figure for H1 was 792.61 trillion rials ($7 billion).

The budget law estimate of revenues from oil and petroleum sales for the whole year is at 1,585.230 trillion rials ($14 billion), according to Financial Tribune.

Tax revenues were estimated to hover around 862.68 trillion rials ($7.62 billion) in H1, but they reached 647.01 trillion rials ($5.71 billion).

The budget law estimate of tax revenues for the whole year is at 1,725.36 trillion rials ($15.24 billion).

The government spent 66.85 trillion rials ($590.54 million) on development projects during the six months under review. The projected figure for H1 was at 334.28 trillion rials ($2.95 billion). As per the budget law, the government should spend a total of 668.57 trillion rials ($5.9 billion) on development projects this year.

During the period under review, the government paid 365.79 trillion rials ($3.23 billion) in its employees’ compensation that stands at 975.46 trillion rials ($8.61 billion) for the whole year.

The government sold 255 trillion rials ($2.25 billion) worth of bonds and bought back 58.69 trillion rials ($518.46 million) worth of bonds that had reached their maturity date in the six-month period.

A total of 510 trillion rials ($4.5 billion) in government bonds has been projected to be sold while 293.47 trillion rials ($2.59 billion) of government debts will be bought back this year.

Plan to Issue $877 Million Worth of Bonds

The Economy Ministry plans to issue bonds worth 100 trillion rials ($877 million) to fund its budgetary needs.

Future government tax revenue has been considered as backing for the bond payments, which will mature in three years.

The yield rate is set at 17.9% that will be paid to the bond holders every six months by the Central Securities Depository of Iran, the capital market’s clearing house.

The settlement of all payments, including reimbursement of principal and interest of bonds, is guaranteed by the Plan and Budget Organization.

Iran Fara Bourse, the over-the-counter stock market, will be in charge of issuing the bonds.

It is seen as part of the government plan to plug its widening budget deficit in the current fiscal year that ends in March due to declining oil revenues, as a result of the new US economic sanctions.

The ministry announced plans last month to issue Islamic financial securities worth 380 trillion rials ($3.3 billion) to partly offset the budget deficit.

This year’s budget deficit is projected to be between 1,000-1,500 trillion rials ($8.4-$12.6 billion), which are to be partly fixed by cutting general expenses and generating new revenues.

The Supreme Council of Economic Coordination—an ad hoc economic decision-making body comprising the three branches of power—in July approved four methods to generate 970 trillion rials in revenues, namely by divesting surplus property, undertaking withdrawals from forex reserves, borrowing from the National Development Fund of Iran—the sovereign wealth fund—and selling Islamic financial securities.

Accordingly, the council allowed the government to withdraw 450 trillion rials ($3.9 billion) from NDFI and 45 trillion rials from the forex reserves.

In addition, the government can issue bonds worth 380 trillion rials ($3.33 billion)—above the amount mentioned in the annual budget.

On behalf of the government, the Economy Ministry can generate 100 trillion rials ($877 million) by divesting state-owned assets.

3 Sources to Fund Next Budget Expenditures

The government is counting on three sources of income to fulfill its budgetary needs in the next fiscal year (March 2020-21).

This is while oil revenue decline resulting from sanctions has dealt a blow to government finances. Consequently, plans are underway to minimize the share of oil income in budget.

"In the next fiscal year's budget, oil will be removed as the sources of financing current expenditures altogether," says the head of Plan and Budget Organization, Mohammad Baqer Nobakht, adding that all revenues gained from crude sales will be spent on acquiring capital assets as well as on development projects.

The first source will be the hefty subsidies–hidden and apparent–the government pays every year.

Nobakht puts the value of these subsidies at 13,000 trillion rials (more than $115 billion), IRNA reported.

"Part of these resources [from the removal of subsidies] will replace oil revenues," he said.

Tax will be the second source of funding the budget next year.

"We don't intend to increase taxes already paid by taxpayers," Nobakht clarified, noting that manufacturing enterprises will even see their tax bases reduced next year.

"We have introduced new taxes, such as capital income tax," he added.

According to the PBO chief, by annulling part of the staggering volume of tax exemptions, the government will also be able to make up for doing away with oil revenues.

According to Director of Iranian National Tax Administration Omid Ali Parsa, 40% of Iran’s economic players are exempt from paying taxes.

Besides tax exemption, the government budget in Iran also suffers from widespread tax evasion.

Gholamali Jafarzadeh Imenabadi, a member of Majlis Plan and Budget Commission, puts the size of tax evasion at 400,000 billion rials ($3.5 billion) annually.

And the third source of financing next year's budget, according to Nobakht, will be sale of government assets.

The PBO chief puts the total value of these assets at 70,000 trillion rials ($620 billion).

"Selling part of these assets will help fund the budget," he saied, without specifying what assets will be up for sale.

The Plan and Budget Organization will submit the budget plan of state-run companies in the next fiscal year (March 2020-21) to the parliament on Nov. 6 and that of government public spending a month later on Dec. 6.

President Hassan Rouhani submitted the budget bill to the parliament on Dec. 25, 2018, which was passed by lawmakers in 27 sessions in less than a month. Its outlines were passed on Feb. 16.

The president signed into law the current fiscal year’s (March 2019-20) budget following the parliament’s approval on April 5.

General resources in the budget bill stand at 4.07 quadrillion rials (about $35.7 billion), 5.44% bigger than the budget figure of the fiscal 2018-19.