MPs Finally Approve Outline of Fiscal 2021-22 Budget Bill

EghtesadOnline: Lawmakers finally approved the outlines of the fiscal 2021-22 budget revised by the government on Tuesday with 211 votes in favor and 28 against, while six MPs abstained from voting.

News ID: ۷۸۶۰۳۰

17 February 2021

The approval came after the parliamentarians had rejected the bill’s outlines on Feb. 1 and returned it to the government for revision, IRNA reported.

This followed the radical decision of Majlis Joint Commission—a commission comprising representatives of all parliamentary commissions responsible for reviewing budget bills as well as five-year development plans proposed by the government before they are put to a vote by MPs—to increase the exchange rate for importing essential goods from 42,000 rials to 175,000 rials per US dollar.

The commission had given its green light to the outlines of the budget, but included the above decision as an amendment.

The prices of essential imports must be set in accordance with the exchange rates of the so-called secondary FX market, known by its Persian name Nima, the commission said.

The government, however, believes that such a measure would deal a huge blow to the country’s economy.

At the end, the exchange rate for subsidized imports of essential goods has remained unchanged (42,000 rials per dollar) in the seven-page amendment of the budget bill submitted by the government to the parliament on Monday.

According to Mojgan Khanlou, a senior official with the Plan and Budget Organization of Iran, the government is allowed to gradually discontinue the allocation of subsidized forex for importing essential goods during the first half of the fiscal 2021-22.

Parliament’s work on the fiscal 2021-22 budget bill began amid increasing tensions between lawmakers and the government; each fundamental change in the bill by Majlis Joint Commission met with the criticism of the government and of President Hassan Rouhani.

The parliamentary move to initially reject the outlines of the bill was the beginning of a serious legal challenge: it’s not clear whether the lawmakers cast their vote against the government’s version of the bill or against the draft prepared by the joint commission.

Parliament Speaker Mohammad Baqer Qalibaf said the former proposition is true, but according to the precedent rule and standards as well as the parliament’s internal bylaw, the latter proposition is deemed true, hence the government, as it had announced, is not obliged to submit a revised budget.

Other Changes

A handful of other changes have been made to the figures regarding the government’s resources, tax revenues and repayment of debts. However, the projected sales of oil, the exchange rate for subsidized imports and the exchange rate of US dollar have remained the same as they were in the original draft.

The operating budget (including revenues derived mainly from taxation and exports at the disposal of the government) had been projected to stand at 8,410 trillion rials ($32.33 billion at the market exchange rate of 260,080 rials per dollar) in the original bill, registering a 47% increase compared with the current year’s budget (2020-21). The government has increased the next year’s operating budget to 8,546 trillion rials ($32.85 billion) in the amendment, Tasnim News Agency reported.

Revenues earmarked for ministries and governmental institutions have been projected to stand at 894 trillion rials ($3.43 billion) from 884 trillion rials ($3.39 billion) in the first draft, which takes the total sum of the general budget to 9,440 trillion rials ($36.29 billion) from 9,298 trillion rials ($35.75 billion) of the first draft.

The ceiling set for the government’s total budget has increased from 24,357 trillion rials ($93.65 billion) to 24,499 trillion rials ($94.19 billion).

The budget of state companies, banks and for-profit organizations had been put at 15,619 trillion rials ($60.05 billion) in the original proposal. The government kept the figure unchanged in the budget amendment.

The share of the National Development Fund of Iran from oil resources (crude oil, gas condensates and natural gas exports) has been set at 20% (in the event of exporting 1 million barrels of oil per day). If the government manages to export more than 1 million barrels per day of crude oil and gas condensate, NDFI’s share will increase to 38%.

The government is obliged to pay 14.5% of oil revenues to the National Iranian Oil Company and 14.5% earned from natural gas exports to the National Iranian Gas Company.

Total tax earnings had been set at 2,515 trillion rials ($9.67 billion) in the first draft of the budget bill.

According to Mohammad Khodabakhshi, the deputy head of Majlis Plan and Budget Commission, the government has added 250 trillion rials ($961.24 million) to tax revenues in the amendment.

“The government has projected that its oil and oil products revenues will stand at 1,990 trillion rials ($7.65 billion) in the budget amendment; the projected earnings were the same in the original draft,” he was quoted as saying by Fars News Agency.

Earnings from the transfer of financial assets, including sales of treasury bonds, sales of public companies and NDFI withdrawals, have decreased from 2,984 trillion rials ($11.47 billion) to 2,620 trillion rials ($10.07 billion), which is chiefly due to the decline in the withdrawal of 755 trillion rials ($2.9 billion) from NDFI in the first draft to 362 trillion rials ($1.39 billion) in the amended bill.

Sales of treasury bonds have increased from 1,250 trillion rials ($4.8 billion) to 1,275 trillion rials ($4.9 billion).

On the side of expenditure, operating expenses increased from 6,370 trillion rials ($24.49 billion) in the budget bill to 6,524 trillion rials ($25.08 billion) in the budget amendment.

The budget envisioned development projects, i.e., capital expenditure budget, to improve from 1,040 trillion rials ($3.99 billion) in the first draft to 1,090 trillion rials ($4.19 billion), indicating a 4.8% growth.

The government will spend 933 trillion rials ($3.58 billion) on financial assets, including repayment of bonds and bonds interest expenses. In the first draft of the bill, it had projected to spend 1,003 trillion rials ($3.85 billion) on the financial assets.

Expert View

Mehdi Pazouki, a professor of economics at Allameh Tabataba’i University told Persian-language daily Iran that he is opposed to the joint commission’s revisions.

“That does not mean that the government’s bill was necessarily flawless and free from any defects; the document must have been improved by the commission’s revisions. Sadly, the commission’s modus operandi was politically-motivated. Up until now, our foreign politics has dominated over our economy. Today, you have to see the economy being regulated by domestic politics as well,” he added.

Ali Sa’dvandi, another economist, believes that contradictory, unusual changes that have been introduced in the next fiscal’s bill would turn it into a very inflationary budget.

“Those who are new to lawmaking seem to be imposing their opinions in the name of structural reforms of the budget. They use foreign currency exchange rate to make the budget bigger. In doing so, the budget expanded by 70% in a single year, an unheard-of event in the history of this country. Iran’s budget has not been divided according to its earnings in terms of local currency and in terms of foreign currency,” he said.

“It is possible to employ different foreign currency exchange rates. You can set the exchange rate at 115,000 rials per US dollar and project the sales of 2.3 million barrels of oil [what the government has proposed] or set the forex rate at 175,000 rials per US dollar and envision the sales of 1.5 million barrels of oil [what the joint commission has put forward]. In actuality, there is no difference between these two projections.”

Sa’dvandi noted that the officials seem to have reached the conclusion that they are allowed to borrow from the central bank, however no institution would assume the responsibility of triggering the negative implications of budget uncertainty, after the parliament rejected the government’s proposal.

Q1-3 Budget Report

The government earned 1,920 trillion rials ($7.38 billion) from taxation, customs duties and resources entitled “miscellaneous income” during the nine months to Dec. 20, 2020, which is 88% of the projected figure in the budget law.

According to a report by Fars News Agency, the nine-month income from the transfer of capital assets, which consists of several sections such as exports of oil products, natural gas and gas condensates was less than 10% of the budgetary estimate for the period, i.e., 75.21 trillion rials ($290 million).

Revenues from the transfer of financial assets, including sales of treasury bonds, stood at 1,715 trillion rials, constituting 130% of the budgetary estimate for the nine-month period.

The government’ aggregate resources during the nine-month period stood at 3,713 trillion rials, which is 86% of the budgetary estimate.

On the side of expenditure, the government’s operating expenses, including compensation of public employees, stood at 3,117 trillion rials ($12.46 billion) during the period under review, i.e., 94.6% of the figure projected in the budget.

Nine-month capital expenditure (spending on development projects) hovered around 586 trillion rials ($14.28 billion), comprising 88.2% of the budget’s projected figure.

The government spent 320.43 trillion rials ($1.23 billion) on financial assets, including buying back debts and bonds interest expenses, which is 90.2% of the budget’s estimated figure for the period.

Overall expenditure stuck around 4,024 trillion rials ($15.47 billion), which is 93.2% of the projected sum.