PBO Boss:Taming Inflation Doable by Tightening Monetary Policy

EghtesadOnline: The government is trying to curb the harmful inflationary impact of the increasing money supply, head of the Plan and Budget Organization said.

News ID: ۷۸۷۳۳۳

23 November 2021

“The aim is to bring down inflation to single digits by tightening the monetary policy,” Masoud Mirkazemi was quoted as saying by IRNA.

To achieve this goal, he underscored the need for “securing sustainable revenues” when drafting the budget.

“Money creation is a redline” for the Raisi administration.

Mirkazemi blamed the lack of balance between income and expenses in the budget as the main reason behind chronic inflation now said to be in the neighborhood of 50% and rising at a speed unseen in modern Iranian history.

Budget deficits push up money supply as the central bank’s money printing machines do overtime, which in turn increases inflation. Recent data released by the Central Bank of Iran show broad money supply increased to 40,680 trillion rials ($145 billion) by Sept.22.

Economists and monetary experts say the figure is staggering and blame the bulk of the economic ills, which compel the government to meet its budgetary needs, on borrowing from the CBI.

The disturbing overexpansion of broad money plus other factors such as the pattern of rising forex rates has created the conditions under which consumer prices are going through the roof with the purchasing power declining at constant speed.

The Statistical Center of Iran said the average goods and services Consumer Price Index in the 12-month period ending Oct. 22 increased by 45.4% compared to the corresponding period the year before.

With inflation soaring to alarming levels in recent years, experts across the board have voiced increasing concern about the direction of the economy and asked successive governments to be more realistic and less idealistic in drafting the budget.

The head of Iran Chamber of Commerce, Industries Mine and Agriculture Gholamhossein Shafei on Sunday said “drafting budgets on ambitious and unrealistic revenue projections has undermined the business environment”.

“The private sector strongly recommends the government to take a realistic approach when drafting the budget,” he said.

Former president Hassan Rouhani and his men were often criticized for making ambiguous and impractical revenue projections in the annual budgets that almost always resulted in deep deficits.

Overreliance on financial resources of the National Development Fund of Iran (the sovereign wealth fund), seeking higher taxes from struggling private companies and the unreasonable spending of dysfunctional state-run companies had been major issues of concern during the Rouhani era that ended in summer.

Recent estimates by the Majlis Research Center, the research arm of the parliament, say the government is expected to run a budget deficit to the tune of 2,800 trillion rials ($10 billion) by the end of the current fiscal year in March 2022.