Fiscal 2022-23 Budget Finances Sized Up by Economic Expert

EghtesadOnline: The budget bill for the fiscal 2022-23 has been finalized and President Ebrahim Raeisi has talked of submitting it to the Iranian Parliament this week.

News ID: ۷۸۷۳۷۴

05 December 2021

Government officials, particularly Masoud Mir-Kazemi, the head of Plan and Budget Organization, have stressed that next year’s budget has been drafted without a deficit, the Persian daily Arman-e Melli reported.

The government has focused on income from taxation and sales of public assets to finance a significant part of the budget, while it has also counted on revenues from the sale of 1.2 million barrels of oil per day at the price of $60 per barrel.

A translation of the report follows:

The exchange rate of US dollar has been set at 230,000 rials in the budget bill. PBO has seemingly tried to draw up the budget based on economic realities, but it has overlooked the fact that the current year’s budget is on course to run a 4,000-trillion-rial [$13.8 billion] deficit despite envisioning the sale of 2.3 million barrels of oil per day at the price of $50 per barrel.

Since oil revenues have declined by 40-50%, the realization of a budget without deficit for next year is uncertain.

Under the present circumstances, the cancellation of subsidized forex policy is doubtful.

Experts believe that the government’s plans depend on the success of nuclear negotiations. An oil price of $60 is not far-fetched but to sell oil under the sanctions regime is unlikely and if the current trend persists, a bigger budget deficit should be anticipated next year.

“Budgetary figures that are being announced for the next year will be realized on one condition and that’s the revival of the Joint Comprehensive Plan of Action,” says Hadi Haqshenas, an economic expert. “If the nuclear deal fails to come through, it’s obvious that we won’t be able to sell oil according to normal procedures; we’ll have to sell some oil at low prices and under difficult circumstances. Our foreign-sourced income was much lower than expected over the past three years,” he added.

On the next year’s oil price, Haqshenas said, “Sixty-dollar oil is closer to reality knowing that more people will be vaccinated against Covid-19 next year and the impact of the virus on global economy will be alleviated. The world will see higher rates of economic growth and therefore demand for oil will increase and prices will increase accordingly. You need to bear in mind that in the event of the collapse of nuclear deal, Iran will have to sell its oil at prices lower than the global rates and its gains will be much less. The exchange rate of foreign currencies must be set according to the market realities.”

The expert referred to price-stickiness whereby a nominal price of an item is resistant to change and said, “When a price is fixed in nominal terms for a relevant period of time, you can hardly bring it down. Today, the dollar is priced at 300,000 rials. Even if we revive the nuclear deal, the likelihood of a sharp decline in the value of the dollar is minimal. Rial and money supply equal the dollar in the economy.”

Noting that Iran’s economy is now experiencing a double-digit inflation, he said the inflation rate is highly unlikely to enter one-digit territory next year.

“We saw inflation rates of above 40% in the past eight months; the value of the dollar needs to be close to the market rates. From the Iranian year ending March 1992 to the year new sanctions were reimposed, i.e. the year ending March 2019, oil accounted for more than 40% of the country’s budget. One of the reasons behind the budget deficit of the last and current Iranian years is that the projected oil revenues did not materialize. We are bound to witness even a bigger deficit and a more persistence double-digit inflation if sanctions remain in place.”

Noting that the government has agreed to raise salaries of its employees by 10% next year and that the parliament speaker has talked of a 250-trillion-rial [$862 million] paycheck for implementing the rating plan of teachers from the month ending Sept. 22, 2021, to the end of the current fiscal year (March 20, 2022), Haqshenas said, “The government has to allocate 500 trillion rials [$1.7 billion] to carry out these plans and as a result the operating budget will increase significantly and we’ll definitely face a major deficit.”

The expert noted that as the next year’s budget of public companies, banks and government-affiliated for-profit institutions has increased by 34%, the public budget will grow.

“Any figure announced as the current year’s budget deficit will be in the range of 3,000-5,000 trillion rials [$10.34-17.24 billion]; the next year’s budget deficit will definitely be 50% more than that figure, assuming that the nuclear talks fail and we won’t be able to sell oil. This figure for budget deficit will be adjusted for inflation and any increase the government will include in the budget bill. Perhaps it makes more sense to say that the more the government adds to the budget bill, the more it has added to the budget deficit,” he concluded.