Expert Censures ‘Unrealistic’ Budgetary Figures

EghtesadOnline: The fiscal 2022-23 budget is riddled with problems and contradictions, as well as unrealistic figures, Mehdi Pazouki, an economic expert, says in an article for the Persian daily Ta’adol.

News ID: ۷۸۷۴۶۱

20 December 2021

A translation of the full text follows:

The fiscal 2022-23 budget bill is replete with many problems and contradictions; it has been drafted on the basis of unreal numbers. For example, now that the country’s economic growth stands at between -1 and -2 percent, the government has projected a highly unlikely 8% growth for next year.

Besides, the economic growth is not supposed to be achieved through budgeting. Basically, those who imagine the growth in the government budget leads to economic growth are non-expert laypersons.

For economic growth to return to positive territory, the business environment should be prepared for economic players, especially for those of private sector, to increase national production and welfare, and improve per capita income and the economic situation. Therefore, budget is only one effective economic variable.

If economic growth were to be achieved through budget growth, instead of undertaking infrastructural planning, governments around the world would have fattened their budgets to have more economic growth.

The economic growth is in positive correlation with business environment indicators, improvement in productivity and real growth of production; you can’t see these components in the fiscal 2022-23 budget.

Increasing Gov’t Size

One of the serious drawbacks of the fiscal 2022-23 budget is that the share of the public sector has expanded dramatically. Thus, Iran’s state-owned economy will expand next year.

The increase in the budget of state-owned companies is obvious. The transfer of state-owned companies [to the private sector] has sharply decreased compared with the previous year.

The fiscal 2021-22 was expected to see the transfer of 2,550 trillion rials ($8.51 billion) worth of state-owned companies to the private sector; the figure has decreased to 710 trillion rials ($2.39 billion) [in the next year’s budget bill], suggesting that the government’s grip on the economy has become even tighter.

The so-called “generation of income from government assets” has decreased from 450 trillion rials ($1.5 billion) to 260 trillion rials (867.82) as well.

Oil Dependence

More importantly, the budget’s dependence on oil revenues has increased, which is contrary to claims made by the head of Plan and Budget Organization [Masoud Mirkazemi] that the budget has been drawn up in the context of sanctions.

I hope, Iran’s relations with the West improve as soon as possible. Nonetheless, the country’s annual budget must be devised with regard to the current conditions and the probable overview of the future; the fiscal 2022-23 budget lacks this point.

It has included an increase of 3,490 trillion rials ($11.65 billion) to 3,810 trillion rials ($12.72 billion) in oil revenues. The government has also increased its withdrawal from the National Development Fund of Iran [the sovereign wealth fund of Iran]. In other words, the government intends to circumvent the law to hide the fact that the dependence on oil revenues has increased significantly; the 2022-23 budget bill has set the revenues coming from NDFI at 1,370 trillion rials ($4.57 billion) compared with 360 trillion rials ($1.2 billion) of the Budget Law of 2021-22, i.e., more than a 300% increase.

Note that the fund’s reserves rely directly on oil income. These points are hidden from the public eye and only experts can detect such destructive approaches.

In a strange move, the government has also considerably raised the budget of state-owned companies. It has always been said that the budget of public companies is one of the non-transparent sectors of the economy; increasing their budget will translate into a rise in corruption.

The budget for state-owned companies has increased from 15,710 trillion rials ($52.44 billion) to 22,310 trillion rials ($74.47 billion), indicating an increase of 6,600 trillion rials ($22.03 billion), or more than 70%.

Non-Transparency

The return of ex-president, Mahmoud Ahmadinejad’s style of budgeting is another tragic story of next year’s budget.

For example, on the expenditure side, the budget fails to specify the budget allocated to Tehran University or Al-Mustafa International University; the budgetary sections have been deleted, which gives rise to an ambiguity there. In other words, the whole budget of universities has been incorporated under the budget of the Ministry of Science, Research and Technology whereas the previous government used to be transparent enough when it came to budgetary sections.

By employing this approach, each ministry has to establish their own branch of Plan and Budget Organization; the Ministry of Science, Research and Technology will distribute budget among universities as it sees fit. Or another example: The budget of each sector of the Presidential Office used to be determined separately but in the new budget bill, all sections have been removed and merged into one.

The budget has lost its transparency to a great extent; we have a ‘vague’ budget now. During the previous administration, efforts were directed to restore the transparency of the budget; each citizen knew how much budget was to be allocated to each institution and organization.

Unlike some commentary that suggests next year’s budget is contractionary, I believe such a budget is highly unlikely to pave the way for an 8% economic growth.

Another drawback with the next budget bill is that some institutions and organizations have been entitled to receive strange increases in the budget while a contractionary approach has been employed regarding public livelihoods.

For instance, the budgets of the Expediency Council and Guardians Council have increased sharply, similar to that of the Islamic Republic of Iran Broadcasting, the state-controlled media corporation. The IRIB budget has increased by 50%. This is while civil servants’ pay rise has been set at 10%.

Separate budgets used to be allocated to the Guardians Council and its research center; their budgets have been merged for next year. Budget and its sections need to be transparent; you cannot take the budget of Sharif University of Technology and Tehran University and give it to Al-Mustafa International University or another unknown university in Qom.

As a budget expert, I’m ready to give half of my salary to the government to print the budgetary sections.

When I, as a budget expert, am puzzled by a sea of ambiguities in the budget, it is natural that ordinary citizens won’t be able to get a clear picture.

How about eliminating all budgetary sections and leave only one? Lack of budget transparency would be in the interest of rent-seekers and fraudsters. It will be in the interest of those who intend to gain illicit benefits from the budget through out-of-bounds relationships. This process is not in the interest of the Iranian nation.

The budget bill should be presented in such a way that any ordinary citizen, media, intellectual, academician and economic player should be able to have clear supervision over it.

The fact that the Guardians Council’s budget has increased in a non-election year, i.e., next year, means that a non-transparent atmosphere has descended on the budget.

Given the significant increase in projected oil revenues, I believe that the budget has been drafted assuming that the Vienna talks [to restore 2015 nuclear deal] will succeed; the generosity in resource allocation is apparent.

The fact that the budget of Tehran University has been granted to unspecified institutions would threaten the independence and academic freedom of this university.

I hope experts will provide comprehensive analyses of the problems and ambiguities, so that the needed transparency finally returns to the budget.