Insider news & Analysis in Iran

By INU Staff
INU - On Tuesday, April 19, the Iranian parliament ratified the Rouhani administration’s budget for Persian year 1395 (which began on March 20, 2016), after a delay of several months. A preliminary study reveals dim prospects for the economy and the priorities of President Hassan Rouhani's government.

Overview and comparison with last year’s budget

The proposed budget for this Persian year outlined a total expenditure equivalent to $285 billion. Rouhani's government has declared that the annual inflation rate for Iran is 11.5%. Assuming this is accurate, the current year’s budget in real terms is no different than last year’s budget of $272 billion.

But in reality, according to many assessments by experts and economists, the real inflation rate for Iran is significantly higher than that announced by the government. Considering the real inflation rate, this year’s budget is markedly lower than last year’s.

Source of budget projections

The forecasted budget is detached from reality in several respects. For example, it is based on an oil price of $40 a barrel, although Iran’s oil is currently selling at $30 to $35. Iranian state radio and television quoted Member of Parliament Alireza Salimi on April 10 as saying: “It is not clear that the oil revenues will fully materialize. It is true that we have assumed price of oil at $40 and we are talking about exporting 2.25 million barrels a day. First, the price of oil is around $30 and we cannot predict what will happen this year. Assuming that we can sell our oil, returning the revenue to our country faces hurdles. We expect that we will get this money, but it is not predictable for sure.”

ISNA state news agency quoted Member of Parliament Nader Qazipour as saying: “Budget means revenues and expenses; but what we see in this bill is just expenses that are much more than our resources. This is to the detriment of the country. Forecasting the budget as it appears will only lead to the persistence of the inflation and an increase in prices.”

Military and security budgets grow as other sectors contract

Despite considerable reduction in the overall budget, the military and security budgets have increased. On April 10, ISNA quoted Mohammadreza Pour Ebrahimi, a member of the parliament’s Economic Affairs Committee, as saying: “In addition to the approved figures, $1.5 billion has been allocated to prop up defense of the country and this amount has been approved by this committee.”

According to this report, the military and security budget has increased from $15.6 billion to around $17.1 billion. At the same time, the budget for education, research and health has been cut.

The military and security budget is now twice the budget for education in a country with 13 million pupils and over a million teachers and staff.

 “We have a deficit of $300 million in the education sector that has not been noted,” explained Salimi. “Right now the demands of teachers have not been met. It is a long time that educators have not received their wages. The research budget was expected to be 4% of GDP, but it is less than 0.5% and no remedy has been envisioned. Across all sectors we had around 18% increases, but the increase in the education sector is 4% less compared to others.”

ISNA also reports that while inflation is expected to be 11.5% this year, the value added tax (VAT) has increased by 50%. In other words this budget is to the detriment of workers.

The foundation of Rouhani's budget for year 1395 has been built on quicksand, since neither its assumed oil price nor its assumed export levels are realistic, and if either is not realized, the foundation of the budget would collapse. Furthermore, the projected income tax revenues are also unrealistic and cannot be realized in view of deepening stagnation.

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