A Budget in the 'Current Critical Period'

In the past forty years, Iranian government officials have used the phrase 'current critical period' so often to justify their actions and expectations from society that it has become a source of humor among the people. However, next year may truly represent one of those 'current critical periods' due to Iran's position amid economic pressures and restrictions resulting from U.S. sanctions. Therefore, the financial program for next year, namely the national budget bill for 1398 (2019), requires more attention than previous years' bills. The government prepared the budget bill for next year by the legal deadline of mid-December, although it did not have the chance to be presented in a traditional ceremony by the President of Iran, as the parliament was on holiday. Nonetheless, the budget bill for 1398 was unveiled on the 15th of December this year, in front of journalists at the Beheshtan building of the Organization for Planning and Budget, with the presence of Mohammad Baqer Nobakht, the head of the Organization for Planning and Budget. This unveiling was unique in that the budget was presented without disclosing any of the major figures and statistics, possibly to allow President Hassan Rouhani to have something to present during the main ceremony of submitting the budget bill to the parliament, postponing discussions about the figures and comparisons with previous bills to after the submission. Recently, another obstacle arose regarding the timing of the budget bill's submission to the parliament, making the concept of 'current critical period' more real than ever. On Tuesday, President Hassan Rouhani held a joint meeting with the Larijani brothers, heads of the other two branches of government, and after the meeting, he announced that the three heads of the branches discussed the 'guidelines' of the Supreme Leader regarding the budget bill and talked about how to fulfill the reforms desired by Ayatollah Khamenei in the budget bill for next year. In the same report from the meeting of the heads of the branches, Rouhani mentioned the possibility of reforms in the budget bill. However, Behrouz Namati, spokesman for the parliament's presiding board, stated on Wednesday, December 21, that the submission of the budget bill to the parliament would be postponed until after the desired reforms by the Supreme Leader are made in the bill. This means that the previously announced date of December 25 for the traditional ceremony of submitting the budget bill by the President to the parliament is likely to be postponed to a later time. According to Mohsen Hajimirzai, the Secretary of the Cabinet, the 'considerations' and 'guidelines' of the Supreme Leader were presented to the government in the form of a letter during the Cabinet meeting on Wednesday, and it was decided that these matters would be discussed in future Cabinet sessions. But what are the reforms, considerations, or guidelines desired by the Supreme Leader? The fact that Hajimirzai stated that implementing these considerations requires further discussions in other government meetings may indicate the extent of these matters or the difficulty of their implementation. The newspaper 'Donya-e-Eqtesad' published in Tehran, in its issue on Thursday, December 22, announced the 'core of budget changes' based on 'received news' as 'reforming the share of the National Development Fund.' According to this report, the government, due to restrictions arising from sanctions on Iran that will reduce oil sales and consequently the resources obtained from this source, intended to consider the share of the National Development Fund from oil revenues as public budget resources instead of depositing it into this institution and to spend it on its current expenses. According to the law, the government must pay 14% of the resources from oil sales to the National Oil Company and 32% of these revenues to the National Development Fund. According to the law and considering the annual increase in the share of the National Development Fund, the government must allocate 34% of the revenue from oil sales to this institution as its share in 1398, which has been set to zero in the prepared bill. The government is looking to compensate for 28 trillion tomans. The ceiling for the public budget for next year is set at 433 trillion tomans, and now with the reform of the share of the National Development Fund, the public budget ceiling must also change or a new source for obtaining this income must be considered. In the report of the newspaper Donya-e-Eqtesad, this figure of 28 trillion tomans has been announced. Accordingly, the government has two options: either it must forecast a new income of 28 trillion tomans from a new source or reduce its expenses by this amount and save, both of which appear equally difficult and problematic. Of course, the discussion about using the share of the National Development Fund is a broad issue that governments annually request specific permissions from the Supreme Leader to access these resources and cover their expenses, although typically the use of these fund resources is justified by claims of being for developmental or infrastructural purposes. The forecasted price for oil in the budget bill for 1398 is $54 per barrel, which is one dollar less than the forecasted oil price in this year's budget bill. Additionally, the average exchange rate calculated for the dollar in the budget bill for 1398 is set at 5700 tomans, which is 63% higher than the calculated exchange rate in this year's budget law (3500 tomans per dollar). However, as Mohammad Baqer Nobakht, the Vice President of Iran, stated, the government has allocated $14 billion for the import of essential goods at a price of 4200 tomans, and accordingly, the amount of currencies offered in the NIMA system and the free market should be such that the average 5700 tomans for budget calculations is balanced. The government has also predicted that next year, Iran's oil sales will fluctuate between 1 to 1.5 million barrels per day, a figure that was calculated as 2.5 million barrels in this year's budget. Achieving this level of daily oil sales depends on various factors, many of which are beyond Iran's control and business environment, and are more a function of the determination of the sanctions enforcers, the willingness of Iran's customers to continue this trade, and the process of transferring these revenues. In the budget bill for 1398, 65 trillion tomans is predicted as the development budget, which is approximately 5% more than the development budget approved in this year's budget law. Considering the average inflation rate, this increase of five percent in development budgets actually means a reduction in development budgets for next year, which seems natural given the economic conditions in Iran next year. Furthermore, Mohammad Baqer Nobakht emphasized that, on average, the salaries and wages of government employees will increase by 20%, although this increase will not be uniform for all government employees, and lower-paid employees will experience higher growth. According to the head of the Organization for Planning and Budget, the government will improve the living conditions of government employees by designing 'compensatory packages.' Budgeting cautiously Based on the explanations provided by Mohammad Baqer Nobakht regarding next year's budget, the budget bill for next year is a budget for 'passing through the sanctions period,' and accordingly, a 'floor ceiling of expenses' has been established, and according to the head of the Organization for Planning and Budget, 'reliable' resources have been considered for covering budget expenses. He emphasized that in next year's budget, 'very cautiously' has been discussed regarding oil, taxes, and the use of bonds. The predicted tax revenues for next year have increased by 5% compared to this year's budget law, reaching 126 trillion tomans. Given the prevailing recession in the Iranian economy and the likely negative growth, achieving this level of tax revenue will not be easy for the government. It seems that next year, the most important issue in Iran's economy, which will also be reflected in next year's budget bill, will be 'uncertainty.' This uncertainty casts a shadow over every area, from predicting the level of oil sales, estimating the collectible oil revenues, assessing tax revenues to other indicators and figures. In this context, the 'reforms desired by the leader' in the 1398 budget and their connection to the regime's objectives are postponed until after the implementation of 'the desired reforms by Ayatollah Khamenei.'