Awaiting the Final Budget Bill of the Eleventh Government

The final budget bill of the Eleventh Government, as announced by senior officials of the Islamic Republic's executive apparatus, will be presented to the Islamic Consultative Assembly on Sunday, December 14. Given the political and economic conditions in Iran on both domestic and international fronts, as well as the upcoming presidential elections, it is unlikely that Hassan Rouhani's fourth budget bill will be innovative or leave a lasting legacy. Hassan Rouhani came to power with promises of economic reforms, selecting several close associates from the prominent technocratic figures of the Islamic Republic, and proposed policies to address the multitude of problems left by Mahmoud Ahmadinejad. Now, as Rouhani brings his final budget of his four-year presidency to the parliament, there is no news of a noticeable change in the country's economic situation. The president of the Eleventh Government is well aware of Iran's economic turmoil and its roots, but during his tenure, he either did not want or could not fundamentally change anything. However, in a fair judgment, it can be accepted that the Eleventh Government managed to prevent the 'Venezuelanization' of the country, which was the inevitable result of the policies of the Ninth and Tenth governments. Changes in the policymaking of some executive bodies, including the Central Bank, created the groundwork for a significant reduction in inflation rates, and the resolution of the nuclear case and the signing of the 'JCPOA', despite all the problems that arose in the implementation of this agreement, at least opened the way for oil exports and created some facilities in Iran's international economic relations. If the 'JCPOA' had not been signed and Iran's oil exports had plummeted to three to four hundred thousand barrels per day, where would the inflation rate be, how much would the dollar price be in Tehran's currency market, and what position would the country be in? The three previous budgets of the Eleventh Government (93, 94, and 95) were accompanied by severe deficits that were compensated by pre-consuming oil revenues and astronomical increases in debts through massive loans from the banking system. Yet beyond these 'ifs', Iran's economy is still going through a very bad phase as it approaches the presentation of Rouhani's fourth budget to the parliament, facing the same fundamental constraints that were present when his first budget was presented. In this situation, there is no reason to believe that his last budget will be less fragile than the first one. The three previous budgets of the Eleventh Government (93, 94, and 95) were accompanied by severe deficits that were compensated by pre-consuming oil revenues and astronomical increases in debts through massive loans from the banking system. For example, the public budget for the year 1395, which was approved at 294 trillion tomans, if measured based on its performance in the first seven months of the year, is likely to face a deficit of nearly 80 trillion tomans by the end of the next month. In other words, it is predicted that the current year's budget will end in Esfand with a 27 percent deficit at the end of its one-year period. And in such an unbalanced budget, a very large portion of the resources has only been consumed for current expenditures, and the share of capital expenditures has fallen to 13 trillion tomans during the first six months of the year. Will the budget for the year 1396, whose bill is to be presented to the parliament on Sunday, December 14, be spared from this great imbalance? To find the answer, we will look at the sources and uses of the budget. Continuation of Conservatism The budget resources are mainly provided from tax revenues, oil exports, and the sale of goods and services. One) Securing budget revenues from tax collection is the best way to ensure the financial stability of governments. According to official sources of the Islamic Republic, Iran's tax revenues increased by about 30 percent in the first six months of the year compared to the same period last year, and the share of taxes in securing government revenues during this period has risen above 50 percent. The issue is that the tax burden in Iran is only imposed on the formal economy, and about 60 percent of the economy does not pay taxes. In fact, in addition to tax evasion in the underground economy, many real and legal entities in Iran enjoy tax exemptions for various reasons, from the holy province to the Khatam al-Anbiya headquarters. The Rouhani government has not gone beyond mere words in confronting these institutions. In terms of the sale of goods and services, a significant part of government revenue comes from the sale of energy carriers. We know that the policy of realigning energy carrier prices, which was supposed to be implemented within the framework of the targeted subsidy law, has deviated from its path, and the significant revenues that could have flowed into the government's treasury are still being wasted. Two) Like every year, the forecast for oil prices has a greater impact on budget bill preparation than other factors. The approval of the 'JCPOA' and the return of Iran's oil production and exports to pre-sanction levels should have made things somewhat easier for Rouhani's government. Nevertheless, it should not be forgotten that the oil market is still in recession, and it is still unclear how much the November 30 agreement among OPEC member countries will affect the oil market. In the most optimistic scenario, the budget bill for 1396 cannot predict oil prices beyond the range of 40 to 45 dollars per barrel. Another issue is the calculated exchange rate in the budget for each oil dollar, which is likely to be around 3300 tomans. The future of revenue from oil exports is naturally dependent on future fluctuations in the market for this commodity. Moreover, it should not be forgotten that part of next year's oil revenues has already been pre-consumed this year. Additionally, according to the law, 30 percent of total oil revenues must be deposited into the National Development Fund and 14.5 percent into the National Oil Company. In any case, it does not seem that Rouhani's government is in a comfortable position regarding oil revenues. Three) In terms of the sale of goods and services, a significant part of government revenue comes from the sale of energy carriers. We know that the policy of realigning energy carrier prices, which was supposed to be implemented within the framework of the targeted subsidy law, has deviated from its path, and the significant revenues that could have flowed into the government's treasury are still being wasted. Rouhani's government has forgotten this very important reform, and currently, given what is happening in the country's economy and the immense pressure on the people, the groundwork for doing this work is not available. In terms of budget expenditures, Rouhani's government has refrained from adopting any initiatives that could help improve cost management or at least create the groundwork for future improvements in this management. Budget expenditures are mainly divided into two parts: current expenditures and capital expenditures. One) Given the existence of a very bloated bureaucracy, about 75 percent of budget expenditures go down the drain of current expenditures, especially paying government employees' salaries. According to Fereydoun Asadi, head of the energy group at the Research Center of the Parliament, before the Islamic Revolution, the National Oil Company had 35 to 40 thousand personnel and extracted six million barrels of oil daily. Currently, the personnel of the same company has reached 260 to 270 thousand, but less than four million barrels are extracted. In other words, the number of oil company personnel has increased nearly sevenfold, while production has decreased by 30 percent. The accumulation of personnel is seen in almost all sectors, and paying their salaries has become one of the major problems of the country's annual budgets. Two) In addition to employees, pensions for retirees are also practically funded from the budget. The explanation is that pensions for retirees should normally be paid by pension funds, but since these funds are practically bankrupt, the government covers their considerable deficits and uses an increasing portion of its resources for this purpose. No reforms have been made by Rouhani's government regarding the country's pension system. This is one of the ticking time bombs that threaten Iranian society and its future. Three) In this context, a significant portion of budget resources is spent on paying universal cash subsidies. According to Islamic Republic sources, 76 million people in Iran receive subsidies, and every year 42 trillion tomans are spent on cash subsidies, while the government does not even have the ability to pay its debts to the private sector. Despite all its promises to reduce the number of subsidy recipients by identifying and eliminating ineligible recipients, the Eleventh Government has taken no steps in this regard. Four) In this situation, nothing remains for capital expenditures. In the 1395 budget, the share of the country's capital budget was set at 22 percent. In practice, even this amount has not been secured, and the total capital budget this year is less than 60 percent of cash subsidies under the well-known targeted subsidy law. The last budget bill of Hassan Rouhani's government is trapped in constraints that we have only touched on a few. It can be confidently said that Hassan Rouhani, considering the outlook for the presidential elections, will show even more conservatism in this last budget bill of this four-year term than in previous budgets.