Despotism, Economic Corruption, and Iran's Budget Deficit

The increase in foreign currency prices in Iran, or in other words, the fall in the value of the national currency, the rial, has once again raised the question of what the reasons for the decline in the value of the rial against the currencies of other countries are. There is an agreement that the increase in liquidity in the Iranian economy, which is mainly due to the government's budget deficit, has fueled chronic and accumulated inflation. This accumulated and massive inflation manifests itself in the form of a decrease in the value of the rial against other currencies as soon as other conditions arise, such as a decrease in the injection of foreign currency into the currency market by the government or other political and economic factors. The budget deficit itself, however, is a result of other political and economic factors. In some cases, the budget deficit is a result of the inefficiency of the management system, low productivity, planning, the tax system, and the budget's susceptibility to unforeseen changes in the internal or external economic environment or the lack of transparency and accountability of the government. For example, the Iranian economy, which suffers from the inefficiency of resource utilization and relies on oil revenues, is naturally very vulnerable to rapid changes in the oil market. Any change in the oil market can blow away the optimism that underpins the budget and cause it to incur a deficit. However, the budget deficit can also symbolize populism and political demagoguery, and in some other cases, it symbolizes the expansion of rent distribution and bribery among influential political factions or even financial and managerial corruption. Within the framework of Iran's rentier and oil-based government, a combination of these factors causes the budget deficit. For instance, a government that lacks legitimacy and the participation of civil institutions naturally buys its survival through bribery to influential groups. Additionally, the execution of construction projects in Iran usually ends up being more expensive and takes longer to complete. This is inconsistent with budget balance and leads to a budget deficit. Furthermore, the distribution of budget resources is not based on a comprehensive and long-term perspective and short and long-term investment returns but rather on the share of influential factions in the government and their interests. The relationship between management corruption and budget deficits has been the subject of various studies and is well-known. For example, some researchers believe that there is a significant link between political variables and government budget deficits. According to these studies, (1) authoritarian governments are usually more prone to larger and accumulated budget deficits. Some studies also emphasize the impact of democracy in reducing budget deficits (2). Supporting these points, various other studies indicate that the degree of political freedom affects government budget deficits, and budget deficits can also threaten economic freedom (3). Based on these arguments, considering the political despotism and consequently the lack of transparency, the participation of democratic institutions, and their oversight of power, it is not surprising that budget resource allocation is directed towards rent distribution and its inappropriate allocation to institutions that do not create added value. The current budget of Iran is an example of a rent-seeking budget, which will be briefly addressed. According to a report by the economic group of the Student News Agency, Mohammad Hosseini, a member of the Program, Budget, and Accounts Commission of the Islamic Consultative Assembly, says: 'In the 1396 budget, the price of each barrel of oil was predicted to be $55, which has not been realized but has faced an eight-dollar decrease.' This government official also states: 'He also mentioned that the current average price of each barrel of oil is $47.' He added: 'The eight-dollar decrease in the price of each barrel of oil has led to a decline in the government's oil revenues during the first six months of this year.' The member of the Program, Budget, and Accounts Commission further stated that the collected revenues in the tax sector during the first six months of this year were 85 percent. Confirming these points, Ali Larijani, the Speaker of the Parliament, says: 'In the 1396 budget, we had a budget deficit of about 40 to 50 trillion tomans, which was covered up with participation bonds.' However, it seems that the budget deficit figures are more than what these officials claim. For example, based on a report from the Central Bank, in the first quarter of this year, the government's budget deficit exceeded 17 trillion tomans and increased by 8.9 percent compared to the same period last year. Therefore, if this trend of budget expenses continues, the average budget deficit figure will exceed 50 trillion tomans. Supporting this statement, Jawad Abtahi, a representative from Khomeini Shahr in the Parliament, previously said: 'In the 1396 budget, it is unclear how tax evasion will be prevented, and in the most optimistic scenario, we will have a budget deficit of about 70 to 80 trillion tomans.' Jawad Abtahi, a representative from Khomeini Shahr in the Parliament, also states: 'When there is no transparency in budget writing, we as representatives of the Parliament cannot oversee, and then the money is spent on seminars, trips, or other places that we do not know about.... 70 billion tomans have been allocated for equipping the Mosalla building, but no amount has been allocated to prevent soil and water erosion, which should be addressed.' The statement of this parliament member symbolizes the inappropriate and destructive allocation of budget resources to rent-seeking matters. Another example of resource utilization within the framework of rent distribution is Table 17 of the general budget of the country and the distribution of rent to regime agents such as Haddad Adel, Mohammad Khamenei, Mesbah Yazdi, the Islamic Warriors Council (regime's eulogists), Justice University (Hashemi Shahroudi), the Supreme Assembly of Islamic Wisdom (Jawadi Amoli, Sobhani, and Mesbah Yazdi), the Islamic History Research Institute (Seyyed Hadi Khamenei), the Cultural Foundation of Mahdi (Qaraati), the Organization of Advertising and the Seminary. In conclusion, the budget deficit in the oil-based and rent-seeking government with a centralized economy is a product of the lack of transparency, accountability, and widespread corruption that even those affiliated with the government acknowledge. This budget deficit ultimately leads to an increase in liquidity in the economy, which in turn contributes to inflation and a decrease in the value of the national currency. The consequence of the decrease in the value of the national currency is the increase in the price of imported goods, which means an increase in the cost of living for households.