Has the Share of Oil Revenues in the Budget Decreased?

Mohammad Baqer Nobakht, the head of the Planning and Budget Organization, stated in a press conference that the government's budget share from oil revenues has decreased from 41% in 2013 to 26% in 2016. This official also added that oil export revenues from 2013 to 2016 were about $157 billion, and oil revenues decreased by approximately 58% compared to the years 2009 to 2012. The head of the Planning and Budget Organization referred specifically to the direct share of oil revenues in the budget. The indirect impacts of oil revenues on Iran's economy are more significant. Moreover, it should not be forgotten that most credit lines approved for investment in Iran are finalized based on oil backing. Such indirect and hidden effects of oil revenues cannot be calculated using conventional statistical methods, and the head of the Planning and Budget Organization does not address this issue. He even does not mention the increase in the oil share in the 2017 budget. The head of the Planning and Budget Organization does not explain whether there are alternatives for oil revenues in the budget. What have been the consequences and costs of reducing the oil share in the government budget, such as recession, unemployment, and capital flight? To achieve a reasonable assessment of the oil share in the budget or even the entire Iranian economy, better analytical methods must be used, and relying solely on a simple comparison of the oil revenue share in the budget does not seem logical, and the risk of statistical deception is high. Why is the reduction of oil revenues in the budget and the Iranian economy important? The first question is whether the reduction of the oil revenue share in the budget is an objective or a means. The reduction of the oil revenue share in the budget and the Iranian economy is not an objective in itself. The importance of reducing the oil revenue share in the budget and the Iranian economy lies in ensuring that the Iranian economy is protected against economic tensions in the oil market while simultaneously achieving economic growth, job creation, and improving welfare components such as increasing per capita income and the standard of living of citizens. If the reduction of the oil revenue share leads to a deep, widespread, and chronic economic recession, it would be counterproductive and meaningless. Furthermore, the reduction of the oil revenue share is only real and sustainable if it is compensated by creating other sources of foreign income, such as exporting competitive and knowledge-based goods. The reduction of the oil revenue share in the government budget: planned or an unintended success? Following the struggle of the Iranian nuclear crisis with some Western countries, severe sanctions were imposed on Iran. Concurrently with these sanctions, due to the relative recession in the oil market, oil prices also decreased. Oil revenues constitute a significant portion of total export revenues and government budget revenues. During the nuclear sanctions, Iran's oil revenues, which reached over $100 billion annually during the tenth government, fell to below $25 billion annually due to sanctions and the drop in oil prices, nearly a quarter of their previous level. The collapse of oil revenues has had significant effects on Iran's rentier, government-centered, and mono-economy. The government stopped expansionary policies of injecting money into the economy and adopted a contractionary policy. Following these external events, with the decrease in oil revenues, Iran's foreign trade government shrank, and consequently, economic growth in Iran, which was a product of spending oil dollars, faced recession and stagnation with the reduction of this financial source. Widespread unemployment was one of the consequences of this deep recession. Therefore, what the head of the Planning and Budget Organization refers to as the reduction of the oil revenue share is an external event imposed on the Iranian government. The high cost of this forced reduction of the oil revenue share in the budget has also been recession and unemployment. The reduction of the oil revenue share in the budget does not in itself imply an endogenous and exogenous economy. There is a clear difference between the endogenous development of the Iranian economy and its exogenous nature, meaning reliance on internal foreign resources derived from non-oil knowledge-based exports and presence in global markets and increasing these revenues in the budget compared to the current method of government budgeting. In a real process of exogenization, a reliable alternative for oil revenues is created, and consequently, the reduction of oil revenues is compensated by it. For instance, whenever Iran can free itself from dependence on oil by exporting industrial goods to other countries, it is natural that the share of oil revenues in the budget will decrease in a real and sustainable manner, and costs such as economic recession or unemployment will not be imposed on the Iranian economy. Every policy or economic transformation is evaluated based on its costs and benefits. In this case, one must ask whether the reduction of the oil share in the government budget is worth the significant costs such as recession and unemployment? Will the reduction of the oil revenue share in the budget remain sustainable? If the revenues from Iran's oil exports are not compensated by a sustainable source, it is natural that the Iranian economy will again become dependent on the oil sector for survival. Signs of such a phenomenon can be observed in the discussions of representatives during the budget for the year 1396. Mohammad Reza Pourabrahimi, the head of the Economic Commission of the Islamic Consultative Assembly, stated: 'The total public resources of the country next year will be 320 trillion tomans... the share of oil in the public budget of the country has increased from 25% to 35%, which contradicts the sixth program and the policies of the announced resistant economy.' Therefore, with the lifting of sanctions and also the government's increased ability to utilize oil revenues, it is unlikely that the share of oil revenues in the budget will not increase again. The most important reason that justifies this assumption is that the government is forced to utilize oil revenues to solve problems of recession and unemployment and face attacks from its opponents, and it has no other option. In the short term, foreign investment cannot assist the Iranian economy.