Iran's Economy: Escaping Recession with Budgets Lacking Strength

One of the figures that rises every year during the drafting of budget bills or discussions about their approval and finalization is the amount of "development budget," which has been known for several years as "capital asset acquisition." The importance of the development budget lies in various reasons. First, the growth or reduction of this budget figure indicates how much attention will be paid to infrastructure in various sectors and which development projects will progress in which areas. Building dams, hospitals, or universities, determining the fate of roads, highways, or government investment in establishing factories and power plants in areas where these transformations are to take place has its own attractions; from regional prosperity to the chance of finding new jobs and changes during and after the implementation of these projects. However, more important than these reasons that make attention to development budgets special is another reason. Since the government in the Iranian economy, if not the largest employer, is certainly considered a large employer. Implementing development projects and allocating budgets for these projects means stimulating aggregate demand, creating employment, and also revitalizing the work of contracting companies, which brings about economic circulation and prosperity. With this explanation and introduction, let's look at the budget bill for the year 1398 (2019) and the figure of the development budget in this bill to clarify what changes will be observed in aggregate demand from the initiation, execution, or completion of development projects and whether we can be hopeful about the revival of parts of the Iranian economy through this route. According to the budget bill for the coming year, a total of 2,685 development projects have been allocated a budget; less than 70% of these development projects are national projects and about 30% are national projects with provincial characteristics. The amount that the government has allocated for capital asset acquisition or the development budget in 1398 is 62 trillion tomans, which has not changed compared to the approved figure of development budgets in this year's budget law. Given the limitations on the sale of oil, gas, and petroleum products as the most important source of income, the government has decided not to increase the amount of development budgets. If we also add the annual inflation rate to these calculations, the real figure of development budgets from this year's budget law to the next year's budget bill has actually decreased. Therefore, next year, we cannot be very optimistic about stimulating aggregate demand through the injection and allocation of development budgets. However, the problems with development budgets are not just the figures of these budgets or their increases and decreases in budget tables. For years, the allocation and absorption of approved budgets have been accompanied by problems, and usually, these budgets are not fully allocated. To the extent that governments throughout the year change the headings of development budgets and use these budgets to cover current expenses. This means that during the drafting and approval of budget bills, figures under the title of development budgets are placed in rows and tables, but later, with the usual budget deficits, these credits are spent on current expenses. According to reports from the Central Bank at the end of Azar (December) this year, more than 32 trillion tomans have been paid in the form of the budget law as development payments. This figure of development payments compared to the total approved development budgets this year, which is 62 trillion tomans, means a 51.8% allocation of development budgets at the end of the 9 months of the year. If we compare this allocated figure of development budgets with the approved figure for the 9-month capital asset acquisition, which is 46.9 trillion tomans, it means that the government has managed to allocate 68.5% of development budgets by the end of Azar. There is not much time left in the last three months of the year for the allocation of remaining development budgets, especially since the second half of the year, particularly in winter, in many regions of Iran, due to weather conditions, the execution of development projects is accompanied by difficulties. Therefore, we can expect that the allocation of development budgets stated in the budget law of 1397 (2018) will not reach high percentages by the end of the year, and in the best-case scenario, the allocation of development budgets from the approved budget will be between 56% to 60%, and again development budgets will fall victim to the government's current expenses. However, another point that can be inferred from budget bills and specifically the figures related to development budgets is the prioritization of work headings and the importance of areas that have been put on the agenda for the implementation of development projects in the budget bill. For example, based on the budget bill for the coming year, a total of 2,685 development projects have been allocated a budget; less than 70% of these development projects are national projects, and about 30% are national projects with provincial characteristics. The majority of the defined development projects for next year are classified under the transportation heading, in addition to building new highways, completing the railway network, and maintaining transportation infrastructure. After this section, more development credits than other areas and sectors have been allocated to the water and wastewater and water resource management section. Another feature of the development budgets in the budget bill for 1398 is the emphasis on allocating budgets to projects that can be completed in 1398. According to Mojgan Khanloo, the spokesperson for the budget headquarters at the Organization for Planning and Budget, 350 billion tomans have been allocated for projects that can be completed in 1398. Since part of the funding for next year's development budget has been announced to come from the sale of participation bonds and Islamic treasury bonds, which requires having customers, and also because the implementation of some development projects relies on private sector participation, the realization of this part of the budgets and the execution of these projects will be more ambiguous than ever.