Unprecedented Budget Deficit in Iran and Outlook for 1398

On Sunday, December 25, the Central Bank of Iran published a new report on the country's economic situation, indicating that the operational and capital deficit of the government has reached an unprecedented figure of over 39 trillion tomans in the first seven months of 1397. At first glance, it may seem that this deficit is due to a decline in Iran's oil exports and revenues affected by U.S. sanctions; however, in reality, Iran's oil revenues had not only not decreased until Mehr (October), but had also exceeded the government's approved budget. According to the approved budget framework, during the first seven months of this year, revenues from the sale (domestic and foreign) of oil and petroleum products reached about 73 trillion tomans, whereas it was expected to be around 60 trillion tomans. The U.S. exited the JCPOA on May 8, and imposed oil sanctions on Iran starting in November. Statistics show that since November, Iran's oil exports have halved compared to the previous seven months. The budget law for this year anticipated the export of 2.41 million barrels of crude oil and gas condensates at an average price of $55, with more than half of that budget share, 32% for the National Development Fund, and 14.5% for the Ministry of Oil. International statistics indicate that the average export of oil and gas condensates from Iran in the first seven months of this year was nearly equal to the parliamentary approval, while during this period, the average price of Iranian oil was over $77. Therefore, although the prices of petroleum products inside Iran have not increased, export revenues show a significant increase, and overall, the resources from the sale of oil and petroleum products in the first seven months were about 22% higher than the approved budget. However, given the significant decline in Iran's oil exports and current prices around $60 per barrel, it is expected that Iran's total oil revenues for the current year will be less than the approved budget (101 trillion tomans). What is the reason for the budget deficit? Details from the Central Bank's statistics show that the government has only generated 60 trillion tomans in tax revenues instead of the approved 84 trillion tomans. Other operational revenues of the government have also amounted to only 15 trillion tomans, while it was supposed to be close to 44 trillion tomans. The Central Bank's statistics indicate that the government has attempted to significantly reduce current and development expenditures to alleviate some of the budget deficit; however, overall, the operational and capital deficit of the government has exceeded 39 trillion tomans, a budget deficit of this magnitude has not been recorded even in 12-month statistics. The details of the 1398 budget bill, which is set to be sent to the parliament, are still under discussion for changes based on the 'reforms considered by Ayatollah Khamenei.' Recently, Fars News Agency reported, citing unnamed sources, that Bijan Zanganeh, Iran's Minister of Oil, has emphasized in meetings that he cannot commit to exports of more than one million barrels per day for the coming year. On the other hand, reports indicate that the government intends to reduce the National Development Fund's share of oil revenues from the current 32% to 10%. Fars News Agency quotes its sources as saying, 'Given the current conditions, there is a resource deficit of 30 to 40 trillion tomans in the 1398 budget bill that must be compensated.'