The devaluation of Iran’s currency has led to a number of conspiracy theories, one of which focuses on the premise that the government has intentionally devalued the rial in order to improve its own finances. The thesis argues that the government’s financial position has improved significantly as the main source of its revenues is in hard currency while its liabilities are mainly in rials. Nonetheless, the devaluation of the rial has had various negative impacts on the Iranian economy and the question is thus whether the government would actually benefit from an intentional devaluation.

The latest Central Bank of Iran (CBI) report on the government’s financial position covering the first four months in the current Iranian year (March 21-July 22) indicates that the government has been running a budget deficit. In fact, revenues from taxes and privatization stood at 421.1 trillion rials (roughly $10 billion), i.e., only 57% of the planned revenues in those categories. Some of the loss in revenue was compensated through the higher-than-expected proceeds from the petroleum sector that amounted to 420 trillion rials, i.e., 15% higher than budgeted. Nonetheless, the government was running an operational budget deficit of 312.5 trillion rials ($7.43 billion).

It is this type of budget deficit that has led to an increase in the government’s debts to the CBI — a phenomenon that contributes to the growth of money supply. In fact, as of June, the government owed 1,620 trillion rials ($38.5 billion) to the CBI. Add to this the figure of approximately 1,000 trillion rials ($23.8 billion) of debts to commercial banks and various subcontractors in the fields of power generation, road and rail construction, infrastructure, etc.

Key players in the Iranian economy were well-aware of the challenges facing the country. In fact, back in March, in a meeting between the representatives of the private sector and the government, the business community had stated its concern about three issues: the sustainability of the exchange rate, the state of the government’s debt to its subcontractors and the negative outlook for capital formation.