On Dec. 8, President Hassan Rouhani presented his budget bill for the next Iranian year — starting March 21— which he termed a tool of “resistance against US sanctions.” Will the bill's new approaches positively impact Iran’s sanctions-hit economy?

Iran’s budget bills consist of two parts, i.e., a smaller part that reflects the government’s financial framework and a much larger segment that covers the forecasts for all public entities. The total bill has a volume of 19,880 trillion rials ($473 billion at the official rate of 42,000 rials to the US dollar). The segment on public companies amounts to 14,250 trillion rials and the government to 5,630 trillion rials. Out of the government budget, 790 trillion rials are dedicated to specific items (such as income from long-term investments that also have specific utility in the budget, i.e., pensions). The rest of the budget is the focus of this article, i.e., the government’s general budget, which is proposed to be 4,840 trillion rials ($115 billion).

The general budget is approximately 25% higher than the amended budget for the current Iranian year. With an official inflation of around 40%, it is clear that the real impact of the government on the economy as a whole will be in decline. Furthermore, with a proposed average 15% increase in the salaries of civil servants, the government consolidates the further loss in purchasing power of lower income classes, which will partly be compensated through the increase in direct cash handouts. 

It is not a secret that government revenues have been severely undermined by diminishing crude oil exports caused by sanctions, hence there is a need to look for other sources of revenue. The proposed bill foresees a total revenue of 3,390 trillion rials ($80.7 billion), consisting of 777 trillion rials in oil and gas revenues, 2,613 trillion rials in tax and other revenues (including privatization, sale of assets and government services). This translates to a reduction of the budget’s revenue dependency on petroleum exports to 23%, which is the lowest since Iran became a major oil exporter in the 1970s. However, to cover the planned expenditures and investments, the government will still need another 1,450 trillion rials in inflows, which will have to be generated through government bonds and monetization of other assets — such as licenses for economic activities. Compared to the expenditure side (4,840 trillion rials), the planned oil and gas revenue is only 16%. At the same time, it is conceivable that most of the government bonds will be issued based on a financing structure that will rely on future oil and gas revenues. All in all, it is valid to argue that the reliance on the petroleum sector has been reduced, but it is still a significant item in the overall budget.