Why Iran must shake up its approach to state-owned enterprises
While the government’s general budget grabs the most attention in Iranian media, it is high time for Iran to revise the way it approaches the dilemma of the vast number of uncompetitive state-owned enterprises.
A year ago, President Hassan Rouhani’s budget proposal for the next Iranian year (beginning March 21) sparked a heated internet debate among Iranians. The main cause of their anger was the lavish funds allocated to certain state agencies and institutions. However, what was left unnoticed and indeed in need of much more public attention was the draft budget's section on state-owned enterprises.
A litany of problems in Iran are thought to be the byproducts of budget decisions, including high liquidity growth, abnormal bank interest rates, costly business activity, money laundering, capital flight and smuggling of goods, to name a few.
With that in mind, in the forthcoming Iranian fiscal year, the state budget will total 17,032 trillion rials ($405.5 billion). Of that amount, state-owned enterprises are expected to garner around 12,747 trillion rials ($303.5 billion), while the government’s general budget will total considerably less, at 4,786 trillion rials ($114 billion). Although the bulk of Iran's state budgets is routinely allocated to state-owned enterprises, the books of such enterprises are not scrutinized by parliamentarians, either due to a lack of time, or perhaps due to media outlets focusing more on the government's general budget.
Shockingly, according to the audit compiled by the Supreme Audit Court for 2016-17, a total of 162 state-owned enterprises were deemed economically unviable. Originally, under the 2016-17 budget law, a mere nine state-owned enterprises were categorized as loss-making enterprises. But the audit increased that amount eighteen-fold. Of note, that same audit reports that 75% of the revenues of such entities over the same period were spent on current expenditures and a meager 25% allocated for investment purposes. Despite these tremendous losses, 15.5 trillion rials ($475 million) were taken from the state budget at the time to prop up these state-owned enterprises rather than fund feasible infrastructure projects to enhance economic growth.
