By Majid Rafizadeh
January 15, 2019
At the end of each year, the Iranian government proposes a budget bill in the country’s parliament (Majlis). After the bill is passed there, a clerical body also has to approve the legislation. Consequently, Iran’s Central Bank will present monetary and credit policies that correspond with the budget.
Carefully examining Iran’s budget is critical because the nuances of the budget bill can inform policy analysts, scholars and politicians not only about the Islamic Republic’s current financial and economic status, but also its prospective missions and specific objectives.
Iran’s proposed budget for this year is intriguing for several reasons, and is distinct from those of prior years.
To begin with, the Iranian authorities have emphasized that the current bill is designed to significantly assist the ordinary people by increasing the minimum wage, creating jobs, raising the employment rate, and resolving people’s economic problems. According to Iran’s official broadcaster, which presented the regime’s budget for March 2019 to March 2020: “The government intends to increase the wages of employees in tandem with increasing the employment rate for the youth, all the while keeping the prices for gas at the 10,000-rial (10 cents) level and making sure that supervision is made in a way that goods reach people with cheap prices.”
But, from a realistic point of view, the Iranian leaders’ promises are impossible to fulfill.
The proposed budget for 2019 is just 45 percent of the country’s budget for the previous year. This is unprecedented in the history of the Islamic Republic. The budget bill that was proposed by President Hassan Rouhani and passed in 2018 was approximately $104 billion. The current budget bill is roughly $47.5 billion.
The main reason for such a decline is the decision of US President Donald Trump to pull out of the Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal, and to renew the primary and secondary sanctions against the Islamic Republic. Although the Iranian leaders dismiss the move as not impacting the nation, the sanctions have put significant pressure on Iran’s economy, specifically its energy and banking sectors. Iran’s revenues have already started sinking, and will likely continue to fall. Since the US withdrew from the nuclear deal, Iran’s oil revenues and exports have fallen approximately 50 percent.
More importantly, Iran’s national currency, the rial, has dropped to historic lows. One US dollar, which equaled approximately 35,000 rials in early 2018, is now worth nearly 110,000 rials. According to the International Monetary Fund, Iran’s economy is officially in recession.
In addition, a significant portion of Iran’s budget relies on the export of oil. According to the budget bill, the regime is estimating it will export nearly 1.5 million barrels per day at $54 per barrel. This presents two important problems. First, the Islamic Republic is less likely to gain this revenue because Tehran’s oil export market is declining and the regime is incapable of trading with US dollar. This will lead to a significant budget deficit. Secondly, while the Iranian leaders, particularly Ayatollah Ali Khamenei, repeatedly emphasize that the nation has a resilient economy independent of oil sales, the current budget bill shows that the government has not made any tangible advances in fulfilling such promises.
Iran’s budget bills are normally incorporated in the country’s five-year development plan. The regime previously indicated that Iran’s sixth five-year development plan (for 2016 to 2021) would prioritize education, health and technology. But the current budget bill shows cuts for these sectors. In fact, in a surprising move, Health Minister Hassan Ghazizadeh Hashemi has resigned over the proposed budget and the cuts that it entails. Expressing his frustration with the government’s budget cuts in the health sector, he stated in a video published on Khabar One news: “I am not an impatient person, but enough is enough.” Rouhani accepted his resignation without offering any explanation for the budget cuts.
It appears the only institution that has seen a noticeable increase in its budget is the Islamic Revolutionary Guard Corps (IRGC). Increasing the IRGC’s budget while cutting other crucial programs will not resolve the people’s economic difficulties. Although Iran has an educated youth population, almost 30 percent of them cannot find jobs. In some provinces, the unemployment rate is over 60 percent. According to an official representative of the regime’s Planning and Management Organization, “42 percent of unemployed people in Iran have a university degree, and huge sums of money have been spent on their education.”
In a nutshell, Iran’s proposed budget reveals the economic crisis that Tehran is facing. The increase in the IRGC’s funding, while many other sectors have witnessed cuts, points to the regime’s determination to prioritize its revolutionary principles over its citizens’ needs.