Why has the budget, the most important annual financial document of governments, lost its efficiency, including promotion of economic growth and stability, reduction of poverty and supply of public goods? Why has the budgeting process turned into a bureaucratic measure, the mere manipulation of numbers and division of the shares of organizations and institutions?
Hossein Haqgou, an economic expert, prefaced his article for the Persian daily Ta’adol with these questions. A translation of the text follows:
In the words of Masoud Nili, a veteran economist, Iran’s economy has experienced a prosperity based on “depletion of resources” for years. In this political economic paradigm, “consumption of resources has nothing to do with the supply of resources” and it is possible to consume natural and financial resources, or in other words, waste them by mandatory pricing, regardless of a basic principle in economics, i.e., “resource limitation”.
Shortage of gas in winter and that of electricity in summer, as well as the shortage of water in all seasons are the manifestations of the resource depletion paradigm. You can see the hidden signs of this disease in the budget deficit, bankruptcy of pension funds and imbalances of banks’ resources. Development plans and annual budgets failed to change this process.
On top of that, the passage of time, implementation of misguided policies promoting state-controlled economy, reliance on oil revenues and introversion have all aggravated the wound.
In the fiscal 2023-24 budget, out of 20,000 trillion rials in the public budget, 16,700 trillion rials will be spent on current expenses and payment of government debts, while only 3,300 trillion rials will go to development projects
Development plans have now become tragicomic. According to senior officials and research institutions, one-third of the goals of six development plans have been achieved. Given the ineffectiveness of these plans, the government has postponed the submission of seventh development plan for two years now.
The budget is not more effective than the development plans; it is only balanced on paper. In reality, a large fraction of development plans don’t materialize. Printing money and increasing money supply have shot up inflation to 50%.
Iran holds the record of the longest double-digit inflation rate (many believe that Iran is the only country in the world that has registered double-digit inflation for more than four decades.)
With the dominance of the “depletion of resources” paradigm and in the absence of the principle of “resource limitation”, development won’t materialize. Development requires a balanced consumption of resources and investment.
Ludwig von Mises, the American economist, says, “A country gets richer only if investment increases per unit of its population.”
This is while official reports show real investment declined between the fiscal 2004-05 and 2019-20. Formation of gross fixed capital at the constant prices of 2011-12 fell from 1,190 trillion rials in 2004-05 to 980 trillion rials in 2019-20. The depreciation of capital outpaced the growth of capital formation between the fiscal 2019-20 and 2021-22.
Next year’s budget [fiscal 2023-24] figures do not bode well, either. Out of 20,000 trillion rials in the public budget, 16,700 trillion rials will be spent on current expenses and payment of government debts, while only 3,300 trillion rials will go to development projects.
Economic development and improvement of welfare are not the result of a miracle; they are the outcome of adopting informed economic policies. They will be achieved by changing the mental paradigms of policymakers and the political economic climate based on the depletion of resources in a free, competitive and non-monopolistic economic framework and in interaction with the world, and not the manipulation of budgetary numbers and notes.
