Breakdown of Iran’s Budget

Business & Markets Desk
Breakdown of Iran’s Budget
Breakdown of Iran’s Budget

The Iranian government's activities make up 60% of Iran's economy and amount to $251 billion (10 quadrillion rials converted at market exchange rate) of a $393 billion economy, the next year's budget bill and World Bank data show.

These figures speak volumes about state control in an economy that started moving toward free markets a decade ago. But how is the government spending its enormous budget?

Most of the centrally planned economy falls under the domain of government corporations, 7.56 quadrillion to be precise, while the government, along with its ministries, plans to make and consume 3.71 quadrillion rials in the next fiscal year, which starts next March.

Each dollar was exchanged at about 39,700 rials on Tuesday.

A quick look at the breakup of state expenditures from the 2,000-page budget bill President Hassan Rouhani took to the parliament on Dec. 4 reveals a schematic of the government's fiscal policies and the deep problems it faces.

Most of the budget covers operational expenses while less than a fifth is invested to help drive recovery from the 2011 economic crisis, which had Iran's economy shrink for two years back to back.

The high operational expenses mainly stem from the large number of public servants and retirees the state supports. Overall, Rouhani has set aside 950 trillion rials for the 3.9 million civil servants and 4.6 million government retirees. Together, they make up 10.9% of Iran's 78 million population.

> The Labor of Retirees

The Labor Ministry is one of the chief spenders. It has a 240-trillion-rial budget. But not much of it is going to job creation or the ministry.

The bulk of the money, 220 trillion rials, belongs to the Civil Servants Pension Fund of Iran, which like other Iranian pension funds cannot cover its pension payments. Add to this a separate 178 trillion rials for the Armed Forces Social Security Organization, and the administration is paying close to 400 trillion rials to aid pension funds.

Iran is facing a labor crisis. While not enough jobs are created for Iran's chiefly youth population, the count of retirees has bloated due to low retirement age and bad policy.

Most pension funds have too many retirees and too few pension contributors. Moreover, their investments do not earn enough to be of help and the government has to pick up the slack.

> Security

Nevertheless, Rouhani's largest spending item is security. Iran is at the heart of one of the most tumultuous regions in the world—the Middle East. Yet its security spending is far less than its neighbors.

Iran's armed forces, from police to the Ministry of Defense, get a 7.9% piece of the pie, a total of 368.6 trillion rials. The largest chunk of that money, 132.4 trillion rials, goes to the Islamic Revolutionary Guards, 77.7 trillion rials goes to the army, air force and navy, and 74.2 trillion rials to the police.

The rest goes to the Ministry of Defense and the General Staff of Armed Forces, of which a meager 21.9 trillion rials ($551 million) will be spent on arms purchases.

Though towering, defense spending is only 2.3% of GDP, just over NATO countries' 2% guideline, bar the United States that spends 3.5% of GDP. By contrast, Saudi Arabia, Iran's next door neighbor, spends 13.7% of its $646 billion GDP on defense, according to an estimate from Stockholm International Peace Research Institute.

However, Iran's Ministry of Intelligence gets a separate 38.9-trillion-rial budget, a tad more than the judiciary system's 36 trillion rials and almost three times the Ministry of Foreign Affairs' 13.3 trillion rials.

> Education and Beyond

Public education spending comes next. The Ministry of Education gets 317 trillion rials ($7.98 billion) for extending public education up to undergraduate education, which adds up to 8.5% of the budget and 2% of GDP.

Higher education gets a lot less. The ministry has earmarked only 15.5 trillion rials for higher education, though state universities have separate budgets. The University of Tehran, Iran's most prestigious university, for example, has a 7.4-trillion-rial budget. But no other university gets such a treatment.

Iran's second and third universities, namely Sharif University of Technology and Amir Kabir University, get 2.7 trillion and 2.5 trillion rials respectively.

> Welfare and Health

Welfare and health also take large bites out of the budget. Rouhani is accelerating plans for national health coverage.

Iran's Health Insurance Organization is getting 100 trillion rials, up 83% from this year. Add to that the Health Ministry's 99.4-trillion-rial budget and money to medical universities, which are part of the health coverage.

Also, the government is spending 108.4 trillion rials for its war veterans, almost all of them from the 1980-88 Iraq-imposed war. A further 63.7 trillion rials will be used by Imam Khomeini Relief Committee, a charity, and State Welfare Organization.

> Oil Taxes and Borrowing

Other ministries' budgets fall below 2 trillion rials, except for Ministry of Roads and Urban Development, Energy Ministry and Agriculture Ministry, which respectively get 86 trillion rials, 75 trillion rials and 33.9 trillion rials.

Over 90% of the three ministries' budget will be invested in development projects.

How will the administration pay for all of this? 1.16 quadrillion rials are estimated to be covered by petroleum sales, mainly crude oil that has seen its prices firm this month, following the agreement between the Organization of Petroleum Exporting Countries and other major oil producers to curb output.

An additional 1.13 quadrillion rials will come from taxes that are projected to yield 8% more than this year. The ministries will provide 511 trillion rials from their earnings.

Rouhani has asked for the rest to be financed via foreign and domestic borrowing, along with money from Iran's sovereign wealth fund, the National Development Fund of Iran.

In all, Rouhani, who faces election for a second term in May, plans to spend 10% more than the current year and has vowed to invest about 20% of the budget to increase growth, hoping hikes in oil sales, taxes and borrowing will cover the costs.

The effects of this year and the coming year's fiscal policies on people's daily lives will determine Rouhani's fortunes for reelection.

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