Business And Markets

Private Sector Concerned Over High Budget Deficits

Private Sector Concerned Over High Budget Deficits
Private Sector Concerned Over High Budget Deficits

Private enterprise has voiced concern that a possible budget deficit may impact businesses, livelihoods and the economy at large.
Masoud Khansari, head of the Tehran Chamber of Commerce, Industries, Mines and Agriculture, pointed to the steep increase in government spending in less than three months into the present fiscal year (ends March 2022) compared to the year before, saying that a probable budget deficit will expand the monetary base and, by extension, fuel the already high   inflation.
“Government's planned spending in current fiscal year's budget is at least 81% higher than the year before. Under the conditions [another] huge budget deficit would be inevitable,” he told the TCCIM monthly meeting on Tuesday.
Perennial deficits and lack of sustainable resources to compensate deficit spending have pushed up inflation in recent years. Deficits have led to the rise in money supply and fueled  inflation.
“Money supply rocketed from 4,600 trillion rials ($20 billion) in 2011 to 34,760 trillion rials [$151b] last year. This is the main reason behind the galloping inflation,” he was quoted as saying by the TCCIM website.
Citing a report by the Social Security Organization's Research Institute, he said social inequality has increased due to the recession, increasing money supply and inflation.
“The population living below the poverty line has increased from 15% to 30%,” he said, recalling the impact of poor fiscal discipline of the government on the livelihoods of the masses.
Inflation has created monumental challenges for the business environment and “investment has declined due to the inflationary trends.”
The national currency has been battered by prolonged periods of inflation. “Iran topped the list of countries with highest national currency deprecation last year,” he rued.
Data by the Statistical Center of Iran show the average goods and services Consumer Price Index in the 12 months ending May 21, which marks the end of the second calendar month of fiscal 2021-22, increased by 41% compared to the corresponding period the year before.
SCI had put the average annual inflation rate for the preceding Iranian month ending April 20 at 38.9%.
Consumer inflation for the month under review (April 21-May 20) shot up 46.9% compared with the same month last year.

Unbalanced Budget

The Rouhani administration has been criticized for making ambitious and unrealistic revenue projections in drafting the 2021-22 budget and has been asked by the Majlis to cut spending.
Overreliance on financial resources of the National Development Fund of Iran (the sovereign wealth fund), steep increase in taxes and pervasive increase in spending for state-run companies have been major concerns.
In addition, this year’s budget is expected to give further rise to money supply and push inflation higher by imposing unprecedented financial burden on banks, raising concerns by the Central Bank of Iran.
This year’s budget includes new decrees to the central bank and the banking sector, which very likely will result in high-powered money and money supply growth.
There are fears that overburdening banks with assorted funding and lending obligations can and will undermine the CBI’s efforts to improve their weak balance sheets.
The Majlis has instructed specialized and commercial banks to extend $3 billion inn credits, either in rial or foreign currency,  for infrastructure and development projects.
In addition, it has approved home loans to the tune of 3,600 trillion rials ($14.5b) to first-time homebuyers to encourage marriage and childbirth.
Banks are also required to offer interest-free loans worth 250 trillion rials ($1 billion) for creating jobs and self-employment. The list is long and the ability of banks limited.




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