The government says its expenditure on development projects has increased, despite a decline in revenues.
Capital expenditures exceeded 520 trillion rials ($2 billion) in the eight months to Nov. 20, indicating a 31% increase compared with the corresponding period of last year.
According to a report by IRNA, citing the Plan and Budget Organization of Iran, unlike previous years, 30% of the capex payments this year were in cash rather than Islamic treasury bonds.
The report adds that as per the budget bill of the next fiscal year (March 2021-22), expenditures projected for development projects have increased by 18% to reach 1,040 trillion rials ($4 billion).
Vice President for Parliamentary Affairs Hossein Ali Amiri submitted the budget bill for the next Iranian fiscal year (March 2021-22) to the parliament on December 2. Unlike previous years, President Hassan Rouhani did not show up at the parliament for the budget day upon the advice of the National Headquarters to Flight Coronavirus.
In the next fiscal year (to start March 21, 2021), the operating budget (including revenues derived mainly from taxation and exports at the disposal of the government) has been projected to stand at 8,413 trillion rials ($32.35 billion at the market exchange rate of 260,000 rials per dollar).
Add to this, revenues exclusive to ministries and governmental institutions worth 884 trillion rials ($3.4 billion), which takes the total sum of the general budget to 9,298 trillion rials ($35.76 billion).
The budget of state companies, banks and for-profit organizations has been put at 15,619 trillion rials ($60 billion).
All in all, the ceiling set for the government’s total budget is at 24,357 trillion rials ($93.68 billion).
After studying the bill, MPs will put forward their proposals to the parliament’s special commissions.
Members of the special commissions of the parliament will then submit their proposals and amendments to the budget bill to Majlis Joint Commission.
The commission is a parliamentary body responsible for reviewing the budget bill as well as the five-year economic development plans proposed by the government before its final ratification.
The commission will have one month to bring the budget bill to the open session of the parliament.
The parliament-approved budget needs the final endorsement of the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.
Shrinking Capex Share in Budget
Government expenditure on civil development projects has been on the decline between March 2010 and 2019.
Capital expenditures accounted for 25% of the government’s general budget in the fiscal 2010-11 compared with 12.8% in the current year’s budget, according to a report by the research arm of the Iranian Parliament.
The capital expenditure to operating expenses ratio also declined from 45% in the fiscal 1997-98 to 14% in the current fiscal year (March 2019-20).
Data provided by Majlis Research Center show that on average 93% of projected figures for operating budget have been materialized over the past 24 years compared with 66% of the projected capital expenditure.
The report goes on to note that capital expenditure projected in the budget bill for the next fiscal year (March 2020-21) is 704 trillion rials ($2.7 billion), registering a 5.2% growth compared with the current year’s budget law.
Notably, the private sector invested 450 trillion rials ($1.7 billion) in development projects from Sept. 23, 2015, to March 20, 2018. Private investment stood at 40 trillion rials ($153 million) in the fiscal 2018-19.
According to the report, private inventors have not participated in any development projects from March 2019 to date.
Victim of Budget Deficits
Successive budget deficits in Iran have taken a toll on development projects, leading to underinvestment and abandonment of many projects.
Figures published by the Central Bank of Iran show the budget earmarked for the development sector has never been fully allocated in the past few years, as the government failed to provide the projected funds.
“The main reason for the government’s failure in providing resources for development is that it fails to achieve its target revenues,” economic expert Mohammad Taqi Fayyazi told the Persian weekly Tejarat-e Farda.
In fact, the government only met 58%, 68% and 39% of its projected development spending during March 2015-16, March 2014-15 and March 2013-14 respectively.
“Resources are allocated based on priorities that include salaries and wages of state employees and the repurchase of issued bonds and payment of interests … What little remains goes to development projects,” Fayyazi said.
The government holds a majority stake in Iran’s economy, bringing about low productivity and high costs. Most of its revenues are spent on running ministries and their affiliated companies and organizations. And the administration is unable to reduce most of this.
“Every budget bill has fixed and flexible parts. A smaller and more agile government means the inevitable [fixed] part of the budget, comprising salaries and costs, is small and the flexible part is larger,” he said.
Fayyazi noted that Iran’s budget faced problems following the reduction in oil price and shrinking crude exports as a result of sanctions.
“This is while lowering the costs at that point was impossible. The only way out was to cut the resources allocated to infrastructures,” he said.
Low infrastructure spending compounds the lingering recession in Iran’s construction sector. For years, steel, cement and other construction industries have suffered a prolonged slowdown resulting from a drop in demand.
“Some 75% of Iran’s development budget are associated with construction,” Fayyazi said. “If the development resources are allocated, the construction sector will thrive.”
He noted that due to limited liquidity, the government has failed to pay its liabilities to contractors whose role in the economy has been shrinking in the past few years.
