The government will run a deficit of 3,000 trillion rials ($10 billion) in the next fiscal year (March 2022-23) as per the figures of the budget bill recently submitted to the parliament for approval.
The deficit was estimated by Abbas Alavirad, an economic expert, in an article for the Persian daily Ta’adol. A translation of the article follows:
The budget for fiscal 2022-23 will face a deficit of more than 3,000 trillion rials. This is an undeniable reality of next year’s budget will.
In the meantime, two different pictures from fiscal 2022-23 budget deficit are available.
The first picture shows the absolute budget figures, based on which the government will run a deficit worth 3,010 trillion rials in terms of the operating budgetary balance. This is very dangerous and will lead to a crisis. The message it gives is that the structural problems of the budget remain unresolved, i.e., the government’s sustainable revenues, including tax and customs revenues, cannot cover its expenditures. This picture tells us that the incumbent government (led by President Ebrahim Raisi] has not put forth any plans to fix the budget deficit.
But the second picture shows that in order to weigh calculations based on the growth rate, we need to go beyond absolute figures and carry out a comparative analysis. We need to see where the proposed budget stands in comparison with the current fiscal 2021-22 budget in terms of the deficit of operating budgetary balance. From this perspective, it can be said that the next year’s budget is sending promising signals.
Although these developments are marginal, you can see some improvement. There was an operational deficit worth 4,640 trillion rials [$15.4 billion] in the fiscal 2021-22 budget, which figure has decreased by 35% or 1,630 trillion rials [$5.4 billion] to 3,010 trillion rials in the fiscal 2022-23 budget. Despite the fact that the government has not solved the structural problems of the budget, it has tried to reduce what everyone believes is the root of the country’s many economic problems, i.e., the operating deficit.
I have tried to be fair in presenting these two pictures from next year’s budget, but most economic experts have employed critical approaches toward this budget. They say the government has decreased the operating deficit by 35%, although the government’s current expenditures have increased by 5%.
Now that the country is wrestling with 44% inflation, the 5% increase in government spending would translate into a sharp decline in the real power of government spending. These criticisms are quite true. But on the other hand, if the defective economic cycle of the country is to be fixed, some side effects must be tolerated. You cannot control budget deficit and at the same time increase expenditures.
To address the budget deficit, the government has included a growth of more than 60% in customs and tax revenues for which the government has been criticized.
I believe that the Iranian economy should decide where its priorities lie. Some individuals are engaged in sloganeering that governments in Iran should curb tax exemptions, stand against speculative practices and increase the dependence of the budget on taxes, but they start criticizing as soon as efforts are made to increase taxes. It should be noted that the government has not increased the tax rate for economic players, rather it has tried to increase tax revenues by developing tax bases (tax on empty homes, luxury cars, etc.) I believe that tax revenues should be allowed to increase.
In general, the fiscal 2022-23 budget is such that both opponents can criticize the government for its shortcomings (and these are reasonable criticisms) and there are few indications that it is moving in a relatively favorable direction. However, heavy reforms need to be considered, if we are to end the dangerous loop that has entangled the Iranian economy for the past 50 years, which involves the recurring cycle of inflation, for which the government creates a budget deficit, then increases money supply and worsens inflation.
In any case, this ominous cycle must be stopped somewhere for the Iranian economy to find some calm. These changes have consequences, such as surgeries that involve some bleeding.
I tried to evaluate the budget figures both in absolute terms and in comparative perspective. I believe that the budget has some minor positive aspects, yet structural problems remain in place.
Perhaps, the parliamentarians will add to the budget deficit. So, we have to think about introducing structural reforms in the budget, for which nothing has been done yet.
