Deputy Economy Minister Abbas Hosseini said 62 state-owned holdings are loss-making.
“The accumulated losses of these companies account for more than 50% of their assets, which means they are in effect bankrupt and loss-making,” he was quoted as saying by Fars News Agency.
The deputy minister noted that there are 451 state-owned companies in Iran, 379 of which receive budget from the government.
Noting that the current fiscal year’s general budget stands at 37,000 trillion rials ($116.7 billion), Hosseini said state companies, banks and for-profit organizations account for 60% of the budget worth 22,000 trillion rials ($69 billion).
“Over the past six years, state-owned companies had a 66% share of the government’s general budget on average,” he added.
“Loss-making government companies have not been removed from the fiscal 2022-23 budget,” Parliament Speaker Mohammad Baqer Qalibaf said after President Ebrahim Raisi submitted the budget bill to parliament on Dec. 12, 2021.
According to a report by the Supreme Audit Court of Iran, not only these loss-making companies have remained in the fiscal 2022-23 budget, they received 34% more in funding compared to last year’s budget.
The report shows seven state companies accounted for half of all expenses and revenues in the 2022-23 budget.
According to the Supreme Audit Court of Iran’s report, five companies, including Bank Sepah, Islamic Republic of Iran Broadcasting, IranAir and Road Maintenance and Transportation Organization, account for more than 96% of all losses borne by state-owned companies.
“The rise in the budget of these companies shows that their ownership transfer to the private sector, or the enactment of Article 44 of the Iranian Constitution [which calls for the privatization of major state-owned companies] may slow down,” Hadi Haqshenas, an economic expert, said in an article published by the Persian daily Arman-e Melli.
Widening Deficit
Iranian governments have perpetually failed to meet the budget revenues and expenses year over year.
“Many economic woes, including inflation, are rooted in the imbalances and deficits of the budget approved by the parliament. However, the parliament is acting as if it has no role in economic problems,” Vahid Shaqaqi-Shahri, an economist and university professor, told the Persian daily Ta’adol.
“It was only a few months ago that teachers’ salaries were increased by the parliament. You cannot increase teachers’ salaries but keep the salaries of retirees and workers unchanged. The ripple effect of these decisions will increase the budget deficit. Therefore, the parliament must be held accountable for its role in the problems arising from the budget and inflation,” he declared.
Hossein Haqgou, another Iranian economist, says there is a direct correlation between government budget deficit and inflation.
“There is a direct correlation between inflation and the government’s spending splurge, budget deficit and relentless money printing. Inflation is different from price gouging and governments try to characterize these two as one; they disrupt price system via policing and deceive the people. These measures won’t lead to a decline in prices; rather, fear and worries and the decline in supply and investment result in increasing prices,” he told the Persian newspaper Shargh.
Growing Debt
To plug the growing budget deficit, the government issues debt bonds.
“In the fiscal 2022-23 budget, the government has explicitly reduced the issuance of bonds compared with the current year and the last. However, in two sections of the budget, the government is allowed to issue bonds if other projected revenues do not materialize: one is the section on oil revenues [in case the government fails to sell 1.2 million barrels of oil per day multiplied by 230,000 rials multiplied by $60] and the other is the section on the transfer of state-owned assets [in case the government fails to sell state-owned companies] ,” said Mohammad Qasemi, the head of the Research Center of Iran Chamber of Commerce, Industries, Mines and Agriculture.
“What is very important here is that issuing bonds to address budget deficit is not an inept approach per se. On the contrary, debt issuance can be an effective mechanism to control expenses; the government needs to correct its misunderstanding regarding this matter.”
Underling the importance of reforming the budgeting system, the official said both resources and expenditures must be taken into account in tandem.
“We need to recreate the government in the sense that overlapping assignments in the government should come to an end. The government’s expenses should become transparent for taxpayers. On the revenue side, tax bases must expand from a scientific and accurate points of view. It was my wish to see oil revenues being completely deposited in the National Development Fund of Iran and the government issue bonds to tackle budget deficit. We should have used oil income on the development of the country rather than on paying remuneration of government employees,” he said.
Mahdi Ghodsi, an economist at the Vienna Institute for International Economic Studies and an Adjunct Professor at Vienna University of Economics and Business, told the Middle East Institute that although in the past, oil revenues exceeded the general government budget, Iran allocated part of the budget to repay previous debt at maturity.
“But when oil revenues are so low that they cannot cover the matured debt, the amount of borrowing exceeds the previous debt repayment. Only in 1999-2001, under then president, Mohammad Khatami, was the government’s net borrowing negative, meaning part of the government debt was being paid off without creating new debt. In all other years, governments have been borrowing more than they were repaying,” he said.
Ghodsi noted that fiscal discipline was at its worst in real terms in 2006-09 under ex-president, Mahmoud Ahmadinejad, despite the peak in oil revenues, and during ex-president, Hassan Rouhani’s second term (2017-21), especially since the US reimposed secondary sanctions in 2018.
