The country is facing a budget deficit hovering between 2,500 trillion rials ($4.9 billion) and 4,000 trillion rials ($7.88 billion) in the new fiscal year (started March 21), a member of Majlis Economic Commission recently said.
This indicates that economic indicators will continue to deteriorate in the new year. The interesting point is that the person who broke this piece of news is a legislator and a member of joint and economic commissions. He must be asked how the respective parliament seeks to increase the cap on the budget, despite knowing about the high budget deficit. Does the increase in budget have a different connotation other than higher budget deficit?
Morteza Afqeh, an economist, prefaced his write-up for the Persian daily Ta’adol with these questions. A translation of the text follows:
Budget deficit is definite when oil income is limited and there is no substitute for it. Since the fiscal 2018-19, the government has exhausted all avenues of generating income; it has increased taxes and sold bonds, borrowed from banks and sold state assets to meet its budgetary needs. These sources have been tapped by the government to replace oil income.
As long as sanctions are in place and there is no oil income, the government cannot take any step to generate revenues. Therefore, the government will have to grapple with even wider deficits.
The government should have improved production and businesses to augment tax revenues, if it was willing to find an alternative for oil revenues. But since the government lacks expertise and plans, it fails to take any measure to increase production. Budget deficit is bound to widen when the main sources of income are oil and taxes, and both of these sources are in an unfavorable situation.
Budget deficit is bound to widen when the main sources of income are oil and taxes, and both of these sources are in an unfavorable situation
In the case of budget deficit, the government has to resort to printing money and borrowing from the banking system, which aggravate money supply, monetary base and inflation.
Iran’s economy keeps registering budget deficits, whereas the regional countries observe financial discipline. Turkey, Saudi Arabia, the UAE and Qatar are trying to propose budgets with the lowest deficit possible.
For decades, developing countries have strictly observed financial discipline. In these countries, money supply growth must be commensurate with GDP growth. When these proportions are taken into consideration, both money supply growth and inflation will be controllable and as a result, the welfare of the society will improve. But in Iran, budget deficit has become chronic and governments do not try to end it, which trend has reached an alarming level under the current government.
Budget deficit used to hover around 1,000 trillion rials ($1.97 billion) or a maximum of 2,000 trillion rials ($3.94 billion), but today even parliamentarians speak of a budget deficit amounting to 3,000-5,000 trillion rials ($5.91-$9.86 billion), i.e., 40-50% of the total budget. In recent years, Iran has not only failed to create sustainable economic growth, but also fallen into recession, thanks to the measures taken by the government and parliament.
We need to know that a high budget deficit can have devastating consequences for the economy. When experts warn about it, the least the government and parliament should do is to avoid raising the budget ceiling. They can increase productivity and trim unnecessary expenses from the budget.
However, they don’t care about this necessity, because lawmakers are readying for upcoming elections in the new year and the government must provide them with more funds.
Under the circumstances, what is being neglected is the needs of the public who start each year worse than the previous year and have to experience money supply growth, inflation and more poverty.
