Budget is the government’s one-year financial plan. It is a document showing the costs of achieving a number of goals.
Among key goals of the budget are improving economic efficiency, income distribution and stabilizing macroeconomic parameters. The budget has three general components: resources that show how the budget is gained, expenses that show how the budget is spent and paragraphs that specify the guidelines for implementing the budget.
Ebrahim Bahadorani, an economist, prefaced his write-up for the Persian daily Donya-e-Eqtesad with this note. A translation of the text follows:
Resources
The total budget of the country is 49,950 trillion rials, indicating a 37% rise compared with last year’s budget.
The budget of state companies is about 28,840 trillion rials, showing a 29% increase.
The public budget of the government is 20,820 trillion rials, marking a 38% increase.
The focus of this write-up is the country’s public budget, the resources of which are provided through three channels of income (51% of the total), transfer of capital assets (35%) and transfer of financial assets (14%).
Revenues
Up to 10,540 trillion rials have been estimated as revenues, indicating a 51% increase.
Components of revenues: tax income (85%), income from government ownership (10%) and sales of goods and received fines and damage (2%).
A: Tax revenues: This figure is projected to stand at 8,100 trillion rials for the current year, showing an increase of 53% compared with 5,280 trillion rials materialized last year.
Note that the tax of non-governmental legal entities is predicted to be 2.3 times larger than last year’s, which is unlikely to materialize given the 45% inflation [even higher rates have been registered this year] and economic growth of 3% in Q1-3 last year and the addition of 2% to the 5% exemption for production units.
According to the proposal of the government and the approval of the parliament, the tax rate and value-added duties on wheat, rice, oilseeds, crude oil, lentils, peas, beans, mung beans, sugar, chicken, red meat and tea were reduced from 9% to 1%.
Jabbar Kouchakinejad, a parliamentarian, says that in doing so, 700 to 800 trillion rials will be added to the budget deficit.
B: Transfer of capital assets: It mainly includes resources from the export of oil, gas and gas condensates, i.e., the export of 1.4 million barrels of oil priced at $85 per barrel, the rate per dollar is 230,000 rials. With 1,500 trillion rials in domestic sales of oil, the predicted revenues will be 6,040 trillion.
At present, oil is priced at $70 per barrel, 1 million barrels of oil and gas are being exported and the domestic sale of each dollar is priced at 285,000 rials.
Given the difference in the exchange rate, the actual sale will be 1 million barrels. On the other hand, sales of movable and immovable assets have been predicted to stand at 1,070 trillion rials.
Note that this sector failed to generate the predicted revenues last year. Up to 2,000 trillion rials were realized from the transfer of capital assets last year, according to Mohammad Reza Mir-Tajeddini, a parliamentarian, i.e., 51% of the targeted revenues.
C: Transfer of financial assets: A total of 2,960 trillion rials have been predicted from the transfer of financial assets this year, indicating a year-on-year rise of 67.2%. Transfer of financial assets would be a useful approach, provided that the resources are spent on productive investments. This comes as over the past years, the resources were spent on current expenses.
Over the coming years, more capital and sub-funds should be provided, therefore the accumulation of financial commitments and imbalances in the budget will have economic consequences.
Expenditure
Expenses have three parts: current expenses (73% of total costs), development costs (17%) and acquisition of assets (10%).
A: Current expenses: Despite the 38% growth of budget expenses, the following items have remained pending; they will definitely compound the budget imbalance in the coming years.
- Pending government debt to banks, which was worth 8,420 trillion rials by the month ending Feb. 19
- Uncertainty regarding the sources of guaranteed purchase of wheat
- The government’s unpaid annual obligations to Social Security Organization
- Pending debts of Petroleum Ministry’s subsidiaries to the banking system.
In addition, the 20% increase in salaries of government employees, despite the 45% inflation of last year, will lead to dissatisfaction and poverty among wage earners.
B: Civil development costs: Despite the 45% inflation of last year, development costs have increased by 26%, showing that the capital expenditure has decreased at constant prices compared with last year, while the sum of investment has not compensated the cost of depreciation in recent years.
C: Acquisition of financial assets: A total of 2,020 trillion rials have been projected for acquisition of financial assets, which will be spent on repayment of due bonds and their interest. Note that the payment of some bonds, which could be extended, has been postponed to the following years.
The following proposals will improve budget balance:
1. Public budget registered a deficit of 3,000 trillion rials in the fiscal 2022-23, thanks to the overestimation of resources and not taking into account costs. The government needs to make efforts to curtail deficit.
2. Receiving rials from the central bank in exchange for oil sales will increase monetary base, liquidity and ultimately inflation. This is against the general policies of the country.
The foreign exchange from the sale of oil should be collected and sold in the market and the received resources should be handed over to the government to prevent inflation.
3. The parliament decision regarding 5% budget allowance from the central bank to petty cash will aggravate the situation. Therefore, the government should try to avoid implementing this misguided monetary policy, just like what it did last year.
4. The loans stipulated in the budget have prompted the government to interfere in the monetary policies and the credit deficit needed by the production and service sectors. In addition to reducing profits, the move inflicts losses on companies.
Investment and production sector should be given priority when it comes to granting loans and the government should avoid allocation of loans that give rise to the inefficiency of economic sectors.
