Domestic Economy

Oil Price Not Higher Than $80 for Next Budget

Oil Price Not Higher  Than $80 for Next Budget
Oil Price Not Higher  Than $80 for Next Budget

Next year’s budget will be based on an oil price of around $70 to $80, ISNA quoted Mohammad Baqer Nobakht, government’s spokesman, as saying on Friday.

“No official resource has yet predicted the oil prices in the international markets to fall under $79 per barrel,” he said, adding that what is important and is already considered by the government is the proper planning and allocation of available financial resources as was done during the current year, despite all the problems the government faced in the budget planning process

The annual budget provides a detailed projection of all estimated revenues and expenditures based on revenue forecasting for each fiscal year.

Earlier this week, Nobakht had said that the government has prepared two versions of the draft budget for the next fiscal year (March 2015-March 2016) in an attempt to reduce the inflation rate and stimulate economic growth. The first version focuses on countering the possible difficulties in case the US-led sanctions remain in place and the second one foresees different expenditures in case of sanctions’ removal, which would bring about larger revenues for the government.

Calling for a more purposeful use of the government’s “very limited” resources, Nobakht said, “The government’s annual revenue has plunged by almost 70% from nearly $110 billion to $26 billion.” Therefore, he asserted, with the recent drastic plunge in oil prices and also the drop in government revenue, the available resources must be allocated to the sections with the highest rate of productivity.

Brent crude, a benchmark for oil, has plunged more than 20 percent since peaking in June at about $115 a barrel amid oversupply due to US shale production and lack of demand in the market. Persian Gulf benchmark oil’s spot price fell to around $80 on Wednesday.

Besides, oil price fluctuation is highly likely to be followed by drawbacks for the government. Experts believe that the government will likely face a budget deficit in the remaining months of the current Iranian year (ending March 21, 2015). This year’s budget was based on $100 oil.  Ahmad Tavakoli, a prominent conservative lawmaker, last week stated that given the economy’s overreliance on oil, “a budget deficit is imminent as the global oil prices keep going down.”

He made the remark in response to recent statements by some government officials who rejected any possible fiscal deficit for the current year, despite the drastic fall in the global oil prices.

The government will be also possibly forced to formulate a contractionary budget bill for the next fiscal year in order to compensate for the loss of revenue resulted from the drop in oil prices. “Given the current fluctuation in the oil market the next year’s budget will be more contractionary than the current year’s budget,” Nobakht had said earlier this week.

Current uncertainty in the international oil market has also made it difficult for the Rouhani administration to make precise estimates for the oil price to be included in the budget, a major source of revenue for the government that is expected to account for almost 80% of its annual revenue for the next year budget bill.

On Saturday, Arsalan Fathipour, chairman of the economic committee of the parliament, said that the oil price for the next year’s budget must be estimated at around $80to $85 per barrel, warning  that basing the budget on an oil price higher than $85 for next year will be “unrealistic” and could result in a rise in the inflation rate.

“Given that the price for Iran’s oil has fallen under $80 per barrel, it is possible that the government would face a budget deficit next year,” the lawmaker warned.