Domestic Economy

Gov’t Needs to Readjust $-Rial Parity in Budget

Gov’t Needs to Readjust $-Rial Parity in Budget
Gov’t Needs to Readjust $-Rial Parity in Budget

Next year’s budget must be based on a 30,000-rial US dollar exchange rate, chairman of the Chamber of Commerce, Industries and Mines, Yahya Al-e Es’haq, suggested on Tuesday.

“Stability in the foreign exchange market will impact government revenues, exports, imports and domestic consumption rates, among other things,” he was quoted by MNA as saying.

Currently, Iran has a multiple exchange rate system. The dollar from the CBI is traded around 26,790 rials and the free market rate is over 32,520 rials; denoting a difference of almost 19 percent.

The Central bank of Iran is trying to reduce the rial’s official exchange rate while it seeks to strengthen the market rate for the national currency. The CBI aims to turn the country’s exchange rate regime to a unified one, or a managed float regime.

Al-e Es’haq further said that the oil price for the next year’s budget must be decided taking a “realistic” view of the world market, adding that the oil prices in the international market will be determined according to supply and demand, so “it is subject to volatility’’.

“However, the risk of oil price fluctuations can be countered through resources that can replace our reliance on oil revenue.”

He also said that there is a political game going on at the international oil market. “We have an age-old problem, and that’s the overreliance of our economy and the budget on oil,” Al-Es’haq said, adding that promotion of non-oil exports is the only solution to end the national economy’s dependence on oil. Meanwhile, he predicted that the next year’s budget will likely be based on an oil price of around $70 to $80.

The prediction exactly matches what the government spokesman, Mohammad Baqer Nobakht, announced last week. He said that the next year’s budget will be based on an oil price of around $70 to $80 in a bid to prevent possible oil fluctuations from having a negative impact on Iran’s economy and create a budget deficit as a result. Oil is the major source of revenue for the Iranian government and accounts nearly for 80% of its annual revenue.

Brent crude oil reversed early losses to rise back towards $80 a barrel on Tuesday, recovering from last week’s four-year low as speculation increased that OPEC could cut output at its meeting on November 27.

Iranian economy’s overreliance on oil revenue has caused fear among many experts who believe that the government will be faced with budget deficit, should it make wrong estimates about the oil price for the next year’s budget.

 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.