Gov’t Draws on NDFI to Advance Economic Agenda

The Cabinet recently approved a bill allowing it to take $1.5 billion from the National Development Fund of Iran for creating jobs in rural and nomadic areas.

The money from Iran’s sovereign wealth fund will be given out as loans for job creation, though details of the plan have not been released.

The bill now only requires parliamentary approval to go into effect.

Minister of Labor and Social Welfare Ali Rabiei recently wrote a letter to the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, informing him about the plan. Thus, its approval by the MPs is likely.

The Sunday Cabinet meeting was presided over by First Vice President Es’haq Jahangiri, in the Planning and Budget Organization’s report on the next fiscal year’s budget was reviewed.

The next Iranian year starts in March 2017 and the president usually takes the budget to parliament in December. This will be President Hassan Rouhani’s last budget as he is expected to prepare for reelection for a second term next summer.

Though no information about the budget has been released, we may expect a more tempered budget as the excitement of sanctions relief that propped up the hopes of government officials last year has dissipated.

Also, low oil prices will keep the role of taxes at the forefront as the main source of government revenue.

The Rouhani administration has weathered a huge storm. It inherited a shrinking economy with galloping inflation, which was under the most stringent sanctions regime.

Since his election, sanctions have been lifted, inflation has fallen from over 40% to under 10%, but growth has not come strongly. Weak growth and high unemployment, especially among Iran’s young population, will hurt Rouhani’s reelection campaign, as conservative populists still have a strong base of supporters.

The Statistical Center of Iran put the unemployment rate in summer at 12.7%. The figure marks a 1.8% increase compared with last summer and a 0.5% rise compared with the previous quarter (March 20-June 20, 2016). The new data show 3.33 million Iranians were unemployed in Q2. It also shows 10.4% of men and 21.8% of women of ages 10 and above were jobless during the period.

According to SCI, the unemployment rate was 14.4% for urban areas and 7.9% for rural areas. In other words, joblessness was higher among women compared to men and among those living in urban areas than rural people. The youth unemployment rate, i.e. the proportion of the population between the ages of 15 and 29, stood at 26.7% in summer, registering a 3.3% rise compared with the same period of last year and a 1.8% increase over last quarter.

Given the precarious situation of government finances—its books are riddled with bad debt and deficit from large operational expenses—it is looking to NDFI, with its over $68 billion in assets, to help plug the budget deficit.

The NDFI was created in the 2000s to save up oil revenues to develop Iran and invest overseas for future generations. However, former president Mahmoud Ahmadinejad declined to increase the fund’s share of oil revenues, as he was obligated, and instead treated the fund as his piggy bank to fund profligate projects.

The Rouhani administration has not been much better for the fund. Due to falling petroleum revenues, which have traditionally made up the bulk of government earnings, NDFI’s coffers did not grow. However, the fund has been allowed to operate somewhat independently.