Domestic Economy

New Budget to Restrain Inflation

New Budget  to Restrain Inflation New Budget  to Restrain Inflation

President Hassan Rouhani said on Sunday that curbing inflation is the main target of his administration’s proposed budget for the next fiscal year, starting March 21, 2015.

He made the remarks while addressing the parliament on the budget bill he submitted a day after the date (December 6) set by lawmakers back in 2008 as a deadline for budget submission.

“Once again, I explicitly announce that the administration considers curbing inflation as its main goal in the next year’s budget,” the president said. "The goal can be achieved by controlling and reducing the money base and liquidity."

Rouhani said his government will be trying to maintain the current declining trend of money base and liquidity in the country in the coming years in a bid to rein in inflation, which stood at 18.2% in the 12 months ending November 21, down from more than 35 percent a year ago.

Central bank officials have targeted an inflation rate of 15% for the next fiscal year.

"The money base in the seven months ending October 21 grew 18.1%, while the average money base growth in the past 23 years stood higher at 21.1%," Rouhani said, implying that his administration's financial discipline has worked since he took office in the summer of 2013.

Money base in a country is defined as the port of the commercial bank's reserves that are maintained in accounts with their central bank plus the total currency circulating in the public.             

“As we have stated several times, inflation is unlikely to reduce when the country is grappling with liquidity and economic instability. Therefore, curbing the liquidity is an important precondition for curbing inflation,” he explained.

The president also said that his administration has paid a special attention in its proposed budget to the measures that would help exit recession.

“Since last year, the government has adopted a plan of action to exit recession, in an attempt to improve business environment, support manufacturing and encourage investment,” President Rouhani said, adding that “the same policies adopted in the action plan will be applied throughout the next year’s budget.”

Since President Rouhani took office, his government has tried to attach great importance to manufacturing and non-oil exports as engines of growth and development. In its plan of action, the government has included proposals aimed at increasing support for the country’s businessmen, especially non-oil exporters, as an effective way to pull the economy out of recession and introduce Iranian brands to global markets.

After eight consecutive quarters of negative growth, Iran’s economy eventually exited recession in the first quarter of the current fiscal year (spring). The central bank announced the economy grew by 4.6% in spring.

  Budget Details

The proposed general budget, which includes both the budget of state-run enterprises and the budget of the government, amounts to 8,370 trillion rials, up from 8,030 trillion rials for the current budget.

The government budget amounts to 2,670 trillion rials. Last week the president said the government budget amounted to 2,196 trillion rials but noted that it might slightly change before being sent to the parliament.

The price of oil for the next budget bill was set at $72 per barrel, after weeks of discussion among economists and officials to reach a reasonable price.

Last year, the government set the oil price at $100 per barrel, which caused serious financial problems later in the year when oil fell in international markets to as low as $66 per barrel.

Oil revenues account for 33 percent of the budget next year.

The US dollar rate was set at 28,500 rials for next year’s budget.

The salary of government employees is planned to rise by 14 percent, while it was increased by 20 percent in the previous budget.

As estimated, the government considers that it would save up to 480 trillion rials through the implementation of the Subsidy Reform Plan. Of the amount, 15 trillion rials will be allocated to the housing sector and 10 trillion rials to the job market.

Under the budget bill, some 730 trillion rials of capital assets, including oil and properties, are to be sold to the private sector.

About 310 trillion rials in financial assets including participatory bonds, treasury documents, and Islamic rental bonds (Sukuks) are to be sold to the private sector. This is the first time that the Islamic rental bonds are included in the budget in a separate section.

The government has predicted to earn 10 trillion rials from selling capital assets and 15 trillion rials from selling movable and immovable properties.

The budget also allocated 480 trillion rials to national and provincial capital projects, which registers a 16 percent growth compared to 410 trillion rials in the current budget.