Domestic Economy

Downward Adjustment to Oil Price Forecasts in 2015-16 Budget

Downward Adjustment to Oil Price Forecasts in 2015-16 Budget
Downward Adjustment to Oil Price Forecasts in 2015-16 Budget

Minister of Finance and Economic Affairs, Ali Tayebnia, announced on Thursday that the administration is going to lower the oil price assumption in the next year’s budget to $40 per barrel in an attempt to cushion the country against the falling global oil prices, IRNA reported.

“The government is planning to revise its draft budgetary plans to assume an oil price of $40 per barrel in next year's budget (starting March 21, 2015),” said Tayebnia, without elaborating on the possible strategies likely to be adopted by the government to cope with budget deficit and financial setbacks resulting from ongoing turbulences in the international oil market.

Oil price in the international markets has fallen in the past seven months from $114 per barrel in mid-June to below $50 per barrel in recent days, leaving the oil-dependent countries uncertain about the future impacts of the thumbing oil prices on their economy. Oil revenues account for more than 30 percent of Iran’s total revenues and more than 80% of the country’s export earnings.

The government proposed in early December its draft budget to the parliament based on an oil price of $72 per barrel, $30 less than the price assumed in current year’s budget. The parliament is expected to release its final report on the budget bill before the end of February. If approved by parliament, the budget bill will then be passed on to the Guardian Council whose approval is needed for the bill to become a law.

The proposed general budget, which includes both the budget of state-run enterprises and that of the government, amounts to 8,370 trillion rials ($294 billion at the official exchange rate of 28,500 rials to the US dollar), up from 8,030 trillion rials in the current budget. The budget amounts to 2,670 trillion rials ($93.7 billion).

The authorities see the global oil turmoil as a “conspiracy” orchestrated by the countries in the region with the aim of persuading Iran to withdraw from its policies in the region and to compromise on its nuclear program.

“Today’s war is more severe that the eight-year imposed war (with Iraq, 1980-1988). To overcome it, we must be united,” Tayebnia said, voicing the opinion with other officials that the drop in global oil prices is in fact a war against Iran.

  Foreign Investment Boom

In separate remarks, Tayebnia said foreign investors are rushing to get a piece of the action from Iran’s lucrative market.

“Many foreign investors are eying to return to Iran’s market, an indicator that foreign investors will have a strong presence in Iran in the near future,” he said.

Upon his election, President Hassan Rouhani, promised to open up Iran’s economy to the outside world, following years of stagnation created mainly as a result of the ongoing dispute with the West over Tehran’s nuclear energy program.

The decade-long nuclear standoff between Iran and the West has made many foreign investors avoid taking the risk of making investments. However, with nuclear talks currently underway between Iran and the P5+1, the government hopes that a final deal will make the participation of foreign companies in large projects possible.   

“The progress made in foreign policy drew foreign investors to look for opportunities in Iran and choose the country for investment,” Ali Tayebnia said, noting that foreign investment is showing a positive trend after two years of stagnation impinged upon the country’s economy as a result of the sanctions and recession.

 On October 7, Rouhani said that his government has prepared a comprehensive plan to attract foreign and domestic investors, a move which is seen to be a part of his government’s broader plan to stimulate the economy that plunged into recession for two consecutive years.

“The administration is seeking to provide a proper and secure investment and business environment, create market stability and optimism for the future and is, thus, taking measures to assure good returns on investments for the private sector,” Rouhani said.