The government has run into a 450-trillion-rial ($12.8 billion) deficit in the current Iranian year (ending March 19), according to government spokesperson, Mohammad Baqer Nobakht, state-owned news agencies reported.
Despite efforts to contain deficit by raising tax revenues and borrowing, the government has fallen short of its expected revenues while spending more than it planned, leaving a $13 billion hole in government finances.
The admission by Nobakht, also the head of management and Planning Organization, comes after officials denied they would run a deficit this year in summer.
Nobakht changed his stance about hitting a deficit in winter, saying the government would fall short of its plans, though he did not give any figures.
An ongoing slump in commodity prices, which started in mid-2014, plus sanctions on Iran’s oil and banking sectors during the current fiscal year, limited Iran’s oil revenues, its main source of income.
The commodities slump and sanctions also eroded corporate earnings, depriving the government of tax revenues.
According to Nobakht, the administration also ran into problems in finding proper collateral for the bonds it is selling, due to lack of reliable information about government assets.
The administration has put off issuing 10 trillion rials of sukuk, Islamic bonds, for this very reason.
Future Concerns
News of the deficit adds to ever-increasing worries about the state of government finances in the upcoming year.
The government’s general budget, not including state-owned enterprises, is 2,670 trillion rials ($73.3 billion at market exchange rate). This marks a 13.1% increase compared to the year before in rial terms. Iran’s budget for the current year stood at 2,360 trillion ($64.8 billion), according to the budget presented to the parliament for ratification.
Iran also separately budgets some 6,817 trillion rials ($187.2 billion) for hundreds of government banks and companies.
Though next year’s budget is claimed to be balanced, its targets seem lofty and it has the same patterns as budgets before, meaning the government is likely to fall short of its plans.
Countermeasures
However, this is not to say the administration is not trying to make its plans work better. Despite the lifting of sanctions allowing Iran to sell more oil, reliance on crude oil has been trimmed in line with the continuous plunge in crude oil price.
The United States, European Union and the United Nations in Jan. revoked sanctions that had slashed Iran’s oil exports by around 2 million barrels per day (bpd) since its pre-sanctions 2011 peak to little more than 1 million bpd.
It was part of a deal that ended a 12-year dispute between Iran and the P5+1—United States, Britain, France, Germany, China and Russia. It will see to the dismantling of parts of Tehran’s nuclear works in exchange for relief from all sanctions.
The deal, made in July, is a turning point in Iran’s history. With the lifting of sanctions, commercial costs will drop, commercial lenders will be able to reconnect with the global financial system and billions of dollars will be released to the Central Bank of Iran and in turn government coffers. Its effects will help the government in the new Iranian year.
Furthermore, taxation laws are being overhauled to increase tax revenues. Taxes are projected to raise 1,010 trillion rials ($27.7 billion) for the year, up a lofty 17.3% from this budget’s 861 trillion ($23.6 billion).
“Currently tax revenues account for 7 to 7.5% of gross domestic product, and it is going to reach 10% [in the next six years],” Nobakht said, state-owned IRNA reported.
The government is testing new financial securities to help it with funding. The Rouhani administration is also counting on foreign investment and recovery of private businesses for more revenue. It expects a 15% hike in non-oil exports and plans to attract billions in foreign investment.
How much of these plans is wishful thinking remains to be seen. For now, the government has a $13 billion hole to fill, with the least possible damage to the economy.
