Economy, Domestic Economy
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Contractionary Policies in 2015-16 Budget

Contractionary Policies  in 2015-16 BudgetContractionary Policies  in 2015-16 Budget

The Rouhani administration is determined to reduce the inflation rate and boost economic growth and, therefore, has prepared two versions of the draft budget for the next fiscal year (March 2015-March 2016). The first one focuses on countering the possible difficulties in case the US-led sanctions remain in place and the second one foresees different expenditures in case of sanctions' removal and earning larger revenues, Mohammad Bagher Nobakht, the vice president for planning and strategic supervision said in a televised interview on Monday.

 

While preparing the proposed draft budget, the budget formulation team has considered the oil price fluctuations, although the next year's budget is more contractionary than that of the current year and can act as a source of stability and keep the economy on the right track, Nobakht said. "About 95 percent of the financial resources are predicted to be provided from collecting taxes and all those who are used to evade taxes must pay taxes under the new regulations, which are more transparent than the past."

In accordance with the president's recent call for reviving the Management and Planning Organization (MPO), the organization is set to be reestablished but will function more efficiently, Nobakht said Monday.

The vice president hoped that the administration could come to a precise decision about the revival of this organization.

Nobakht further stated: “We do not expect to return to the same organization but our decision is to reestablish the MPO as a small and active organization.”

In the Monday afternoon session of the Supreme Administrative Council chaired by the First Vice-President, Es'haq Jahangiri, participants agreed on the outline of a plan to revive the MPO. Speaking at the meeting, Jahangiri said that the MPO is a must for any developing country with short and long-term planning for its economy.

Jahangiri underlined the need for sound management of the state affairs and the revival of the MPO as well as the removal of its weak points and said the MPO should be an efficient organization- one which can regulate and soundly supervise over the macroeconomic planning procedures.

The MPO once was the key body to evaluate the country's resources and prepare its medium and long-term development plans and policies. It was previously known as the Plan and Budget Organization (PBO) and was one of the largest governmental establishments in Iran from 1948 until 2007.

In July 2007, the MPO, responsible for preparing the budget bill, was dissolved after a direct order from the former president Mahmoud Ahmadinejad. Ahmadinejad established a new budget planning body working directly under his supervision; a move that many analysts said gave him a freer hand to manage the resources and the budget distribution mechanism.

During his election campaign in 2013, Rouhani promised to restore the organization; however, he has so far fallen short in its efforts to revive it. For a brief period the Economic Coordination Office of the president was introduced to play the MPO's role. But, on October 9, President Rouhani again called for MPO's revival.

The Management and Planning Organization will be reestablished upon merger of the two Administrative and Recruitment Organization and Plan and Budget Organization, the latter founded in 1948.

>>> Next Year's Budget

The government's budget headquarters will submit the budget report for the next fiscal year (starting March 21, 2015) to the cabinet this Wednesday and the budget draft will be presented to the parliament afterwards on November 23, Nobakht said.  

The annual budget provides a detailed projection of all estimated income and expenses based on forecast sales revenue for each fiscal year, he added. "When the current year's budget was submitted to the parliament, the president highlighted the need for reducing the inflation rate as one of the main targets, and today the inflation stands at 19 percent," Nobakht said. "We have put the recession behind and can witness economic growth, and all the budget resources have been spent to meet these purposes."

President Rouhani submitted his administration's first state budget last year. The bill, worth 7,930 trillion rials ($319 billion at the official exchange rate) included cuts in spending in an effort to repair state finances.

Iran's budget announcements involve a string of revenue assumptions that are subject to sudden change, making it very difficult to make firm estimates for the government's budget deficit in the next fiscal year.

>>>Budget Deficit

As Nobakht had announced on November 6, no budget deficit will be in sight for the fiscal year 2014-2015 and the government will be able to meet its expenditure as predicted in the budget, though oil prices have drastically fallen in recent weeks.

"A budget deficit is brought about when, regardless of falls in revenues, we continue spending on the same track as before; but, we should pursue a planned structure of expenditures to face no setbacks," he said.

As the vice president expressed, the budget is primarily to be spent to pay the salaries of governmental employees and next to finance the civil construction projects. "Based on the latest data released by the treasury, more than 146 trillion rials (roughly $5.4 billion) is spent to pay project contractors and also to invest in various civil construction projects," Nobakht said. He vowed that the administration will continue paying the civil construction sector and expects higher economic growth for the next year.  

The vice president asserted that the administration is determined to reduce the inflation rate and boost economic growth and it has prepared two versions of the draft budget for the next fiscal year (March 2015-March 2016). The first one focuses on countering the possible difficulties in case the US-led sanctions remain in place and the second one foresees different expenditures in case of sanctions' removal and earning larger revenues.

On Tuesday, however, a member of the parliament predicted that the government would face a budget deficit in the last three months of the current year (January-March 2015). "Given the economy's dependence on oil, a budget deficit is imminent as the global oil prices keep going down," Ahmad Tavakoli told MNA.

 

Financialtribune.com