The Economic Research Department of Majlis Research Center, the research arm of the Iranian Parliament, has released a report on the performance of the government on the Budget Law of fiscal 2020-21.
Last year’s budget, like previous years and contrary to what experts recommended, was approved while it was characterized by the overestimation of resources.
Total public budget in the fiscal 2020-21 stood at 5,630 trillion rials ($19.89 billion).
Revenues generated from the sale of oil and gas hovered around 160 trillion rials, which is only 28% of the target set in the law.
Sales of financial assets (treasury bonds) accounted for the lion’s share of the government’s income.
A total of 1,710 trillion rials ($6.04 billion) in Islamic bonds were sold during the period, twice the approved budgetary figure; coupled with the transfer of governmental companies, which was three times the budgetary target. In fact, the two financed a significant part of the budget.
The transfer of governmental companies was carried out according to the directives and permits granted by the council and the Headquarters to Counter Sanctions during the year.
The overall budget deficit, with the inclusion of permits, exceeded 2,290 trillion rials ($8.09 billion).
Of the total resources approved in the 2020-21 budget, excluding the permits given to the government during the year in addition to the law, only 78% of resources were realized, which prompted the Supreme Council of Economic Coordination to issue off-budget permits.
The decline in oil and gas condensate revenues in the fiscal 2020-21 was unprecedented; they accounted for only 9.2% of the government’s public resources.
A total of 350 trillion rials ($1.24 billion) were also borrowed from the Central Bank of Iran — relying on resources obtained from the export of oil without available foreign exchange and the delivery of Islamic treasury documents to CBI — with the permission of the Headquarters to Counter Sanctions.
The Supreme Council of Economic Coordination allowed the issuance of another 1,500 trillion rials ($5.3 billion) worth of Islamic bonds, in addition to 880 trillion rials ($3.11 billion) envisioned in the budget law. The statistics show that 65% of the bonds issued under the two permits were used in the government’s public budget.
The share of the transfer of financial assets or the Islamic bonds, which are regarded as unsustainable sources of budget revenue, accounted for 42% of public budget resources.
The operating budget deficit in 2020-21 amounted to 1,710 trillion rials ($6.04 billion), i.e., 470 trillion rials ($1.66 billion) more than the year before, an unprecedented figure in the history of budgeting in Iran.
Ninety-eight percent of the government’s projected revenues, including transfers and licenses issued during the year for the sale of bonds, were realized in 2020-21.
Tax revenues accounted for 36% of the total resources received by the government, registering a 28% increase compared with the year before.
Revenues generated by the Islamic Republic of Iran Customs Administration decreased by 12% compared with the year before.
In recent years and at the request of the government, a part of the National Development Fund of Iran’s share from oil revenues has been lent to the government.
Last year, 16 percentage points of the share of NDFI (the difference between 20% and 36%) in oil revenues were spent on budget expenditures.
The withdrawal of €2.7 billion from the fund as per Note IV of the Budget Law of 2020-21 was also approved last year. Since having access to foreign exchange resources of NDFI is restricted, it seems that the government’s withdrawals from the fund during last year have added to the country’s monetary base, just like the year before.
The boom in the capital market increased the government’s projected tax revenue from this market. Wealth tax yielded 230 trillion rials ($812.72 million) in 2020-21, indicating a 180% rise year-on-year.
Tax revenues reached 105% of the target envisioned in the budget law, 34% more than the year before. However, with the inflation rate of 47% in 2020-21 compared with the inflation rate of 41% in 2019-20, tax revenues have declined.
The government’s and state-owned companies’ debts hit 15,000 trillion rials ($53 billion) in the fiscal 2020-21, showing a 28% increase YOY (a significant part of government debt to NDFI has not been included in this figure).
The net foreign asset of the central bank (the value of the assets held by the country overseas, minus the value of domestic assets owned by foreigners) increased by 1,230 trillion rials ($4.35 billion) compared with the year before.
The government allocated $11 billion in subsidized currency for the import of essential goods last year, part of which came from CBI’s reserves.
No new currency was added to CBI’s foreign assets in 2020-21, therefore the purchase of foreign currency from the so-called secondary FX market, known by its Persian name Nima, by the central bank to compensate for reserves has increased the foreign assets of the bank in terms of rial.
In fact, the CBI has sold its foreign exchange reserves at the rate of 42,000 rials (15 cents) per US dollar and to replace that sum, it has bought dollars at the rate set by Nima (which is higher).
As a result, it seems that these extra-budgetary financial operations of the government (subsidized forex policy) added 1,230 trillion rials ($4.35 billion) to the monetary base of the central bank.
The financing of expenditures increased by 34% in 2020-21 compared with the year before, i.e., 140 trillion rials ($494.7 million) more than the approved figure in the budget law. Such an increase has been unheard of since the fiscal 2016-17.
The main reason behind such an increase, the MRC report said, was the permit issued by the Plan and Budget Organization of Iran on raising the government employees’ salaries.
