Rouhani’s Bad News Budget

Indeed, the lion’s share of revenues from oil exports, taxes and sales of sovereign securities has in recent years been largely allocated to covering current spending and paying off debts. Consequently, this has undermined the allocation of funding for development projects.

Worryingly, should major financial resources be allotted for them, it is highly probable that they would be chiefly sponsored through debt sales. As things stand, the Rouhani administration’s financial condition is set to deteriorate given the current situation on oil markets and the broader state of the Iranian economy.

IPRCI’s estimates indicate that if state spending climbs in accordance with the average of the last 20 years, namely around 20%, the government has no chance of being able to allocate funding for development projects. In this vein, it should be noted that the Treasury has been saying that it has no funding left for infrastructure spending since it needs to repay some $9 billion of various types of debt that will soon mature.

Hence, the government will likely be forced to borrow from the central bank to meet its obligations. This, in turn, could translate into a credit crunch, which could have a dire effect on the economy. It would also mark the return of higher inflation for the medium term. As such, since non-oil revenues are set to be devoted to mounting current expenditures, civil engineering projects are doomed to suffer the most.

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