Rouhani’s Bad News Budget

By Navid Kalhor, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

With the recent wave of protests in Iran igniting debate over the government’s budget bill for the next Iranian year (beginning March 20), it is important to understand how President Hassan Rouhani’s administration has been approaching the matter.

In the bill Rouhani submitted to parliament Dec. 10, the government’s general budget is set at $103 billion, 6.1% higher than the previous budget in rial terms. The general budget excludes the state-owned enterprises, which are included in the much larger total budget. Given a projected inflation rate of at least 10% over the coming year, the general budget is set to be contractionary in real terms.

Three main points can be made about the elements of the budget bill: taxes and sales of debt securities are expected to be 11.2% and 26.6% higher, while oil, gas and petrochemicals proceeds are set to fall by 11%; current expenditures are predicted to surge by about 9%; funding for infrastructure spending will decrease the most, as in preceding years.

One of the underlying flaws of the budget bill is that it is fraught with unrealistic revenue expectations. For instance, the Islamic Parliament Research Center (IPRCI) estimates that revenues in the coming year will only reach $82 billion, some $21 billion short of what is projected in the draft budget.

Thus the Rouhani administration would once again experience a budget deficit. In this vein, it should be noted that the National Tax Administration has collected less in taxes than expected for the current year. In light of the difficult economic situation, despite limited improvement in the business climate in recent years, projecting a more than 11% hike in tax receipts can be characterized as unrealistic.

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