The revealing truth about how Iran spends its money

The revealing truth about how Iran spends its money

The revealing truth about how Iran spends its money
A tank fires missiles as part of military exercises carried out by Iran's Revolutionary Guard Corps. (File/AFP)
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The recently unveiled proposed Iranian budget for 2022 unequivocally demonstrates the regime’s preferences and strategies for the coming year, underlining that security, military and propaganda issues are its top priorities.

Expenditure on security-related issues, both domestic and overseas, consumes the biggest portion of the budget, accounting for 19.3 percent of the total. This is a massive proportion, effectively accounting for a fifth of all expenditure at the expense of all other state sectors. We discover, for instance, that the funding assigned to the Islamic Revolutionary Guard Corps alone is equal to the combined budgets of all the ministries responsible for productive and economic matters, such as the Ministry of Agriculture, the Ministry of Trade and the Ministry of Industry.

As if that was not shocking enough, President Ebrahim Raisi has approved a 140 percent increase in the IRGC’s budget compared to the previous year — one of the biggest ever annual increases in budgetary allocations.

Along with security-related issues, religious and propaganda affairs are among the regime’s other top priorities. This was evident in the massive increase in the budget for the state-run Islamic Republic of Iran Broadcasting organization, which also surpasses the budget designated to the productive and economic sectors and saw annual growth of 56 percent. The budget for religious seminaries, meanwhile, leapt by 161 percent and the budget of the Imam Khomeini Relief Foundation saw a stupendous 1,000 percent increase compared to the previous year. Meanwhile, the health sector came second in terms of budgetary appropriations — behind the security and defense sectors — as Iran seeks to combat the COVID-19 pandemic.

The budget makes it clear that the regime is centering its strategy on working around the ongoing US sanctions, meaning it predicts low oil export revenues. The government has also increased some taxes and eliminated the dollar subsidy allocated for importing essential commodities, despite the expected adverse impact on prices.

By breaking down the Raisi government’s budget bill, we find that the proposed budget reaches 1,500 trillion tomans ($50.2 billion) in total, a 9.5 percent increase. Nevertheless, the real growth rate — considering the inflation rate for the coming year (27.5 percent, according to the International Monetary Fund) — will be negative.

Through this budget, Raisi seeks to ensure there is no deficit by the end of the year, as the current deficit has increased liquidity and fueled inflation in Iran. Although successive Iranian governments have attempted to wipe out the country’s budget deficit, they have all failed in this quest.

The current government is seeking to achieve economic growth of 8 percent in 2022, an optimistic target that could prove elusive without remarkable progress in the nuclear negotiations, a growth in Iranian oil exports or a removal of the impediments to Iranian trade with the outside world. The IMF, meanwhile, predicts that Iran’s economic growth will not exceed 2 percent.

The budget makes it clear that the regime is centering its strategy on working around the ongoing US sanctions.

Mohammed Al-Sulami

The Iranian budget depends on two essential sources of finance — oil exports and increased taxes — while reducing dependence on selling or transferring the ownership of assets, as well as reducing some expenses, such as subsidies on imports. Raisi has proposed the cancellation of the government’s dollar subsidy for importing medicines and basic and rationed commodities, suggesting that these instead be sold at or near the going market exchange rate, with the capital saved being used to subsidize farmers to help boost agricultural production.

The budget has been set according to the predicted export level of 1.2 million barrels of oil per day at a price of $60 per barrel; both conservative forecasts indicative of the government’s assumption that the US sanctions will remain in place or that the negotiations with the West will not make substantive progress. However, this is a more realistic estimate than the one in the previous budget, which assumed that Iran could export 3 million barrels of oil per day despite the US sanctions.

The proposed budget also reveals that the government intends to increase taxes on some groups while exempting others, including increasing the taxes imposed on car owners and on the sales of some goods, such as cigarettes. Meanwhile, the government will grant a tax exemption to those whose monthly salaries are below 5 million tomans.

The government does not assume that inflation is likely to go down, nor does it specify a target inflation rate, which is also a realistic position. This pragmatism is an acknowledgment of the harsh financial reality in light of the growing budget deficit and the previous failure to achieve the target inflation rate.

The greatest part of the budget — more than 70 percent — covers current expenditures, such as salaries and the expenses of running state apparatuses. Up to 11.2 percent of the budget is allocated to servicing debts, such as paying the principal amount and interest of debts, whether they resulted from the sale of government bonds or internal/external loans.

In general, we find a high degree of hard-headed pragmatism in the Raisi government’s budget bill compared to previous years, particularly when it comes to addressing the inflation rate and forecasting the state’s resources and revenues in the new fiscal year. At the same time, the bill indicates the possibility of Iran displaying intransigence in the nuclear negotiations.

While there are attempts to solve structural economic problems such as the squandered subsidies and to curb the tools responsible for increasing liquidity, the proposed bill fails to provide urgently needed solutions to Iran’s current economic woes. Indeed, if some of the proposals in the budget bill are implemented, they will lead to a continuing high inflation rate. Because of this possibility, it is likely that the Iranian parliament will vote against the budgetary proposals to avoid popular anger.

The Iranian economy is facing drastic and ongoing challenges, such as economic growth slowing down, high inflation rates, especially on food items, and embargoes on the oil, banking and commercial sectors. These problems have produced a shortage in foreign currency, a decline in the value of the national currency, lost direct revenues of more than $100 billion, greatly increased costs of trade, and internal crises over the past three years, all leading to an increase in the poverty rate and a noticeable decline in the standard of living. Unfortunately, the new budget bill does nothing to ameliorate these problems.

  • Dr. Mohammed Al-Sulami is head of Rasanah, the International Institute for Iranian Studies. Twitter: @mohalsulami
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