Iranian regime’s spending priorities remain unchanged
President Ebrahim Raisi has introduced the proposed bill for the next budget (starting on March 21) to the Iranian parliament for debate and approval. The bill, including the plan for the new fiscal year, defines the regime’s priorities in light of the current sensitive domestic and overseas economic conditions. Have these conditions influenced the regime's traditional financial priorities, forcing it to alter its outlook?
A budget has two essential components: Revenues and expenditures, which are both forecasted. This bill clarifies the sources for securing revenues, including whether to raise or lower taxes, borrow money, increase oil exports, and so on. The various aspects of expenditure and the proportional increases in allocated funding reflect the regime’s priorities in the coming period. In other words, the expenditure component is indicative of whether or not the regime is willing to prioritize consumer, infrastructure and investment spending over its military, defense or propaganda needs.
Three major observations can be made about the expenditures proposed by the Raisi government. First, they reveal that the regime’s long-held priorities will not change, even if the economic situation worsens. These priorities include defending the regime, as well as its defense-related and ideological orientations.
Second, the budget greatly reduces the real incomes of citizens, pensioners and cash subsidy recipients and it fails to compensate for the high inflation rates. Third, the budget prioritizes ideological defense spending over operational, investment and development-oriented spending, whose absence is one of the motivations for the masses taking to the streets in protest.
Raisi has proposed significant budget increases for the regime’s police and military establishments, as well as for institutions that help to cement the revolutionary ideology and thought. The military’s budget has increased by 36 percent over the previous year. The Islamic Revolutionary Guard Corps, the law enforcement command, the Ministry of Defense and Armed Forces Logistics, and the Armed Forces Social Security Investment Company also all received raises. Meanwhile, there were no increases in the budgets of Iran’s regular army, known as the Artesh, or the general staff of the armed forces. Security and defense appropriations account for nearly 18 percent of the total budget, closing the gap with education, which accounts for 19 percent.
The budget increased by 44 percent for the police, 52 percent for the intelligence service, 55 percent for prisons, 53 percent for Islamic propaganda, 60 percent for the Supreme Council for Religious Propaganda, and 33 percent for the Headquarters for the Promotion of Virtue and Prevention of Vice. Appropriations for the Islamic Republic of Iran Broadcasting increased by 47 percent and a separate budget for the Khomeini Mausoleum shot up by 71 percent. There is also extra budgetary revenue that is generated by the regime’s military institutions, such as the IRGC, through smuggling and their own vast business networks.
In regard to wages and subsidies, the bill proposes a 20 percent increase in the salaries of state employees and pensioners. The International Monetary Fund has estimated that inflation will be at least 40 percent in the coming fiscal year. It is noteworthy that the overall inflation rate in 2022 was at least 40 percent, while food, drink and housing inflation rates ranged from 50 percent to 80 percent. This means that the budget has not provided a real increase in salaries.
The current situation in Iran bears a striking resemblance to events in the years prior to 1979.
Dr. Mohammed Al-Sulami
Despite the fact that the government’s minimum wage in 2022 was 7 million tomans per month ($171 at the free-market exchange rate of 41,000 tomans), it did not compensate state employees and pensioners for inflation hikes. According to the Iranian Ministry of Labor and Welfare, the average poverty line for a family of four was 7.7 million tomans two years ago. The cash subsidies for the poor only increased by 10 percent, which will become far less significant as living standards deteriorate due to rising inflation.
When it comes to production, development and investment spending — in the productive sectors such as industry and agriculture, as well as in healthcare, infrastructure and social welfare — it is clear that, while such sectors receive the majority of the budget, the vast bulk of their expenditure is allocated to operational costs rather than to investment. In other words, these funds are used to simply keep state institutions running by paying wages and covering regular operating expenses. Some of these institutions’ budgets may be reduced in real terms (deducting the rate of inflation expected in the coming year from the increase in the budget). One example is infrastructure development, which will be reduced by 10 percent.
The Raisi government’s revenue projections are optimistic. With sanctions still in place, it is expected that oil revenues will increase by 58 percent, as the country exports 1.5 million barrels per day. Tax revenues are also expected to increase by 57 percent, owing to a 110 percent growth in local borrowing through the sale of government bonds and Islamic sukuks. These projections may be exaggerated because the Raisi government failed to meet last year’s 1.5 million barrels per day target despite increasing oil exports through smuggling. The average daily oil exports hovered barely around 1 million barrels.
Meanwhile, economic forecasts indicate that the world’s major economies will enter a potentially major recession in 2023, reducing oil demand. The expected significant increase in tax revenues is not commensurate with Iran’s deteriorating economic situation, suggesting that the budget will run a significant deficit by the end of next year. To address the budget deficit, the government will have no choice but to print more banknotes, despite the very well-known negative implications for local prices.
Overall, the proposed budget bill indicates that, despite a lack of financial resources and steady economic deterioration, the regime’s spending priorities are fixed, inflexible and completely ignore the demands and needs of the Iranian street. The regime continues to prioritize security, military and ideological expenditure over any increase in spending on development and investment, which the country desperately needs. This spending could increase purchasing power and reduce the growing number of unemployed and those pushed into poverty.
It is worth noting that the current situation in Iran bears a striking resemblance to events in the years prior to the 1979 revolution in terms of the escalating pace of social, economic and political turmoil. Before the 1979 revolution, there had been staggering increases in the price of food and beverages and a sharp rise in house prices, with the scarcity of housing, even of basic apartments, giving rise to the growth of the shantytowns and slums that still exist in southern Tehran. In the three years before the revolution, there were repeated, back-to-back protests. From 1978, the protests became constant, continuing for a year, from January 1978 to February 1979, and eventually led to the overthrow of the shah’s regime.
In the words of Niccolo Machiavelli: “Whoever wishes to foresee the future must consult the past.” There is no doubt that history has lessons to teach those who are willing to learn and perhaps historical episodes paint a picture of future scenarios.
• Dr. Mohammed Al-Sulami is president of the International Institute for Iranian Studies (Rasanah).