Khosrow.

Budget.

State.

Sure.

Bar.

Shower.

Nation.

Members of the Islamic Consultative Assembly agreed in an open session on Monday, 8 Aban 1401, after a month of suppression and severe crackdown by the government on Iranian protesters, to increase the salaries of law enforcement and armed forces personnel by twenty percent through the amendment of the 1401 budget law. Although this decision may seem economically beneficial at first glance, the unprecedented increase in salaries in the middle of the year may suggest that this proposal was politically motivated.

More than a year has passed since the start of the Ibrahim Raisi government and now it is possible to evaluate the path that the thirteenth government has taken. However, the thirteenth government is spending days in which one of the biggest popular protests in the past decade (or even the biggest after the revolution) has taken place with social content. If we know the roots of the protests in 1388 as political and the roots of the protests in 1398 as economic, the existence of social crises in the recent protests of 1401 is undeniable. However, according to the opinions of some experts, there are also strong roots of economic crises in the exacerbation of recent protests. Issues such as economic crises, inefficiencies in the economy, and the failure of nuclear negotiations are now part of the first year of the Raisi government’s record. Recent protests at the city level have also clashed with the social approach of the government, which many consider to be multi-f

Economists consider the budget as a reflection of the policies of governments. What this reflection has shown in the past years is indicative of the flawed budget policies of governments. With less than a month left until the presentation of the 1402 budget bill to the parliament and the fear of repeating a heavy budget deficit, the intensification of inflation, which has already gone out of control, and the strengthening of deficiencies in the budget system. The available evidence shows an unpleasant scenario for the economy of Iran in 1402; a scenario that, due to the policies adopted by the government and the decrease in oil revenues, has caused economists to be more concerned than ever about the future of the Iranian economy and, naturally, the livelihood of its citizens.

While the Pasturinians had put their feet in one shoe, the budget bill for the year 1401 would be without budget deficit, as analysts expected, the economic facts tell the continuation of this problem. It was in Esfand month of 1400 that the president announced in a speech that the budget bill for 1401 has been prepared without budget deficit and taking into account the achievement of eight percent economic growth. However, from the beginning, economic experts looked at this issue with doubt and hesitation; doubt that has now turned into certainty.

At the beginning, the Research Center of the Parliament started to investigate this year’s budget in a report titled “Budget in Simple Language”. As the center’s research showed, there is a budget deficit of 1,406 trillion tomans. The authors of this research predicted that this will put the government in a difficult triple situation: first, the government cannot reduce its number of employees. Second, the main cause of the budget deficit is the increase in salaries and wages, which will be covered by creating more money, leading to severe inflation. Lastly, if salaries do not increase, there will be more pressure on employees. (1)

As predicted and warned by experts, the government is now facing a budget deficit. The confirmation of this statement comes from Mehdi Raeenaei, the Director of Public Studies at the Ministry of Economy. He told “Shada” website that the government’s budget deficit in the first four months of this year was 20 trillion tomans, a deficit that occurred very quickly. Critics also claim that the creation of a powerless liquidity tool is what the government has used to solve the budget deficit problem. Although government officials deny it, the current economic situation in the country strengthens this possibility more than ever. Meanwhile, Raeenaei’s statements carry another important point; that until the beginning of August this year, 150 trillion tomans of the predicted credits in the budget for 1401 have not been realized. In the meantime, the unfulfilled oil income is 61%. This has increased concerns about the future state of the budget deficit.

The first four-month statistics of the year, announced by official sources, show that oil revenues have increased by approximately 580%. This means a revenue of nearly 80 trillion tomans, but experts point out that according to the 1401 budget law, it was planned for the government to receive around 160 trillion tomans from this source in the first half of the year; a matter that reveals itself as a hidden budget deficit. Economic analysts also emphasize an economic reality; that there is a difference between production capacity and actual production growth. They say that the continuation of sanctions is an obstacle to the growth of oil production and exports. Although accurate statistics of this sector of Iran’s economy are not currently available to provide a realistic analysis.

Less than a month remains until the presentation of the budget bill for the year 1402 to the parliament. Fear of repeating the huge budget deficit, rampant inflation, and other shortcomings of budgeting has intensified. One example of this is the increase in salaries for employees. Experts point out that the government and the Planning and Budget Organization have not yet been able to determine and announce the financial resources for this salary increase to the parliament. In the end, they resort to borrowing and the resources will be provided from unstable sources of income, which means a larger budget deficit.

Khosrow.

Budget.

“And.”

Bomb.

Cash.

The Central Bank of Iran announced that the liquidity volume of the country’s economy in August of this year was equivalent to 5,401.1 trillion tomans. This means that liquidity has increased by 2.88% during this month. This is while the increase in the same period last year was 2.65%. Additionally, liquidity in the economy has increased by 11.8% from the beginning of the year 1401 until the end of August. Furthermore, compared to August of the year 1400, liquidity has increased by 37.8% during this month.

According to the Central Bank’s report, the growth of the base money and liquidity in August of this year has decreased compared to August of last year. However, further investigations show that this decrease has been compensated for by an increase in other components, which can be concerning.

The thirteenth government has repeatedly emphasized that borrowing from the excess resources of its subsidiary companies is one of the methods for compensating for budget deficits. However, an examination of the financial statements of these companies indicates that the majority of them are incurring losses. Therefore, this loss-making by state-owned companies and the government’s borrowing from the excess resources of these companies creates a major contradiction. Nevertheless, reports from the Central Bank on the level of debt of state-owned companies to banks partially solves this puzzle.

According to a report published by the Central Bank, the volume of government debt to banks in August of this year has increased by 1.44% to over 740 trillion tomans. This figure has grown by 15.6% compared to August of last year and has experienced a 15.5% increase since the beginning of the year. Additionally, 661 trillion tomans of the total government debt to the banking network is direct government debt, while the remaining 97 trillion tomans consists of state-owned companies’ debt to banks.

A closer look at the Central Bank’s report shows that the volume of debt of government companies to banks has increased by 2.1% in the month of Mordad. On the other hand, while this amount has seen a 40% growth since the beginning of the year 1401, its growth in the same period of the year 1400 has reached 26.8%. In addition, the amount of debt of government companies to the banking network in Mordad of this year has grown by about 56.9% compared to Mordad of the year 1400. However, this amount had grown by 32.5% in the year 1400 compared to the year 1399.

The significant increase in the volume and speed of government companies’ debt growth to banks indicates that currently, government companies act as intermediaries between the banking network and the government. They borrow from banks and lend the amount to the government, providing for budget deficits.

This process causes the effects of this borrowing on the monetary and liquidity basis to not currently be reflected in central bank statistics and be deferred to the future. The government’s lack of direct borrowing from the central bank may be effective in the short term, but in the long term and when the repayment of these loans is due, the government will be forced to create liquidity for this purpose. In this way, inflation will not decrease and will only be transferred to the future; it is even possible that the inflation spring, which the government is currently suppressing, will be released in the future and show itself more severe and sudden.

One.

Big lie.

The economy of Iran is facing a budget deficit of over six hundred trillion tomans and there is no clear picture of how oil sales and revenues are being managed. In these circumstances, the first deputy of the president says everything is fine and current expenses are being covered without borrowing; a big lie that even government institutions are revealing.

The Islamic Republic, even before the widespread protests that have been going on for almost two months, was facing a major financial crisis. The continuation of these protests, accompanied by widespread internet filtering, and the intensification of sanctions due to Iran’s sending of drones to Russia, have caused new economic crises for Iran. The first deputy of the Prime Minister, however, claims that the situation is good and Iran is selling more oil than before and transferring the oil money internally. (3) On Saturday evening, November 15, in a trip to Boshagard, Mohammad Reza Makhaber said: “Today we are selling oil well and the money is being transferred in a desirable way and the country’s current expenses are being met without borrowing and methods that lead to inflation.” Makhaber’s statements are in contradiction with the reports and analyses of official government institutions, which estimate a budget deficit of twenty trillion tomans in the first four months of this year and have stated that until the beginning

Investigating projected revenues does not necessarily mean a budget deficit. However, the government has resorted to other methods to fill its treasury, which can have an impact on the banking system and liquidity growth in the medium term. These methods include selling treasury bonds and forcing banks to buy them, which was also used by the previous government, as well as borrowing from the banking system and not directly from the central bank. These are two ways in which the government has tried to conceal the budget deficit.

The government has so far failed to provide a transparent report on how it has transferred the oil revenues into the country, despite claiming a 580% increase in comparison to last year. The increase in global oil prices, affected by Russia’s military attack on Ukraine and a decrease in OPEC Plus production, has compensated for the decrease in Iran’s oil sales. However, the uncertainty surrounding the nuclear negotiations and Iran’s continued presence on the list of countries with high risk for financial action has made the transfer of oil revenues unclear.

In such a situation, the government, which last year had opposed increasing the salaries of government employees and workers as a means of preventing budget deficits and cash growth as one of the drivers of inflation, after failing to stop the upward trend of essential goods prices, increased the salaries of government employees, retirees, and military personnel. The increase in salaries of government employees and military personnel increases the current expenses of the government by at least twenty percent. “Economy of Tomorrow” has estimated in a report that the ceiling for current government expenses will increase from 295 trillion tomans to 1,250 trillion tomans.

Before the government decides to increase the salaries of government employees and military personnel, a budget deficit of at least 300 trillion tomans was predicted for the government at the end of the year. With an additional 200 trillion tomans added to the current expenses of the government, the budget deficit will reach 500 trillion tomans. In addition, with the increase in the cash subsidy to 300 tomans after the liberation of the prices of essential goods, it is estimated that the government will face a deficit of nearly 150 trillion tomans in cash subsidy payments, which means that the nominal budget deficit of the government will reach 650 trillion tomans.

The government’s financial report for the first four months indicates an increase in government debt to the central bank and the banking system. According to the report by “Economy Tomorrow”, in the first four months of this year, the government’s debt to the central bank has increased by 25 trillion tomans, and 27 trillion tomans have been withdrawn from government deposits at the central bank, bringing the total government debt to the central bank to 52 trillion tomans. In addition, during the first seven months of the year, the government has raised approximately 45 trillion tomans through issuing securities. 50 trillion tomans of the budget deficit has also been covered through the privatization of government assets. In fact, the government has covered 150 trillion tomans of the budget deficit through the sale of assets, borrowing from banks, and selling treasury securities, which must be repaid in the long term.

Heaviness.

Bar.

(Bar) means “weight” or “load” in English.

Swelling.

Khosrow.

Budget.

Bar.

This translates to “on” or “upon” in English.

Shower.

People.

According to some economic activists, the implementation of the economic programs of the thirteenth government could lead to an increase in the inflation rate in the second half of 2022. With the budget approved by the government and parliament for the year 2022, it is expected that with the approval of the budget amendment to increase the salaries of law enforcement forces in the second half of this year, it will be like a storm. Some economic experts believe that if the current economic policies continue, it is possible that in the shadow of the rising inflation rate, the minimum cost of living may also increase to twenty million tomans per month.

According to the official announcement of the Ministry of Economy and Finance, the implementation of the budget law has caused a deficit of 20 trillion tomans in the first four months of the year 1401. On the other hand, with the implementation of the preferred currency reform program, Iran’s economy has been exposed to a new wave of inflationary fluctuations. The result of this event was a recorded inflation rate of 12% at the end of the spring season, and as a result, the prices of goods and services continued to rise, causing a new surge and entering a new channel of prices.

The most evident and noticeable impact of all these events is nothing but the fact that the cost of living has increased from around 10 million tomans at the end of 1400 to over 17 million tomans in the middle of 1401. This is something that Mohammad Sadegh Mashayekh, an economist, confirms and also adds: “If the government does not refrain from implementing its inflationary policies, it is possible that under the shadow of increasing inflation rates and exacerbating the problem of budget deficit, the cost of living may increase up to 20 million tomans per month.” (5).

Notes:

1- Review of the 1401 budget bill, budget in simple language, Parliament Research Center, 1 Dey 1400.

2- The government is forced to control expenses in order to curb inflation, economic and asset news network, August 16, 2022.

3- We sell oil well and spend it, Berna News Agency, 15 November 1401.

4- Structural budget deficit in the coming year, Eghtesad-e-Farda website, 29 Azar 1400.

5- Inflation is increasing, the risk of an economic storm in the second half of 1401, Trade News, 15 November 1401.