On March 20, 2020, Iran should have approved its budget for the next calendar year. But the budget was delayed due to the rapid spread of the coronavirus in Iran, and the Parliament’s rejection of the draft budget bill.
Iran’s budget for the next calendar year is still unclear, and to fix this dilemma, its Supreme Leader Ayatollah Ali Khamenei has ordered the hardline Guardian Council to finalize the budget with help from Parliament’s Integration Commission but not the parliamentarians who are starting to resume work and will soon be replaced by a new hardline Parliament in a month.
There is still no word on when Iran’s budget will be finalized; making budgetary forecasts is difficult in these uncertain times. The budget’s earlier positive economic projections have been dampened due to the impact of the virus on Iran’s economic performance.
Presenting the budget to the Parliament on December 8, President Hassan Rouhani promised that the draft bill would promote economic ‘resistance’ and fight ‘sanctions’ put in place by the international community against Iran since May 2018.
Sanctions have hit Iran’s oil industry hard, leading to a 66 percent drop in estimated oil revenues for the next calendar year compared to earnings in the previous year. According to a report issued by the International Monetary Fund before the coronavirus outbreak in October 2019, Iran was already suffering from a deep budget deficit that could only be fixed if Tehran was able to sell oil at the steep price of $194 per barrel.
With the recent drop in Iran’s oil revenues and declining global oil prices, it appears that there is no money left to finalize the country’s budget. Not surprisingly, members of Iran’s Parliament rejected Rouhani’s optimistic budget forecasts by a vote of 114 against the proposed budget bill, and 67 in favor.
To his credit, when Rouhani presented the budget bill, he did warn that next year would be tight financially because of US “maximum pressure” and “sanctions continuation” policies against Iran. But little did he know that the coronavirus, and not sanctions, would bring Iran’s economy down to its knees in the months ahead.
The coronavirus has impacted all aspects of economic life in Iran, forcing a 35 percent decline in the country’s exports. The virus has triggered a shutdown of small and mid-sized businesses which account for 40 percent of Iran’s annual Gross Domestic Product.
Iran’s Chamber of Commerce Chief, Gholam Hussein Shafei, warns that “a wave of bankruptcies” will soon hit Iranian businesses. According to Shafei, the economy will get a “massive heart attack” soon. If this happens, Iran’s international trade, macro-economic structures, large firms, and the banking system will suffer.
Iran’s Majles Research Center, the body that helps Parliament make policies, says Iran is unable to control the epidemic, and needs policies to prepare for a second wave of the coronavirus which will trigger high inflation and unemployment rates.
For economic relief, the new budget proposes to offer some subsidies, including gasoline subsidies for 60 million Iranians or 18 million households. Iran is also expecting to receive $5 billion from Russia in investments to ensure positive economic growth, and $1.6 billion of its frozen assets in Europe.
But signs indicate that Iran’s government is already bankrupt. Rouhani’s economic advisor Masoud Neely says there is no money left to fight the coronavirus, Iran’s retirement and insurance funds are bankrupt, the banking system is in debt and cannot function without help from the Central Bank. Neely blames the government’s bad economic policies and not the coronavirus for the country’s economic meltdown.
The government’s options moving forward are limited, and this explains its piecemeal approach in addressing the country’s budgetary problems. The Ministry of Economy is studying proposals to help business owners by altering regulations on taxes and customs.
The private sector has given the government a list of eight recommendations, including “economic and health-oriented” diplomacy with neighboring countries, developing joint business protocols for health and safety, expediting registration and licensing for imports, and providing low flat foreign exchange rates for needed imports to revive domestic production cycles.
On April 12, the Ministry of Economy offered the Iran Bourse “stagnant government assets,” worth over 100,000 billion tomans to balance markets and inflation. But it is not clear if this will help control currency fluctuations considering the rapid drop in market shares in recent weeks.
Also, it is not known how stock market earnings will recycle in uncertain market times. Before the coronavirus outbreak, the government raised much-needed capital via initial public offerings of shares in state retirement and other social welfare funds. When the market value of these shares drops post-coronavirus, the government will lose major earnings from their sale, and it is debatable if injecting cash back into the stock market is the right option.
The supreme leader has approved the government’s request for 1 billion euros from the National Development Fund to revive the economy. The government’s basic source of income, tax, is meanwhile in decline because of the coronavirus. This indicates that Iran’s budget crisis, faced with an estimated $13 billion shortfall, will deepen without further financial relief.