New Pandemic Financial Stimulus Package Raises Questions Over the Strength of Iran’s Economy


A new stimulus package to protect the vulnerable in Iran during the coronavirus pandemic has raised questions about its feasibility. The package promises subsidies and loans. But Iran’s government has withheld important information about how it aims to finance this package.

Iran faces a severe budget deficit, with the country’s oil revenues and exports dwindling rapidly because of US-led sanctions. Less than 6 percent of Iran’s projected oil revenues were realized this year, according to Iran’s Planning and Budget Organization. This spring, Iran’s economy shrunk by 3 percent partly due to the economic fallout from the coronavirus pandemic. Iran recently imposed another lockdown, lasting two weeks.

Consequently, the Iranian government is seeking means to finance its new stimulus package. The Iranian Parliament insists that the government is unclear about how it will finance the package and most experts in Iran think the government is managing the budget by taking greater risks.

Iran’s budget bill allows the government to take significant risks by enabling it to sell state bonds to private-sector companies. The Council on Economic Coordination, a body set up to address Iran’s latest economic challenges, has issued state bonds to finance past stimulus packages, valued at 62,000 billion tomans.

Investment funds have bought auctioned state bonds to provide much needed cash inflows. The government has designated three such funds for this end. To date, these funds have delivered 117,000 billion tomans to help the Iranian people during the coronavirus pandemic.

Rouhani’s government insists that these funds were instrumental in the realization of the last stimulus package. This suggests that the Iranian government aims to sell more publicly held bonds to fund the new package. But this time around, it faces challenges in selling bonds.

Consequently, to finance the new stimulus package, the Iranian government needs to move some cash around. For example, 62 percent of those who received unemployment benefits have returned to work, which releases some important funds to finance the stimulus package. The government is also encouraging investors to pump money into the stock market.

Iran’s government is being warned about budget destabilization if it keeps offering stimulus packages. Iran this year generated 32,000 billion tomans in the first 6 months of the year through the transfer of government assets to various investment funds, banks, and government creditors. Last year, the figure was at 6,000 billion tomans.

Subsequently, the Guardian Council which monitors government policies rejected a proposed increase in state subsidies for basic commodities because of the potential budget destabilization. This move came after Iran’s Parliament was unsuccessful in convincing the Iranian government to pay subsidies to 60 million Iranians. Earlier, the Parliament had debated issuing food and goods stamps. Some 30,000 billion tomans would be needed to finance the Parliament’s proposals.

The new stimulus package will offer 1 million tomans in loans to 10 million people who are eligible, with an option to repay the loan in 30 months. Another 100,000 tomans are to be provided in the form of financial assistance to help 30 million people. The funds will be deposited in eligible bank accounts. The Iranian government will take no interest, but will pay the banks the interest on the loans.

When the stimulus package’s funds are released, it is estimated that approximately one third of Iran’s population will receive financial help. The funds will go to individuals with fixed incomes only, including company and government employees.

But Iran’s government has given no further details about who else will benefit from the stimulus package. This lack of transparency is being criticized. Critics say business owners need to know if they are eligible to apply for financial aid, given that they face fluctuating earnings. It is also unclear if factory workers who recently lost their jobs because of the economic fallout resulting from coronavirus lockdowns are eligible to apply for financial aid, including those workers laid off on a temporary basis for two weeks at a time to control the spread of the coronavirus pandemic.

Meanwhile, Iran’s President Hassan Rouhani seems to be sending mixed signals about the stimulus package. He has said that people with regular salaries are not eligible to apply for financial aid, which means that workers out of employment on a temporary basis due to coronavirus lockdowns might also not be eligible. Critics of Rouhani think his lack of transparency is deliberate because he has empty pockets and is unable to finance the stimulus package. 

This has caused somewhat of a panic inside Iran. The Iranian Parliament is proposing a new bill to stop price hikes. The Council on Economic Coordination, which is led by Rouhani and the heads of Iran’s legislative and judicial bodies, is stopping Rouhani this time around from pre-selling publicly-held oil bonds on the stock market to generate funds to support the new stimulus package.

Evidently, the council’s trust in Rouhani’s ability to salvage the economy is fast deteriorating, despite the body’s previous approval of earlier stimulus packages. While Iran’s supreme leader supports selling public bonds to boost the country’s deteriorating economy, council members have doubts over whether Rouhani’s latest proposed stimulus package is capable of boosting the economy.

These latest measures by the Parliament and the council will impede the Iranian government’s plan to advance the stimulus package and other fiscal programs. More importantly, increased levels of parliamentary and institutional oversight mean that the Iranian government will likely struggle to come up with the needed finances to support its latest stimulus package.

Editorial Team