President Hassan Rouhani has submitted a new budget bill to parliament for the next fiscal year, beginning on March 21, on an upbeat note despite admitting that US sanctions would affect the lives of Iranians and hinder growth.
The budget of 4,700 trillion rials ($112 billion at the official exchange rate) is 27.6 percent more than the current budget in the Iranian currency, excluding the spending of state enterprises.
However, that is sharply less in US dollars due to the decline of the rial this year. At the unofficial exchange rate the budget is equal to about $47 billion against $87 billion in the current year’s state budget.
“The budget bill for 98 [the Persian year of 1398] is being submitted to the Islamic Consultative Assembly while we have been facing a situation of American pressures and atrocious sanctions” since early this year, Rouhani told lawmakers.
President Donald Trump pulled the US out of an international nuclear deal with Iran in May and reimposed all sanctions lifted under the agreement against the Islamic Republic.
Rouhani said the sanctions and pressures will affect the lives of the people as well as the country’s growth and development, but will not bring Iran to its knees.
“No one can say that sanctions will not negatively affect the country’s economy and the lives of people, but nobody can say that America will achieve its goals.”
The president touched on the turmoil at the foreign currency and commodity markets in Iran after the US announcement of sanctions which prompted some Iranians to dump their rial holdings in exchange for foreign currencies.
That caused the rial to lose 70 percent of its value in just a few months and since much of what is sold in Iranian markets is imported or produced using imported components, prices for many goods and services rose quickly.
Rial’s slump disrupted Iran’s foreign trade and helped boost annual inflation fourfold to nearly 40% in November.
In 2015, President Rouhani oversaw the conclusion of the Iran nuclear accord, formally known as the Joint Comprehensive Plan of Action (JCPOA), which lifted sanctions and led to a robust economic growth of 12.5 percent the following year.
“Our investment growth reached from minus 17.4 percent to plus 3.4 percent, meaning all our indicators had become positive and we were moving towards our goals by choosing the right direction,” the president said on Tuesday.
That was when “the Americans implemented their evil plot to sanction the Iranian nation,” he added.
In imposing the sanctions, Rouhani said, the United States was pursuing two goals: to make the Iranian people lose hope in the establishment and the country and portray the system ineffective and not in control.
“No doubt, America will not achieve its goal and Iran will stand against these conspiracies more proud, more powerful, more resilient and more alert,” he added.
The US withdrawal from the JCPOA disrupted Rouhani’s macroeconomic program based on low inflation, a stable currency, and a market-oriented economy as many foreign businesses, mostly the Europeans, pulled out.
According to the International Monetary Fund (IMF), Iran’s economy will contract this year and next year.
Need for structural reforms
Rouhani said Iran’s “unhealthy economic structures”, including its reliance on oil revenues, are making the country vulnerable to the sanctions.
“If the private sector had been active in the country … and if the budget had not relied heavily on oil, the impact of sanctions would have been much less,” Rouhani said.
“If the structures had been healthy, I can claim that we could have had a budget without oil this year and last year,” Rouhani added.
The new bill assumes 1,425 trillion rials (33 percent) of Iran’s income will come from oil exports, Rouhani stated, without specifying the average oil price which has been calculated in the budget.
The budget includes a 20 percent pay rise for state employees and $14 billion in subsidies to provide cheap basic goods such as food and medicine, up from $13 billion in this year’s state budget, he said.
The fall in the value of the rial has seriously hit the lives of low-income groups, including state employees and pensioners. Strengthening the rial is crucial to the government’s push to bring down inflation, improve living standards and reduce capital flight.
The new budget has been designed to support production and employment and relaunch thousands of stalled state projects with the help of private investors.
Economy and Finance Minister Farhad Dejpasand said last week that the government has finalized a directive under which exporters will have to sell their foreign currency earnings on an online trading platform administered by the state.
The Iranian government has finalized a directive under which exporters would have to sell their foreign currency earnings on an online trading platform.
The aim is to channel more foreign currency earnings into the country following media reports that major exporters such as Iran’s petrochemical companies were not repatriating large sums of their earnings.
Iran’s currency began to slump last December when the government cut interest rates on saving bank accounts.
What initially appeared to be a controlled depreciation of the rial in a bid to boost local production and exports got out of hand later when the US announced pulling out of the nuclear deal and reimposing sanctions.
The government’s later measures, including capping the official rate at around 45,000 rials to the dollar, exacerbated the slump because this was only available for a small group of importers and businesses.
As a result, most Iranians had to turn to unofficial foreign exchange traders, which generated an underground network of forex sellers who stoked further depreciation of the rial.
Rouhani on Tuesday touched on some of the opaque economic activities which plague the economy, leading to corruption, rent and speculation.
He said the taxation system, under which “brokers and speculators are making the most profits and pay the least taxes,” should be reformed.
Meanwhile, “we have a lot of surreptitious moves in the budget that must be revealed and the budget should be transparent,” Rouhani said. “There is no way but transparency to get rid of corruption and rent.”