The Iranian government is in crisis after the 2021 budget, which recently passed the parliament following months of resistance, was rejected by the Guardian Council.
Now, central bank head Abdolnasser Hemati is saying that the budget amendments will increase inflation and liquidity, although he did acknowledge on Instagram that this is “ultimately” something that all governments do.
An economist told the Shahr-e Khabar website that the 74% budget increase is destroying all efforts to control inflation, while another told the Tasnim News Agency that the central bank will need to “take steps” to manage the “deficit” that was itself preventing a recession and that these steps would only increase inflation.
The Iranian Chamber of Commerce is warning of the same thing, with the chief saying that last year was the “worst” for public confidence in the government’s economic policies, especially given that the country has been seeing negative growth since 2017.
One of the major problems with the 2021 budget is that it’s based on projected sales of 2.3 billion barrels of oil per day but over the past year Iran has struggled to sell even 700,000 bpd, even when undercutting the market and smuggling, because of international sanctions on Iran.
Essentially, President Hassan Rouhani and his cabinet estimate that they will earn 2,500 trillion rials (roughly $60 billion based on the official exchange rate) from oil sales this year, which is double the amount earnt in 2020, even though there is no evidence that oil sanctions will be lifted at all. To make matters worse, oil markets suffered huge disruptions because of the coronavirus pandemic, which is still ongoing in every country in the world.
In addition, another 2,500 trillion rials in the bill are supposed to be raised through taxation, but with large numbers of manufacturing enterprises on the verge of bankruptcy and many workers wither unemployed or months behind on pay, how will they be taxed?
The Iranian government previously announced that GDP growth decreased by 5.4% in 2020 and 6.5% in 2019, while the official inflation rate was over 30% in 2017, not to mention the real rate. All in all, there’s a huge budget deficit here; some 2,000 trillion rials according to the Parliamentary Research Centre
The Iranian opposition wrote: “The disastrous economic situation is the result of the regime’s political impasse. The regime tries at any cost to maintain its establishment and make its forces believe it is stable. But the numerous contradictions within the regime on the 2021 budget deficit portray an unsolvable crisis.”