Massoud Pezeshkian, the president of Iran’s regime, has presented his first budget bill to the Majlis (parliament) since taking office. This budget, with a 200% increase in military expenditures, has been likened to a “war budget,” with its general framework approved amid exceptional economic and security circumstances for Iran.
47% of Iran’s oil export revenues are set to go directly to the armed forces, similar to the current year. This amount, totaling 5.61 quadrillion rials (approximately $8 billion), leaves the government with only 43%, equivalent to 5.09 quadrillion rials (approximately $7.271 billion).
Accordingly, activists and economic analysts note a “war footprint” in the 2024 budget. This comes as budget resources, even excluding military expenses, have faced significant deficits in recent years.
Increased Withdrawals from the National Development Fund
For 2025, about 5.4 quadrillion rials (approximately $7.714 billion) of the budget deficit is expected to be covered by borrowing from the National Development Fund.
This is the first time a government has relied so heavily on borrowing from the National Development Fund in a budget bill.
Abdolnasser Hemmati, the Minister of Economy, recently stated that they have already withdrawn funds from the National Development Fund to cover the budget deficit, with permission obtained from the regime’s Supreme Leader.
Another portion of the budget deficit is to be covered by borrowing from the capital market and issuing treasury bonds. However, the debt burden from previous governments has become so heavy that the government’s borrowing from the debt market will place additional pressure on the capital market.
Inflationary Budget
Inflation is the most likely outcome of increased borrowing in next year’s budget, as government pressure on the debt market accelerates the cycle of liquidity creation. Inflation drivers in the 2025 budget are based on two pillars: “removal of state subsidies” and “liberalization of energy prices.”
Majlis members predict that the “reduction of foreign currency allocations for essential goods from $15 billion to $12 billion” in next year’s budget will drive up prices and inflation. As a result, some essential goods will be removed from the preferential currency basket.
Rising Energy Carrier Prices
Government officials have made conflicting statements about raising gasoline prices. In defense of the budget bill in Majlis, Pezeshkian stated that the production cost of gasoline is 80,000 rials (about 10 cents), indirectly suggesting his interest in raising gasoline prices.
Ambitious Goals for Oil Sales
In the budget bill, the government estimates oil exports at two million barrels per day. However, Iran’s oil sales have been limited by international sanctions, and the potential return of Donald Trump to office in the United States could increase international pressures on Iran’s presence in global markets.
