Monday , 18 February 2019

Iran’s National Reserve Fund May Go Bust As Oil Revenues Dry Up

Radiofarda – Iranian Parliament’s Research Center says no money will be added to the National Development Fund in the next budget year due to the massive decline in Iran’s oil revenues, hit by U.S. sanctions, while the fund’s reserves are being spent for military and other purposes.

The report released recently warns that the National Development Fund may cease to exist altogether if no new money is added and existing funds spent.

Based on Ayatollah Ali Khamenei’s order, the government recently withdrew another 1.5 billion dollars from the fund’s reserves for military expenditures, as well as 4.8 billion dollars last year nearly half of it for the military.

According to the charter of the National Development Fund, 34 percent of oil revenues next year should be saved in the fund, which was previously called the Foreign Currency Reserve, and was tasked to save part of the country’s oil revenue to be spent on the welfare of next generations.

However, according to the budget bill for the next Iranian year, which starts on March 21, only 20 percent of oil revenues is planned to be saved in the fund.

Based on the forecast of exporting only one million barrels of oil and gas products per day, the budget projection is to save $4.6 billion in the National Development Fund during March 21, 2019 to March 20, 2020.

Secretary of State Mike Pompeo, right, followed by Brian Hook, special representative for Iran, walk to a podium to announce the creation of the Iran Action Group at the State Department, in Washington, Thursday, Aug. 16, 2018.
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But this forecast might not materialize. Iran’s oil exports have declined from over two million barrels per day to just over 1,000,000 barrels as a result of the U.S. sanctions re-imposed on Tehran following the United States’ withdrawal from the nuclear deal, also called the Joint Comprehensive Plan of Action (JCPOA). This amount of oil exports might even drop further, as the U.S. phases out waivers it has given to friendly countries for limited purchase of Iranian oil. This might be the reason parliament’s research center is warning that it may not be possible to save anything for the fund.

The initial forecast after the re-imposition of sanctions was that Iran’s oil output next year will be half of the figure for the current year.

Nevertheless, one of the articles of the new budget bill allows the government to withdraw up to 400,000 billion rials or roughly $4 billion from the National Development Fund, half of which is to cover Iran’s military expenses.

Mahmoud Negahban Salami, a member of the parliament’s budget committee told reporters on 4 February that Khamenei has approved the withdrawal of 1.5 billion dollars from the fund to “strengthen Iran’s defensive power.”

Officials at a meeting of the High Council of Coordination for Economy. President Hassan Rouhani (middle), Head of Judiciary Sadegh Larijani (left) and Speaker of Parliament, Ali Larijani (right) 2018.
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Last year, Khamenei ordered the government to withdraw 4.8 billion dollars from the National development Fund and spend 2.5 billion dollars of it to cover military expenses.

To withdraw money from the National Development Fund is against the Fund’s charter that stipulates its objectives as “turning part of the oil and natural gas revenues into sustainable wealth as well as productive and regenerating capitals in order to preserve the next generations’ share of the country’s oil and gas products resources.”

The report by the parliament’s research center added that Iran’s High Council of Economic Coordination approved in July 2018 to allocate 12 out of the 32 percent oil revenues saved in the fund to be kept in a “special account to cover the country’s essential needs in emergencies and undesirable situations.” The center, however, did not elaborate on the phrase “essential needs in emergencies and undesirable situations,” which could mean a state of war or an undesirable economic situation possibly as a result of sanctions.

Iran's parliament session over the budget bill in March 2016. Chief of budget planning, Nobakht sitting in front, center.
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The High Council of Economic Coordination, is a new body that has been established following the U.S. withdrawal from the 2015 nuclear deal with Iran and re-imposition of U.S. sanctions on Tehran. The Council’s membership is restricted to the heads of the legislative, executive and judiciary bodies, as well a select number of other state officials.

So far, one of the functions of the council has been suggesting withdrawals from the National Development Fund’s foreign currency reserves to cope with budget shortfalls.

 

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