Monday , 18 February 2019

Iran’s Central Bank Announces Unprecedented Budget Deficit

Radiofarda – The Central Bank of Iran (CBI) released its 9-month economic performance report on February 10, which shows an unprecedented budget deficit.

The statistics are based on Iran’s fiscal year, which started March 21, 2018.

CBI says the Iranian government had projected 244 trillion rials ($5.8 billion, based on official USD rate: $1/42,000 rials) budget deficit for the first nine months of year (March 21-December 22), but the actual deficit value is 451 trillion rials ($10.73 billion).

Every year, the budget law predicts a certain amount of income from bonds and privatization to compensate for the budget deficit, but in the current year, the actual deficit level is twice that of the budget forecast.

At first glance, it may seem that U.S. sanctions on Iran’s oil exports led to this deficit, which is unprecedented historically, but the details of CBI report show that the country’s oil income was even above budget forecast during the period, thanks to rising oil prices during 2018.

Iran's budget deficit (trillion rials)
Iran’s budget deficit (trillion rials)

CBI report says budget’s oil and petroleum products revenues (domestic sale and exports) was 17% higher than the forecast for nine months.

The United States withdrew from the Iran nuclear deal in May 2018 and imposed sanctions on Iran’s oil exports in November. Various figures released by non-Iranian sources indicate that Iran’s oil export halved since November. The details of CBI report also indicate that oil income more than halved in the ninth budget month (November 22-December 22), however, the total income average in nine months is more than budget law’s forecast due to oil price hike.

Iran’s budget was based on oil prices at $55/barrel, which actually averaged at about $70 in the nine months of the current Iranian fiscal year (March-December 2018), or 27% above budget prediction.

Budget's oil incomes($ billion)
Budget’s oil incomes($ billion)

But the windfall income lasted until U.S. sanctions kicked in. In the last three months of 2018 oil income dropped. The central bank’s figures show that less than half of oil and petroleum income (domestic sale and exports) was realized in the ninth month as the full impact of U.S. sanctions became apparent.

The reason of budget deficit

If Iran’s oil income from March to December 2018 was actually higher than expected, why did Iran have a big budget deficit. The reason is that other income sources, especially taxation decreased. CBI’s statistics indicate that only 71% of expected income from taxes was realized during these nine months and almost in every single month, the actual tax income was below what the budget plan had predicted.

Budget's taxes incomes($ billion)
Budget’s taxes incomes($ billion)

The decrease in tax income reflect the country’s GDP shrinkage, decline in imports as the national currency nosedived and economic stagnation. Each of these in turn also contributed to budget vows. According to the International Monetary Fund, Iran’s GDP declined 1.5% in 2018 and is expected to decrease further by 3.6% in 2019.

The country’s imports – which provides taxes and tariffs for the budget– also declined 16% year on year to $32.62 billion for nine months.

Economic stagnation is also wreaking havoc. Recently, the head of Tehran Chamber of Commerce, Masoud Khansari announced that every week about 10 to 50 big companies stop activities in Iran.

Iran's Foreign Minister Mohammad Javad Zarif, left, greets by Lebanese Hezbollah lawmaker, Ali Ammar, upon his arrival at Rafik Hariri Airport, in Beirut, Lebanon, Sunday, Feb. 10, 2019. Zarif said his country is ready to cooperate with the new Lebanese g
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    Dalga Khatinoglu

    Dalga Khatinoglu is an energy analyst from Azerbaijan who contributes to Radio Farda.

 

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