On Sunday, December 2, President Rouhani’s cabinet approved the government’s budget bill for the Iranian calendar year 1398 (March 21, 2019 to March 19, 2020). According to Mohammad Bagher Nobakht, head of the Planning and Budget Organization, the bill will be sent to the parliament on Thursday, December 6. The document, which sets out the country’s plans to boost the economy, is not expected to be particularly inspiring or groundbreaking.

In fact, judging by figures published in recent days, it appears that the 1398 budget is one the most unambitious budgets presented in the last few years, even though it shows a relative increase in the funds earmarked for development projects and for current expenses, including government employees’ salaries.

According to a chart published on December 3 by the official government newspaper Iran [Persian link], the budget bill estimates that the government’s income from oil will be around 30 trillion tomans, or close to $7.15 billion — less than what was predicted in the previous budget. The government is cautiously projecting that oil prices in the coming year will be $54 per barrel but hopes to be able to export between one and 1.5 million barrels a day and to get 5,700 tomans for each dollar in the market to pay for development projects and current expenses.

But when it comes to non-oil revenues, this cautious approach is missing. In the first six months of the current Iranian calendar year, non-oil revenues have not been stellar, as the following chart shows, but the projected income from taxes for the next year remains around 120 trillion tomans, or close to $29 billion — the same as last year.

 

Government budget and shortfall. All numbers are in trillions of tomans (Source: Iran’s Central Bank)

Inevitably, the question arises: How is the government going to pay for necessary expenses, the most important of which are the salaries and the benefits of government employees and retirees?

Salaries and Benefits for State Employees

In the budget for the current year, the projected outlay for the salaries of government employees was close to 74 trillion tomans (over $17.6 billion). Assuming that this number will increase by 20 percent, then over the next year the government must set aside more than 88 trillion tomans (almost $21 billion) to pay the salaries of its 2.3 million employees. Of course, this is the ceiling of the salary increase; the actual numbers must be calculated based on the pay levels of the employees. To be cautious, we can assume that the actual rate is going to be 15 percent. In this case, the government would have to spend close to 85 trillion tomans (a little over $20 billion) to pay for the salaries.

 

According to Jamshid Ansari, President Rouhani’s Vice President for Manpower, this number only includes salaries for government employees, not services delivered by private companies [Persian link]. “The projected amounts in the budget for salaries and benefits of state employees does not include services procured from outside,” he says.  He gave the example of a government agency signing a contract with a company for data entry services. "In this case, the payment to that company has nothing to do with government employees. Employees of the company are paid by that company and are not considered government employees.”

Parliament’s Research Center has accused the government of lack of transparency in accurately reporting figures for salaries and wages [Persian link] because it has not made clear what it pays for contract workers.

“One of the shortcomings of the annual budgets is that it does not provide accurate answers for the most basic questions, for example the amount allocated for paying employees’ salaries and benefits,” said a report published by the Research Center. “Yearly budgets lack practical transparency in revealing how much of the current expenses are allocated for this purpose. Generally, it can be said that the category of compensation for the services and social welfare also applies to the payment of the employees’ salaries. If we add up the allocations for these three categories then it shows an increase of around 15 percent in 1397 compared to 1396 [March 2017 to March 2018 compared with March 2016 to March 2017].”

If we assume that retirees’ salaries and the wages of workers at companies that provide contract services will all increase by the same percentage, then the most necessary government expenses for the next year will reach to around 220 trillion tomans (close to $53 billion) — at least 30 trillion tomans (almost $7.15 billion) more than this year’s budget.

 

Projected salary expenses in 1397 and 1398 budgets, assuming a 15 percent increase. (Numbers are in trillions of tomans. A trillion toman is roughly equal to $240,000.)

 

A Few Steps Back

Looking at these figures, the Iranian government seems to resemble the owner of a factory that neither wants to sell the factory nor keep track of its revenue and expenses but must, for the moment, pay its employees at any price, even if he has to fall into heavy debt or is forced to put its assets up for auction.

On the other side, however, are the workers and employees, whose purchasing power has fallen between 15 and 35 percent in just the last year. Under such conditions, a 20 percent increase in wages and salaries means actually going back a few steps when compared to last year. And, of course, it is quite conceivable that things will get even worse, especially in two key areas:

Unemployment: With the deepening of the recession, a large segment of the workforce in Iran is threatened with unemployment. The Iranian working population is highly vulnerable to unemployment, and for this reason, the government has tried to slow down the crisis by keeping the development budget stable. But how effective can the development budget be in preventing recession, especially when sanctions will inflict considerable damage on Iran’s international commerce? Also, the industrial sector — from industries associated with oil to manufacturing and even mining — will fall into a deeper recession for two reasons: The increase in the cost of production and the fall in the purchasing power of the people. In the end, the recession is going to hit the service sector hard as well.

Inflation: Inflation is already sapping the strength of the Iranian economy, but it could get even worse. If the projections of next year’s budget fail to materialize and the projected government’s revenue falls short, then it is quite possible the crisis could escalate and the government will be forced to borrow and/or print money, deepening the inflation crisis. How Iranians will be able to cope with an already unbearable inflation level is another question altogether.

 

Related Coverage:

Iran Rushing Toward 30 Percent Inflation, November 27, 2018

Iran’s Economy Is Stagnating Even Before New US Sanctions Hit, October 30, 2018

Runaway Inflation and the Nationwide Trucker Strike, October 4, 2018

Families and Fishermen Lose Out as Prices Rise, October 1, 2018

Can Iran Survive the Inflation Hike?, August 29, 2018

Iranian Protesters: Death to High Prices!, July 31, 2018

Living on the Margins in Iran: An Introduction, July 11, 2018

Expert Warns “Iran’s Economy is in a Death Spiral,” April 26, 2018

Unemployment and Inflation are an Explosive Mix, January 17, 2018

More than 40% of Iranian Households Live Below the Poverty Line, October 2, 2017

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