These days, when reading the news from Iran, one cannot escape frequent references to the National Development Fund, an entity that was supposed to guarantee productive investments for the future of Iran. Instead, it has become a goose that lays golden eggs, mostly for a select few, but we do not know how long it can continue to lay these eggs. But what we do know is that it has become a fierce battleground between Iranian politicians.
Let us examine the situation – and the players on the battlefield of the National Development Fund.
The Supreme Leader
On paper, Supreme Leader Ayatollah Khamenei has no authority over the National Development Fund of Iran (NDFI), and the fund’s statute does not even mention the Supreme Leader. In practice, however, he has turned the fund into his own piggybank and has established a monopoly over it. It is Khamenei who decides which one of his political and military favorites gets a share of the golden eggs. In fact, it is he who decides who gets any and who does not. The fund was created for “rainy days;” but it is Khamenei who decides when and where it rains.
This year, the military will receive three billion euros from the fund. Or, in just one case, a few hours after General Ghasem Soleimani was assassinated by an American drone on January 3, more than €300 million was transferred from the fund to the expeditionary Quds Force that Soleimani had commanded. But when, in the spring of 2019, fierce floods devastated a large part of Iran, Khamenei opposed using this fund for relief and reconstruction. Or most recently, it took him 11 days to agree to a request by the government to withdraw over a billion euros — exactly half of what the military is getting this year — from the fund in order to fight the coronavirus epidemic.
It is the government that, at least on paper, has the key to this chest and keeps its books. In practice, the government has enough authority to withdraw a few hundred thousand dollars as taxes from the fund, and to spend it on the overdue salaries and benefits of civil servants.Three weeks ago, it was reported that the government had withdrawn over US$418 million [Persian link] from the fund to pay for its outlays on the eve of the Iranian new year.
It is against the law to fill budget shortfalls by withdrawing from NDFI. But taxing it is both legal and justified. Even a national sovereign fund must pay taxes, unless the Supreme Leader has exempted it from paying taxes without informing the public.
Besides its income in hard currency, mainly from oil and gas exports, the fund also makes money in Iranian rials, including from the difference between the official exchange rate and the price of currency on the open market. Whether this is legal or not has been the subject of some controversy [Persian link] but the NDFI also makes an enormous amount of money by receiving interest from banks.
It was reported that NDFI has 30 trillion tomans [Persian link], or close to US$7 billion, held in custodian banks. These banks must pay interest at 18 percent on these deposits, as long as the they remain untouched and are not loaned to other entities by the fund. If, however, the fund gives loans to the industrial and agricultural sectors, at a 16 percent interest rate, four percent of it goes to the bank and 12 percent to NDFI. In other words, the annual interest received by the fund is somewhere between four trillion to 5.5 trillion tomans (US$930 million to $1.3 billion at the official exchange rate). A 20 percent tax on this interest amounts to approximately over a trillion tomans (over US$232 million).
President Hassan Rouhani’s administration has been one of the most undisciplined, sloppy and lawbreaking governments of the 40-year history of the Islamic Republic. But considering the devastating financial crisis that it faces, and its vanished sources of revenue, it has no better choice than to use the currency reserves accumulated by the National Development Fund. Otherwise it has to either withdraw from the reserves of the Central Bank or it must stop paying salaries, pensions and benefits to its current and retired employees.
Parliament and the Conservative Media
Then there is parliament, which uses this goose’s golden eggs to play politics. For years, independent economists defended the National Development Fund and its mission. But now that the economists have gone silent, it is members of parliament and politicians who have arisen to defend the fund’s mission and its integrity. Needless to say, that these are the same representatives who, after General Soleimani’s assassination, held an emergency meeting and approved giving the Quds Force €300 million from the fund for taking “real revenge” for his death. There can be no doubt that the boisterous interviews given by these members of parliament were intended to endear themselves to the Supreme Leader, Ayatollah Khamenei, than to defend the integrity of the fund’s mission.
Falling in the same group are conservative media outlets that, in recent weeks, have written ceaselessly about the National Development Fund. When the resources of the fund are made available to the military or, with Khamenei’s permission, to the Islamic Republic of Iran Broadcasting (IRIB) organization, Imam Sadegh University, Al-Mustafa International University, the Islamic Development Organization and other institutions beloved of the Supreme Leader, every one of them remains silent about the fund. But when the issue is the coronavirus epidemic or devastating floods, they stop at nothing to defend the integrity of the fund’s mission against “encroachment” by the government.
In other words: institutions and media outlets aligned with Khamenei are happy to benefit from the fund’s golden eggs – and will stop at nothing to prevent Rouhani’s government from having the same opportunities.
The fourth group are the Iranian people, the real owners of the National Development Fund and its source of income, the revenue from petroleum exports that are supposed to be spent on developing the country. But most people do not know enough about the fund. How much money does it have? Is it US$91 billion, as has been reported? Unlikely.
People do not know how and where the billion euros that the government has withdrawn from the fund is to be spent. People do not know exactly at what rate it will be converted into the Iranian rial. How much of this money will be deposited into the Unemployment Insurance Fund? How much of it is going to the Health Ministry? Even if we take the word of a government spokesman, and assume that the Health Ministry will receive 12 trillion tomans, what will the Ministry do with it? How much of it will be used for overdue salaries? And with the coronavirus outbreak, how much will be spent on equipping hospitals? How much for medicine and health equipment? How much on necessary imports? Will anything be invested on research and development?
The government has promised [Persian link] that it will announce accurately, and in detail, how it will spend the money that it has withdrawn from the fund. But even if keeps this promise, it will only clarify the fate of one billion euros. The fate of other withdrawals from the fund – we do not know exactly how much – will remain unknown. The two billion euros that were made available to the military: how and where this money will be spent? At a time when Iran has to cope with the gravest economic and health crises in its contemporary history, should the funds of the National Development Fund be spent on regional military adventures?
Oil Prices and Sanctions
All of this unfolds as the fund itself faces a dark future. With the coronavirus pandemic, oil prices are on their most unstable footing in history. Even before the plunge in petroleum prices, Iran’s revenue from oil and gas exports had fallen to almost zero because of sanctions. We do not know what will happen to oil prices but, no matter what happens, it is unlikely that sanctions imposed by the United States on Iran will be eased any time soon.
This means that, at least in the short term, there is nothing to feed the goose that lays the golden eggs. And when the goose has nothing to eat, there can be no eggs for Iran.
Iran's Missing Dollars; Who Took Them, and How Much?, 16 April 2020
How Corruption is Gnawing Iran from Within, 14 November 2019