EghtesadOnline: Iran’s 4,480-trillion-rial ($37.64 billion) budget for the current fiscal year (March 2019-20) is based on the sale of 300,000 barrels of oil per day, the deputy head of Plan and Budget Organization said.
Hamid Pourmohammadi added that by adopting a number of budget reforms, the government has paved the way for reducing reliance on oil revenues.
Last year’s (fiscal 2018-19) budget was based on the sale of 1.5 million barrels and that of fiscal 2017-18 forecast selling 2.68 million barrels of oil per day, the official was quoted as saying by Mehr News Agency.
“The Islamic Republic rose to the occasion against US sanctions and reduced national costs and boosted revenues. By introducing structural reforms, budget dependency on petrodollars has nearly lowered to zero,” Financial Tribune quoted him as saying.
One would consider the impact of sanctions on Iran's ability to sell oil as a blessing in disguise, as it has prompted Iran to figure out a way to finance its affairs without oil revenues.
According to Oil Minister Bijan Namdar Zanganeh, oil revenues in the 2018-19 budget stood at $27 billion before declining 28% to reach $21 billion in the current year.
Revenue from the key petrochemical sector is expected to reach $18 billion in 2019, of which $12 billion will be from exports.
Budget Reform Plan
The heads of three branches of power (executive, judiciary, legislative) earlier this month approved the four main outlines of an initiative to improve budgeting and help reduce the country’s dependence on oil revenues.
“Institutional bolstering of budget, improving spending efficiency, generating sustainable revenue growth and achieving macroeconomic stability and sustainable development are the main pivots of reforms that will be introduced to the budget within nine packages,” Mohammad Baqer Nobakht, the head of Plan and Budget Organization, wrote on Twitter.
“Each package will feature short-, medium- and long-term plans and recommendations that will be weighed by special task forces from three branches of power; the Supreme Council of Economic Coordination will be then briefed on the developments,” he added.
The need for structural reform in the budget has been acknowledged for years now. However, it became more pressing last year when the United States reimposed sanctions against Iran’s oil sector, which supplies a substantial percentage of the budget’s revenues.
Last month, the Plan and Budget Organization uploaded the framework of budget reforms on its website and sought the comments of experts.
President Hassan Rouhani submitted the budget bill to the parliament on December 25, 2018, which was passed by lawmakers in 27 sessions in less than a month. Its outlines were passed on February 16.
Rouhani signed into law the current fiscal year’s (March 2019-20) budget following the parliament’s approval on April 5.
General resources in the budget bill stand at 4.07 quadrillion rials ($34.2 billion), 5.44% bigger compared to the budget law of the fiscal 2018-19.
A Review of Oil's Role in Iran's Economy
The share of oil in gross domestic product, budget and its contribution to overall revenues from exports help measure a country's reliance on oil revenues, according to a report by Tehran Chamber of Commerce, Industries, Mines, Trade and Agriculture.
The latest statistics released by the Central Bank of Iran show oil revenues accounted for 19.6% of the GDP in the first quarter of the fiscal 2018-19 (March 21-June 21).
Oil’s share in the Iranian budget’s public revenues was at 37% in Q1 and 37.8% in Q2 (June 22-Sept. 22, 2018) while exports of crude oil and oil products constituted 66.3% of the country’s overall exports of goods and services and 71.5% of the country’s overall exports in Q1.
Oil was the second biggest contributor to Iran’s GDP after the services sector that accounted for 53.5% of GDP during the first quarter of the current year, the industries sector for 11.8% and the agriculture sector for 9% of the country’s GDP.
The two-year high 19.6% share of oil in GDP comes, as the ratio did not go beyond 14.5% during the Q1 of the fiscal 2016-17 to Q4 of the fiscal 2017-18.
In the Q1 of fiscal 2017-18 and 2016-17, oil to GDP ratio stood at 13.9% and 12.5%, respectively. Oil revenues had the smallest share of 10.5% in GDP in Q2 of the fiscal 2016-17.
The added value of oil sector contributed to 1.2% of the country’s economic growth in the first quarter of the fiscal 2018-19.
The share of oil revenues in the government’s budget’s public resources has always been one of the most controversial issues. It is almost impossible to forswear oil revenues when drafting the country’s budget.
Yet, Iranian governments have endeavored to tone down the dependency of budget on oil sales. As a result, in recent years, they appear to have seen off the challenge of reducing oil revenues’ share in the budget, at least to some degree.
In the fiscal 2011-12, oil made up close to half of government’s public budget while its share has reduced significantly in recent years, which could be partly attributed to the decline in global oil prices.
Oil to budget ratio was around 38% in Q2 of the current year (June 22-Sept. 22). The smallest and biggest shares of oil revenues in the country’s budget have been registered for the first quarter of 2016-17 and the second quarter of 2017-18 with 10.4% and 39.1%, respectively.
Another key index for calculating the level of an economy’s dependency on oil revenues is the share of oil exports in the country’s total revenues from exports.
The oil sector accounted for about 71.5% of Iran’s total revenues from exports in Q1 of the current fiscal year (March 21-June 21), an unprecedented share since two years before.
In Q1 of the fiscal 2017-18, oil accounted for 66.5% of Iran’s exports of goods while in the first quarter of the fiscal 2016-17, the ratio hovered around 61.6%--the smallest share during the period under review.