EghtesadOnline: The budget deficit is on course to reach 4,640 trillion rials ($16.79 billion) in the fiscal 2021-22 while the government is also facing an unfunded deficit of roughly 30%, or 3,830 trillion rials ($13.86 billion).
According to a report by Majlis Research Center citing the Supreme Audit Court of Iran, 27% of projected revenues compared with 44% of projected expenditure as per the budget law materialized in the first two months of the current fiscal year (March 21-May 21).
Should the current situation persist, i.e., projected revenues will fail to materialize and give rise to a higher budget deficit by the end of the current fiscal year (March 20, 2022), it added.
Close to 85% of tax revenues envisioned in the budget law were realized by May 21, indicating a 64% increase compared with the corresponding period of last year.
The Iranian Cabinet failed to approve the bylaw on taxing luxury cars, expensive and vacant residential properties, therefore the government’s income from these sources remained zero just like last year.
Referring to unsustainable sources of public revenue, the report said sales of immovable assets accounted for 3% or 450 trillion rials ($1.62 billion) and the transfer of shares of public companies amounted to 20% or 2,560 trillion rials ($9.26 billion) of the budget revenues.
Increasing aversion of investors to buy Islamic bonds offered by the Central Bank of Iran over nine rounds of auctions, along with capital market woes, cast serious doubt on whether the predicted revenues from the sale of capital and financial assets will be realized.
Majlis Research Center says political and economic issues associated with budgeting, the rise in sales of capital asset and lack of fiscal discipline are among the main causes of budget deficit, apart from challenges posed by trade and capital account deficits.
Strategies proposed by the center include calls for overhauling budget structure, increasing tax revenues and curtailing the speculative activities of banks, particularly those of private banks.
The center calls for close cooperation between the government and parliament in devising a bill on reforming the budget structure. It proposed measures such as prioritizing sources of revenues (instead of selling capital assets and borrowing) and economizing on expenses.
Given the existing problems regarding the sales of Islamic and treasury bonds and the rise in money supply, Majlis Research Center recommends that the government tap into the capacities of the central bank to address budget deficit and streamline money creation by the banking system by increasing bank reserves to at least 25% and in return increase the government’s petty cash from CBI.
“By employing this policy, the government will benefit from money creation and prevent the undesirable involvement of banks in money creation. The policy taken in recent years regarding budget financing through sales of bonds has been a costly one; it led to the replacement of public consumption expenditures with private consumption expenditures,” the report said.
Majlis Research Center is a scholarly institution affiliated to the Iranian Parliament. The center works in close collaboration with Qom Theological School. It was established in October 2010 in Qom and began to work formally at the beginning of 2011.
The research activity of the center is based on Islamic studies and takes advantage of experts and scholars of law, religion and jurisprudence.