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EghtesadOnline: Governments’ appropriation of the foreign exchange resources of the National Development Fund of Iran, the country’s sovereign wealth fund, has been rising constantly over the past few years, such that the fund now accounts for a significant part of the budget, Mehdi Pazouki, an economic expert, said in a write-up for the Persian daily Jahan-e Sanat. A translation of the text follows:

Excessive withdrawals from NDFI come as, according to the law, its resources must be saved for future generations and spent on development and investment in the non-governmental sector. 

Prior to the establishment of NDFI and emergence of subsequent challenges (for example, the fund’s misuse for addressing budget deficits), earnings from oil sales were saved in a foreign exchange reserve account. 

NDFI, which came into existence during the tenure of former president, Mohammad Khatami, used to be run by two well-known individuals. However, NDFI has turned into a piggy bank for meeting the government’s budget deficit over the past decade. This has increased the fund’s financial claims in various areas over the years, many of which are said to have not been repaid.

Since coming to power, the new government has criticized the diversion of NDFI’s funds, claiming that it will not allow the trend to persist. However, the next budget bill [fiscal 2022-23] shows that the government has not only reduced the fund’s 40% share from oil sales to 20%, but also increased its level of borrowing from NDFI by 3.5 times. This indicates that the current government intends to finance a large part of its expenditures from the fund’s resources.

Non-public institutions and companies affiliated to pension funds (tasked with the construction of power plants) are among sectors that have received loans from NDFI. These institutions have not yet been able to repay the loans they received for different purposes. Thus, we can level two main criticisms at the government regarding NDFI. 

First, why has the government’s projected borrowing from the fund’s resources has increased 3.5-fold, and second, why did the fund not oppose the reduction of its share from the constitutional 40% to 20%? 

The growth in government’s share from the fund in the next year’s budget indicates that the government regards the sovereign wealth fund as one of its financing instruments, which increases the budget’s reliance on oil revenues. 

The [officials with] the National Development Fund of Iran are expected to release the list of loans given to various institutions and projects. In the meantime, they must be accountable for the resources ($500 million) allocated to rural areas for improving water supply networks after securing the green light from the parliament. 

In addition, the return of the fund to its original function, i.e., the foreign exchange reserve account managed by the Plan and Budget Organization, can largely stem the fund’s spending (from astronomical salaries to the expansion of office buildings, as if it is a new ministry). 

The foreign exchange reserve account used to be controlled by Bayazid Mardoukhi during the Khatami tenure. Despite the fact that it was supervised by only two individuals, it was handed over to the following government with reserves amounting to $10 billion. 

As NDFI has become an instrument for governments to do business and impose heavy costs on people, its dissolution and reestablishment as a foreign exchange reserve account can put an end to the challenge of accumulated costs and allocation of macro-loans to cover the current government’s expenditures. 


NDFI Economist