The author is Iran’s minister of finance and financial affairs
In Iran, sanctions, forex fluctuations and excessive inflation charges have led to subpar financial efficiency and a destructive progress fee in recent times. Different adversarial shocks such because the Covid-19 pandemic and pure disasters have additional elevated the fiscal strain. Therefore, the price range has grown quicker than inflation — that for 2021 was about thrice that for 2019.
I don’t but know what the result of Iran’s present nuclear negotiations with the 4 + 1 in Vienna will likely be. Regardless, we should take a cautious method to our subsequent price range in order to not upset the administration of the economic system. Our authorities’s technique was first to stabilise the economic system after which to stimulate inclusive progress. Prior to now few months, a part of the primary aim was achieved, with point-to-point inflation reducing on a month-to-month foundation (from a 3.8 per cent enhance to 1.6 per cent). The 2022 price range framework, which begins with the Iranian new 12 months on March 21, should proceed this technique.
Given the present sanctions-related obstacles to exporting crude oil, the earlier authorities’s technique in financing the rising price range deficit elevated our reliance on the bond market. The reimbursement and settlement of those money owed are the accountability of the brand new administration. We have now additionally tried, over our seven months in workplace, to promote extra oil below the present restrictions (with a rise of 40 per cent) and to lift tax revenues.
The current mushrooming of Iran’s price range was a direct results of a rise within the authorities’s present expenditure, whereas its investments in numerous sectors have declined. This, together with widespread uncertainty over the nation’s economic system due to the pandemic, has additionally led to a decline in non-public sector funding. This in flip has resulted in a destructive internet funding in recent times, severely undermining future manufacturing and family welfare.
Towards this background, and in response to rising inequality, the brand new authorities has sought to vary the course of fiscal coverage. Our goal is to advertise financial progress, value stability and inclusive progress. We additionally search institutional reforms to enhance monetary self-discipline and cut back spending.
As such, our price range for 2022, which is already authorised by the parliament, contains quite a lot of structural reforms. We are going to decrease company tax charges by 5 per cent and cut back our reliance on bonds. We hope to scale back the price range deficit by rising the salaries of presidency staff at charges lower than the inflation fee. We additionally predict elevated oil export revenues.
Iran’s new price range is designed to advertise equitable progress, together with by rising authorities funding. The general public sector should play a extra energetic position in investing in bodily capital. Capital asset acquisition declined from 24 per cent in 2012 to 14 per cent in 2021 however, within the new price range, the share of credit for buying capital property has elevated by 4 per cent. That is a necessary step in strengthening public funding.
We additionally want to cut back the expansion in present expenditure. Within the 2021 price range this stood at round 60 per cent. This has been decreased to 38 per cent within the new invoice.
Lastly, we plan to extend tax revenues. Regardless of the discount in company tax charges, the federal government has elevated its reliance on sustainable tax revenues as a substitute of primarily relying on oil. This has come about by way of substantial reforms to the tax system in addition to by rising monetary transparency to scale back tax evasion and introducing a capital features tax.
Our fashions recommend that Iran’s new price range will result in optimistic medium-term outcomes in variables equivalent to output, funding, employment and inflation. The method adopted within the 2021 price range is anticipated to scale back inflation considerably within the subsequent three years. Furthermore, complete funding and non-oil manufacturing will develop extra shortly.
For sure, the federal government is set to maintain the cash provide and financial base below tight management. It will require important reforms within the banking sector, in addition to in areas outdoors the federal government price range (equivalent to pension funds, the nationwide wealth fund and so forth). The present negotiations in Vienna might probably result in optimistic financial outcomes for Iran, particularly within the banking sector and overseas change. We’re prepared for no matter state of affairs emerges — pessimistic or in any other case.