Iranian President Mohammad Khatami on 23 December 2003 presented to the Majlis (parliament) the draft budget bill for the Iranian year 1383 (which starts on 20 March 2004) projecting a rise of 10.5% in total spending to IR1,069,532bn ($128.4bn) from IR968,261bn ($116.2bn) in 1382. Outlining the priorities of the budget bill, Mr Khatami said that it would stress privatization, decentralization, employment creation and improving the distribution of resources. He noted that the 1383 budget, which projects a 7.3% growth rate, has a special significance because it marks the end of the current third five-year development plan (2000-05) and will serve as the basis for the next plan. According to the president, lowering the unemployment rate in the country from 14.5% and the unification of the exchange rates are among the main achievements of the third development plan. With regard to employment, he noted that in 2003-04 some 653,000 new jobs were added to the labor market and that a further 754,000 are expected to be created in 2004-05. In order to deal with the acute unemployment problem in Iran, the third plan envisaged the creation of some 750,000 jobs annually.  He added that the new budget aims to minimize the size of government sector and to encourage domestic and foreign investments in an attempt to create new job opportunities. It will also seek to boost state revenue by selling government enterprises to the private sector and by increasing taxes. 

As in previous years, the budget bill spending comprises the government budget for 1383, estimated at IR509,131bn ($61.1bn), up 16.8% on 1382, and the balance for the state-owned banks and enterprises. The general budget accounts for 47.6% of the total budget in 1383, while the budget for the state-owned entities accounts for the balance, roughly in line with the ratios of the previous year.

The president did not give any indication of the oil price assumption in the new budget, or the expected oil revenue. However according to Iranian press reports quoted by AFP, the draft budget envisages an oil revenue of $16bn based on a price of $19.50/B. Another report from Tehran stated that the Iranian Oil Ministry’s oil price of $22/B was deemed as too high, according to Majlis Energy Commission member Abdollah Sohrabi. In November the Iranian Oil Minister, Bijan Zanganeh, was quoted by IRNA as saying that oil revenue in the new budget will be similar to that of 1382. For 1382 the government projected an oil price of $19/B and revenue of $15.3bn, which will be exceeded by the end of the year because of firmer than anticipated oil prices.  As in previous years, any surplus in oil revenue will go to the Oil Stabilization Fund (OSF), which is used by the government to repay foreign debt, finance infrastructure and create jobs. The OSF is believed to have a balance of more than $8-9bn.  Mr Khatami said that in 1383 reliance on oil revenue stands at about 48%, but that his government will continue to lower its dependence on oil revenue.

On the expenditure side the draft budget allocates IR95,000bn ($11,4bn) for development projects and  IR39,700bn ($4.8bn) for subsidies, an increase of 9.4% over 1382.  It also allocates IR4,000bn ($480mn) for gasoline imports to ease the shortage caused by excessive consumption, according to the Vice-Chairman of the Majlis Energy Commission, Ahmad Azimi. At the same time the budget envisages a 10% increase in gasoline prices, although the Majlis may not agree to such a rise. The government has estimated the cost of rebuilding Bam, which was destroyed in an earthquake on 26 December, at IR4000bn ($480mn). The cabinet has so far allocated IR3,410bn ($409mn)  in credit and bank facilities for Bam’s rebuilding.

The Iranian economy has performed rather well in the first three years (2000-03) of the development plan, benefiting from sustained high oil prices and fiscal stimulus, according to the IMF in an Article IV review of the economy (MEES, 15 September 2003). Real GDP growth averaged 5.8% over the three years under review, and is projected to rise to 6.5% in 2003-04. But the IMF warned that the economy continues to face important challenges – job creation has not matched the rapid increase in the labor force, inflation is high and rising, price subsidies and controls continue to restrict economic efficiency and structural impediments to private sector developments remain. The IMF also called on Iran to continue with measures to reform the economy. Whether the economy can continue to grow at such a high rate in 2004-05 is uncertain and will depend on a number of factors, chief among which are high oil prices and more reforms to liberalize the economy. 

The Majlis is expected to debate and possibly amend the draft budget bill over the next few weeks before its approval. It will then be presented to the Guardians Council, which will examine it to ensure that it conforms to the tenets of Islam and to the Iranian constitution before finally giving it the green light.

© Copyright MEES 2004.