Guardian Council Approves Iranian Budget
The Iranian parliament (Majlis) on 17 May approved the budget for the Iranian year 1391, which started on 20 March. The budget projects total expenditure of IR5,660,000bn ($462bn), an increase from the original IR5,100,000bn ($416bn) first proposed when the budget was submitted to parliament in February (MEES,
13 February). Two days later on 19 May the Guardian Council, a constitutional body which has to give the final green light to the budget, approved the 1391 draft bill without any objections. The 1391 budget bill is based on an oil price assumption of $85/B, compared to $81.5/B for the previous year. The official exchange rate is set at $1=IR12,260, a deterioration from last year’s rate of $1=IR10,500. But the value of the rial on the open market today is even weaker and is being quoted at $1=IR16,500.
Iran is under a tight regime of international sanctions that make the oil trade and financial transactions difficult and cumbersome. In January the European Union banned the import of Iranian oil into Europe, but gave companies until 1 July to wind down their existing business (MEES, 30 January). Even if it manages to export its crude oil to international markets, accessing the hard currency from export earnings is not easy and may involve “financial disintermediation.” This has prompted the Iranian authorities to accept payment in goods or local currencies from the oil importing countries. Also, there are unconfirmed reports that Iran is offering discounts to lure customers to buy its oil.
Meanwhile, the government announced on 20 May that it was postponing the implementation of the second phase of the targeted subsidies for some time. This came after the parliament on 15 May gave the go ahead to the government to embark on the second phase and decided to allocate IR660,000bn ($53.8bn) from the savings generated from the subsidies cuts instead of the IR1,350,000bn ($110bn) that the government had previously requested. No reason was given for this postponement, but according to Mehr News Agency
the government is unhappy with the reduction in its share of revenue from the savings. The government needs to have access to these savings in order to disburse the cash handouts to the people. Annual inflation rose to 21.8% in the month to 19 April and the cash handouts are essential to support the livelihood of the majority of people. Judging from earlier experience the standoff between government and parliament is unlikely to last long – disputes over subsidies and other matters have usually been resolved with the intervention of the Supreme Leader Ali Khamenei.
© Copyright MEES 2012.