Tehran-based economic expert discusses next year’s budget bill and issues facing the nation in an interview with Rooz. Leilaz predicts that if current trends continue the number of unemployed people across Iran will rise by a million next year totaling some three and half million people, while the budget deficit is expected to be around 25 to 30 billion Dollars. The interview is below.
Rooz (R): The administration has announced a 25 percent tax increase in next year's budget bill. Given that the volume of imports would decrease over the next year due to falling oil prices, how realistic is that goal?
Saeed Leilaz (SL): Next year's budget deficit is estimated at around 25 to 30 billion Dollars. Generally I prefer not to speak about Mr. Ahmadinejad administration's previous budgets, because budgetary laws are not implemented in Iran and the Majlis does not have adequate powers to supervise their implementation. Therefore I speak about the results, because the administration presents its bills to the Majlis, the Majlis makes changes and returns the bills to the administration, but in the end the administration does whatever it wants. I don't know if you read last week's article in the Hamshahri newspaper by Mr. Tavakkoli's (Director of Majlis’ Strategic Research Center); in the report you see that the administration has withdrawn five to six billion Dollars from the foreign currency reserves account to make purchases without the necessary authorization. According to our laws, unauthorized withdrawals from the foreign currency reserves account is equated to the illegal possession of government property. But the administration engages in this without a blink - which is unprecedented in the history of this country- and the Majlis comfortably accepts such behavior by the administration. In these circumstances, next year's budget is one of the most unrealistic budgets in the country's post-revolutionary history.
R: Why is it so unrealistic?
SL: Because neither the expenses nor the revenues are realistic. Whereas according to this year's budget no more than 18 thousand billion Tomans can be spent on infrastructure projects, for next year they have set aside 26 thousand billion Tomans for such projects, and I am certain that allocations again would not be realistic. That is the same exact warning we issued last year regarding this year's budget. In last year's budget, an almost 50 percent increase in tax revenues was forecasted. In a country with a flawed tax system, where many people do not pay taxes, a 50 percent increase in tax revenues means more pressure on those who already pay taxes. I do not believe the administration can generate new sources for taxes in the remaining one or two months of the Persian calendar year (March 21)! Especially when the economy is in a recession. Imports would undoubtedly decrease next year. Otherwise, the administration would be forced to withdraw money from the strategic energy reserves. If imports drop next year, leading less revenues from taxes and duties on them, the level of economic activity too would plummet. Already the construction industry is in serious slump. You know that half of last year's economic growth was related to this sector If we take the growth of this sector for the upcoming year to be zero percent - which is an optimistic outlook - there will be a three and half percent drop in economic activity in the country. Assuming that other sectors of the economy grow at last year's pace, the overall rate of economic growth would drop below four percent next year.
R: What are the tangible effects of that situation for ordinary people?
SL: Unemployment and economic recession. If the administration seeks to borrow its way out of the budget deficit from the central bank we would witness inflation. We have a tough year ahead. In one sentence I can tell you that Iran's nine-year economic party is over. The price of oil has decreased and, unless it increases again, you will see a tumultuous year ahead. Right now that I speak to you Iran's daily oil revenue is 100 million dollars, whereas Iran's expenditure is at least 160 million dollars a day. That means we have a daily deficit of between 60 to 70 million dollars. I am worried about the repercussions of slowdown in economic growth and increase in unemployment rates. It is possible that by the end of next year the number of unemployed individuals in Iran would increase to three and half million people - and thee are numbers released by the ministry of labor.
R: What is the job creation potential in the country?
SL: Currently about 700,000 jobs are created annually in Iran, but the number would drop to around 300,000 next year.
R: How much has next year's budget been influenced by campaign politics?
SL: Entirely! That applies to not only this year's budget, but also last year's. In the past four years, Mr. Ahmadinejad's administration regularly presented the type of budget bill to the Majlis simply to keep the lawmakers happy. In reality however, the administration did what it pleased. Next year's budget is also prepared with an eye to political considerations because it is clearly unrealistic in nature.
R: How will the government finance this budget deficit?
SL: It will be forced to cut down imports a bit and slash infrastructure projects as well - just as it did this year. The rest will be financed by withdrawing from the foreign currency reserves account, and perhaps they would even print some more money. It is possible for the Dollar exchange rate with the Rial to rise as well, or they may introduce multiple exchange rates, although that would further fuel inflation. There is capacity for the Dollar exchange rate to increase to around 1,500 Tomans per dollar (currently about 950 Tomans). This is a significant difference.
