Graphic symbolizing US sanctions on Iran.

With US Sanctions In Place Iran Cannot Deal With Its Budget Deficit

11/2/2021

Author: Mardo Soghom

Iran’s government is pledging not to dip into the pockets of the central bank or print more money to balance its budget, but skeptics doubt there are any magic solutions to lack of income.

Iran’s budget deficit in the current fiscal year is 40-50 percent or around 5,000 trillion rials. If we convert the devalued rial amount to the highly appreciated dollar, it is around $20 billion. This would be a manageable amount if Iran could export 1.5 million barrels of crude oil daily, but currently it sells a few hundred thousand barrels at discounted prices.

According to estimates published by the parliament’s research center, only 15-20 percent of the projected oil revenues have been realized. The projection in the budget was to export 1.5 million barrels a day, which certainly was a gross overestimation, as US sanctions remained in place.

President Ebrahim Raisi’s ‘revolutionary’ government took office in August with pledges of solving the economic crisis, with his hardline supporters blaming the former administration for ineptitude. But it is common knowledge in Iran that the main cause for the steep economic decline since 2018 has been US sanctions, especially on its oil exports.

Then, why are the hardliners blaming Rouhani? The ruling elite headed by Supreme Leader Ali Khamenei does not want to admit that sanctions have caused misery. If they admit that, it means they must also admit that their confrontational foreign policy has led to economic disaster.

The Raisi government is now saying that they have found ways to generate income without borrowing from the central bank or printing money – although both mean the same thing, since the central bank has no extra foreign reserves. Former president Rouhani’s administration was printing money and fueling inflation that has reached close to 50 Percent. Absent a deal with the United States it had no other choice.

But few economists outside the government believe Raisi can magically generate revenues. Maysam Radpour, a well-known analyst in Iran was quoted by local media on Tuesday as expressing surprise that the government can find additional revenues without borrowing from the central bank or printing money. He said that neither expenditures have been cut nor tax collection increased, and US sanctions remain in place. He added that the government is muddling through amid a lack of real information about its actions.

The conservative website, Alef, published an analysis on the role of both sanctions and structural problems in generating Iran’s economic crisis. The article said that lifting sanctions is necessary for dealing with economic challenges but not sufficient without structural reforms.

Iran’s economy has many structural shortcomings and there is no choice but to do a “deep and painful surgery”, Alef said. It is an economy that has survived with injecting petrodollars to keep it going temporarily and when oil sanctions hit, it has no legs to stand on. If sanctions are lifted, economic conditions will somewhat improve the article said, but on the long-run “the reality of a sick economy will again impose its harsh impact on the country and on the people.”

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