BY: Ebrahim Fallahi

National budget bill: how much oil income is forecast?

November 24, 2020 - 12:5

TEHRAN – Iran’s Planning and Budget Organization (PBO) has handed over the draft of the national budget bill for the next Iranian calendar year (starts on March 21, 2021) to the government for review.

Currently, President Hassan Rouhani’s cabinet is holding meetings for reviewing the bill which is expected to be presented to the parliament (Majlis) by December 2.

Considering the recent efforts made by the Iranian government for distancing the economy from its long-lasting reliance on oil revenues for drafting the country’s budget bill, and also considering the recent developments in the White House, a major question that comes to mind regarding the recently drafted budget bill is the amount of oil revenues previsioned and the places in which they are going to be spent.

Like the previous years, President Rouhani has said that the main goal of the national budget bill for the next year is also to downsize the government and cut the direct dependence on oil incomes.

"The 1400 budget bill is formulated in the framework of the general plan to reform the budget structure, general policies of the resistance economy, with long-term growth approaches by focusing on non-oil exports, actively countering the outbreak of coronavirus and reducing its negative economic effects, accelerate the completion of production assets acquisition plans, improving the business environment, paying attention to people's livelihoods with the priority of basic goods and developing a model of public-private partnership”, the president said in a session of the Resistance Economy Headquarters earlier this month.

So clearly, the government is still following its major strategies for cutting off the reliance on oil incomes and moving toward the promotion and development of non-oil exports and domestic production, yet still, the questions regarding the amount and the application of the oil revenues beg some answers.

Oil revenues

In the released version of the national budget bill, the PBO did not clearly determine a figure for the country’s oil incomes for the next Iranian calendar year and in drafting the budget bill the figures regarding the oil incomes were still left blank.

However, with simple math, we can come up with some figures and fill the blanks.

Last Wednesday, Mohammad-Baqer Nobakht, head of the Planning and Budget Organization, said: "The average oil sales this year were between 600,000 and 700,000 barrels per day, and the next year's budget bill is drafted almost based on the same estimation."

He also mentioned the oil prices based on which the next year’s budget bill has been drafted: "We have not yet determined the oil price based on which the budget will be set, but the initial estimation is around $40 a barrel."

So considering the exports of 700,000 bpd of oil and with the oil at $40 per barrel, then Iran is expected to earn $10.08 billion from selling crude oil in the next Iranian calendar year.

The figure, of course, is just an estimation and it could be very different in case of new developments regarding the U.S. sanctions on the country’s oil industry.

What the money will be spent on?

Part 1 of paragraph "b" of Note 1 of the national budget bill draft states: "The ceiling of the resources provided by the oil exports listed in row 210101 of Table No. (5) of this bill is equivalent to ............. rials which will be completely spent on the import of basic goods, livestock feed inputs, medicine, and medical equipment."

As it is clearly stated, all the revenues earned from oil sales are expected to be used for the imports of basic goods and medicine in the next year.

Although it should be mentioned that based on the Iranian law, the government’s share of the country’s oil income is only 47.5 percent which means, only about $5 billion of the mentioned figure will be provided to the government for the imports of the basic goods.

According to Mohammad-Baqer Nobakht, any surplus revenues earned from oil exports will not be spent on current expenses but will be used for development projects, urban transportation, e-government development, strengthening knowledge-based companies, and strengthening the health transformation plan.

Implications

A look at the mentioned figures clearly shows that the Iranian government is determined in distancing itself from the oil revenues and is not counting much on the oil incomes for its expenses.

Nobakht had previously said that the budget resources for the next year will be supplied from oil, taxation, and issuance of government bonds, so obviously oil is not going to be the main player in this regard, and that is good news.

EF/MA

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