Bloomberg | Bobby Ghosh: There’s a sprinkling of wishful thinking in all budget announcements. Governments always want to foster a sense of hope among their citizens, never more so than during hard times. But the budget unveiled over the weekend by Iranian President Hassan Rouhani seems to have been created out of whole cloth.
For starters, the official exchange rate it uses, which suggests that spending will add up to about $115 billion, is pure fiction. In real market terms, the budget will be closer to $37 billion, and that’s including $5 billion in promised loans from Russia that haven’t yet been finalized. It could shrink even further as the rial responds to economic trends. A weakening currency would make a mockery of Rouhani’s plan to raise revenue — he expects tax receipts to rise by 13% — while increasing government salaries by 15%.
The regime managed to protect the rial through much of 2019, after a calamitous 2018, but it will struggle to prop it up for much longer. The International Monetary Fund expects Iran’s gross domestic product to shrink by at least 9.5% this year — only Libya and Venezuela will do worse. The overall inflation rate was 47.2% for the 12 months to October. Oil exports, the country’s largest source of foreign currency, are down by 70%. Rouhani’s assurances that other sectors of the economy will compensate for this have the credibility of a fairy tale.
The president acknowledged that the dire straits are, to a great extent, the product of American economic sanctions, although his own mismanagement and widespread corruption are significant contributors. Attempting to make a virtue of his desperation, Rouhani described his effort as a “budget of resistance.” Iranians facing the prospect of higher taxes and energy bills are unlikely to be impressed by a branding exercise.
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