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Iran Regime’s New Budget Will Exacerbate Inflation

Iran Regime’s New Budget Will Exacerbate Inflation
Iran’s new budget bill reflects the crisis and economic collapse of the regime.

In his proposed budget for the upcoming Iranian calendar year, the Iranian regime’s president, Hassan Rouhani, has used the exchange rate of 42,000 rials per U.S. dollar for calculating the income from imports of essential products and medicines. According to the government’s spokesperson, around $10 billion of presumed oil revenue is allocated to these imports.

This is while the regime’s oil revenue will continue to decline due to the United States sanctions on the regime’s oil industry.

In addition, given the likely decline in tax revenues due to the economic recession and the supposed 15% increase in public employees’ salaries, the budget deficit is likely to be very large and perhaps unprecedented during the next year.

The government, therefore, is in dire need of oil revenues. The regime’s economists have repeatedly emphasized the ineffectiveness of government currency policy in controlling the inflation rate of essential products and medicines. Given these two points, the government’s decision to use the exchange rate of 42,000 rials per dollar and allocating its nearly total oil revenue to this policy raises this question that how the regime could easily make such a dangerous decision?

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What is the role of the Central Bank in this tragedy? The Central Bank would be forced to secure monetary base expansion and start printing unsecured banknotes and would have to wait for inflationary effects soon. If true, then the secret of the regime’s currency decision would become apparent. The Iranian regime has never ignored the oil revenue and has made a profit on it without mentioning it in the budget.  The only point is that instead of receiving the $9.8 billion from the importer, it comes from the Central Bank. These techniques and calculations of Rouhani’s government are to satisfy the government, their business supporters, and their political representatives, even at the expense of rising inflation and liquidity, which in the subsequent period of the country’s economic process, would lead to more money and currency swings. They would inevitably lead to further inflation.

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