Iran’s government budget reveals tough road ahead as currency hits new low

Iran’s currency has been experiencing new lows in the midst of ongoing economic unrest, which is also reflected in a planned budget for the following year, which effectively reduces public spending.

Tehran’s open market on Wednesday saw the highest rate for a dollar ever on Wednesday, with each dollar trading at roughly 1.36 million rials, before the Iranian currency briefly gained ground on Thursday.

As the US and its Western allies continue to impose their sanctions and diplomatic pressure on the country’s fragile currency, the risk of a new war with Israel persists.

The hardline-controlled parliament for the upcoming Iranian calendar year, which begins in late March, will receive the finalized budget proposal from President Masoud Pezeshkian this week. The 12-member Guardian Council will then need to approve the budget before it can be signed into law in the coming weeks.

In order to manage a so-called “resistance economy,” the government expects to reduce spending while also managing a so-called “resistance economy” as it continues to face a severe budget crisis. The presented budget nominally increased by just over 5% compared to last year.

However, Iranians will be assured that their spending power will decline as the embattled national currency plunges, and that the minimum wage will also be raised far below the inflation rate, at only 20%.

In addition, according to the budget, the government expects taxes to rise by a sizable 62 percent next year as the government attempts to lessen its reliance on oil as US efforts to reduce Iranian exports, which are mostly carried by a shadow fleet of ships headed to China.

The entire budget is worth about $106 billion at the current exchange rate, which is several times less than the regional players’ projected 2026 budgets for Turkiye, Saudi Arabia, and Israel.

Iran’s rent-distributing multi-tier exchange rate system is still in play, with the government proposing a rate for import valuation, budget accounting, and a rate that is more in line with the open market rate for oil revenue realization.

A prior subsidized exchange rate that was significantly lower than the open market rate has been abandoned. Low-income Iranians are expected to receive any extra cash as electronic coupons that can be used to purchase essential items like food.

The budget is written in new rials for the first time since four zeros are anticipated to be removed from the struggling national currency by the budget’s start-up year.

The government’s plan to lop off four zeros was approved in October after years of back and forth. The move, according to supporters, was only cosmetic and won’t stop the frenzied inflation, which had already occurred years prior.

forecasts for the budget

The impact of the economic situation’s potential next year has already been heightened by a number of significant factors.

Iranians online were unfavorable about the government’s predictions that wages will far exceed inflation and tax collection. People were concerned that the elimination of the subsidised rate for essential goods might lead to a price shock that would follow.

Pezeshkian from the presidential campaign last year was quoted as saying in a televised interview that the stark wage disparity is “grave injustice” being done to the Iranian people.

Unfortunately, as long as the structural issues are ignored, we are making workers and government workers savanna, and those who have money grow bigger and bigger, according to Pezeshkian at the time.

The poor and the disenfranchised are subject to an additional tax, according to the statement.

However, successive governments have failed to reduce budget deficits or control banks that are teetering toward bankruptcy, putting the pressure on the central bank to print more money to finance the nation, which in turn causes inflation to rise.

The government increased the petroleum price cap earlier in December despite repeated assurances that it had no plans to do so this year. The move has already increased transportation costs, which will ultimately increase inflation.

The most affordable and least expensive petroleum is currently available to most Iranians, starting at 50, 000 rials per litre (roughly $1.19), and higher-quality imported fuel was delivered this week for 800, 000 rials per litre (19).

The government has developed a 20-point plan, according to Hamid Pourmohammadi, who is in charge of Iran’s Plan and Budget Organization, that will ease the country’s 90 million-person population’s daily living conditions.

Source: Aljazeera