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Mon, Feb 21, 2005
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Will GovÕt Meet Revenue Targets?
In many countries, especially in the developed world, statistics are upgraded almost daily and figures on budget deficits, government revenues, inflation rate, unemployment or economic growth are made public on the dot.
These figures play a crucial role in economic programming of advanced countries.
But in Iran facts and figures announced by relevant organizations are mostly stale. What makes it worse is that state-run economic bodies are unwilling to release statistics on their performance. The reason is clear; most of them are loss-making.
According to the Persian daily Hamshahri, official statistics at hand suggest that taxation and petrodollars account for a major portion of the governmentÕs revenues.
The government earned 31 percent more in March-December 2004 than it did in the corresponding period the previous year. Its revenues stood at 357 trillion rials by late 2004.
But a more precise look at the countryÕs annual budget would reveal that a remarkable portion of the government revenues is earned from the annual increase in fuel pricesÑwhat would come to an end in the year to March 2006 following parliamentÕs decision to set fixed prices for fuels.
The government earned 104 trillion rials from fuel sales at home in the same period. That is, the governmentÕs real revenues stood at 253 trillion rials, which is almost $30 billion.
The governmentÕs earnings would decline to a remarkable extent in the year to March 2006 following the parliamentary order to all state companies to keep prices of goods and services unchanged in the period.
The parliamentary decision would force the government to withdraw more money from the Foreign Exchange Reserve Fund to offset budget deficits that would follow fixed prices. This, most experts contend, would worsen inflation.
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State organizations use a significant portion of the budget without showing positive economic performance.
Oil Share
Iran has a mono-product economy, in which petrodollars constitute most of the government revenues.
Oil Minister Bijan Namdar Zanganeh said recently that revenues from oil exports would reach some $27 billion by March.
The minister said oil revenues stood at $23 billion during March-December 2004.
The government has envisioned revenues of up to $15.2 billion from oil exports in the budget bill for the next fiscal year, which begins in March.
Some $4.1 billion of the total oil revenues will be deposited in Foreign Exchange Reserve Fund.
The government would only have $3 billion to spend during March 2005-2006.
A senior Central Bank of Iran (CBI) official had forecast earlier that Iran's oil revenues would total $28 billion in the year to March.
Deputy CBI governor for foreign exchange affairs, Mohammad Jafar Mojarrad, stressed that the central bank is also expected to record a maximum $3 billion in foreign exchange reserves by March.
Mojarrad pointed out that Iran has one of the lowest foreign liabilities among developing countries.

Taxation
Official statistics show that Iran earned 56 trillion rials from taxation in March-December period, when tax revenues accounted for 22 percent and oil revenues, 56 percent of the countryÕs total earnings.
The budget bill for March 2005-2006 has envisaged a 21-percent increase in tax revenues. The government has projected earnings of some 41.4 trillion rials from taxation in the period.
The government had planned to earn 26.8 trillion rials from imports during March-December 2004. This is while low-profile import of vehicles led to the governmentÕs failure to meet this figure of which almost 19.1 trillion rials was realized.
Tax income improved in the period while indirect taxes showed a decline due to automobile imports failure.
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Iran has a mono-product economy with petrodollars constituting major part of government revenue.
Share Revenues
The Fourth Development Plan (2005-2010) has stipulated that the government would earn 15 trillion rials from sale of state companies' shares in the next Iranian year, which begins late March.
Mirali Ashraf Abdollah-Pouri Hosseini, deputy commerce minister and head of the Privatization Organization, said the projected privatization revenues for the year to March 2005 is 12 trillion rials, which means the government will earn 25 percent more next year.
The 12 trillion rials the government is supposed to receive from the privatization drive by March 2005 would be 70-80 percent higher than what it earned last year.
It is very difficult to meet these targets this year, says Abdollah-Pouri Hosseini, adding that if his organization manages to realize the privatization goals by the given deadline, it will have offered twice as many shares as the government has in the past 13 years.
The Privatization Organization must sell trillions of shares in a few months, whereas the entire private sector liquidity is estimated at 60 trillion rials.
The organization has offered as many shares since mid-October as it had in the last two years. Some 61 tenders have been held in the period.
Experts have expressed concern over the prospect of the Privatization Organization failing to meet its commitments on the transfer of shares of some 140 companies to private ownership via tenders or through the stock exchange by the yearend.
The organization offered shares of 14 giant state firms from Nov. 17-21. Five trillion rials worth of shares of 12 major state companies were also offered in December.

Expenditures
Some $7.7 billion would be withdrawn from the Foreign Exchange Reserve Fund to balance expenses and resources during March 2005-2006. Revenues from sales of shares of state companies would be invested in developing deprived areas, repaying state debts to the Central Bank of Iran and boosting capital of state banks and insurance firms.
Government expenses are divided into two main categories, namely current and development costs.
Official figures suggest that State Treasury paid 164 trillion rials in March-December period for current expenses of the government.
From the total figure, some 18.6 trillion was allocated for subsidies on major consumer goods while 82.5 trillion rials went to state organizations.
This is while conservative lawmakers believe the organizations use a significant portion of state budget each year without having a positive economic performance. They say state bodies receive 65 percent of the budget while their productivity remains low.
The government was supposed to spend 74 trillion rials on development projects. The funds were slashed to 39 trillion rials.
Some experts and lawmakers believe that the budget bill for March 2005-2006 presents unreal figures. Figures pertaining to budget deficit, privatization and oil revenues, liabilities and inflation, they say, are incorrect.
The government has repeatedly been accused of failing to achieve privatization goals despite the numerous slogans it has made to this effect.
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Economic Contradictions
By Zahra Kalhory
The 2005 fiscal year budget (beginning March 20) is one of the most important bills ratified in recent years. On one hand the year will be the first year of implementation of the Fourth Development Plan and on the other the beginning of the 20-Year Perspective; a perspective based on which the nation is planning to transform itself into a regional economic, scientific and cultural power.
Because of major shortfalls, previous fiscal budgets were largely blamed for the rise in inflation, dependence on oil revenues and wastage of national resources. This time around every body hopes that the government would carefully review all weak points of previous budgets and come up with a plan that could help realize the goals of the 20-Year Perspective. Then again, certain political rivalries between government and parliament have created speculations that the next yearÕs budget plan has become a political tool to control and defy the future administration.
Economic experts and officials in charge of devising budget plans are working hard to convince parliament that ratification of the fixed-price plan would increase inflation - an unnecessary obstacle that the next government would have to deal with. The current government faces huge budget deficits as well, but parliament is still considering to cut bank profit rates and compensate revenue losses by other means, yet unheard of.
Mohammad Kordbacheh, managing director of Macro-Economics Office at Management and Planning Organization, says the government has tried to minimize negative effects of the fixed-price plan by carefully looking into it, but certain parts had been misunderstood.
He further said, ÒThe basis for the government is the Fourth Development Plan. The Macro-Economics Office was in charge of devising the budget as per the plan and in line with its relevant tables. In the fourth table all resources and expenditures of the budget were highlighted but because of fixed prices there are still major shortfalls. Certain issues have caused contradictions between the tables and dictums. The dictums were changed because of the objection of the Guardians Council. In coordination with parliament, the office decided to make certain changes based on the dictums,Ó he told the Persian daily Etemad.
Kordbacheh added, ÒIt is estimated that next yearÕs oil revenues could reach 123,000 billion rials. Because of fixed prices in the coming Iranian year, resources will outstrip consumption levels. Therefore, since consumer prices will increase and the amount of subsidy will decrease only 93,000 billion rials could be available. In fact those who planned fixed prices do not accept the tables or the fact that 30,000 billion rials would be deducted from oil revenues. Perhaps that is why they prefer not to speak about decreased revenues or the fact that the plan would not benefit the government.Ó
ÒThe real basis for making prices logical is proper distribution of government subsidies. As per the plan, US $1.5 billion will be allocated for petrol imports for the first six months and the rest will be rationed. But parliament asked to ration petrol in the second half of 2005. Therefore, now another fund has to be allocated for the second half as well. In this respect at least $4.5 billion were lost because of the fixed-price plan. Parliament has made several objections to the government because there are 500 state-owned companies and 15 of them use 85 percent of all financial resources. As per Article 44 these companies cannot be privatized,Ó he observed.
ÒA 4.5 percent decrease in banking facilities is another plan that would be compensated by budgetary means,Ó Kordbacheh said, adding, ÒHowever, it would be impossible to implement it. Some 20,000 billion rials would be allocated in the next yearÕs budget in order to decrease profits charged on bank facilities for the private sector. Such plans have to be funded from the current budget as well, which is almost impossible. This leaves us no choice but to use foreign exchange reserves. The remaining bank facilities for the private sector are about 911,000 billion rials. If 4.5 percent is deducted from the amount it will drop by 41,000 billion rials. Since, special bank profits only stand at 6,000 billion rials per year a plan as such would be of no good to them either. To avoid losses the banks will have no choice but to decrease profit rates for current accounts. If this is the case then current account holders with less deposit stand to lose. The plan could only be justified if bank facilities have no clients at all, which is clearly not the case at the moment. This is because bank profit rates are still less than in the free market. More people will still apply for bank facilities and instead of investing would use them in the free market that offers higher rates. The plan will not benefit the economy either.Ó
ÒEarlier the banks realized that it is important to balance their profit rates with the inflation level. When inflation decreases revenues earned from profit rates are also reduced. Inflation stood at 20.1 percent in 2000 and reached 15.6 percent by the end of 2004. At the same time bank profit rates dropped to 15.8 percent from 18.6 percent.
Next yearÕs salaries will be raised by 11.5 percent. This yearÕs inflation rate stood at 15.5 percent and next yearÕs will be 14.5 percent which is fine,Ó Kordbacheh maintained.
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