President Mahmoud Ahmadinejad’s government has inherited a budget deficit of about nine billion dollars from the previous government. His economic team, namely the minister of economy, head of the Management and Planning Organization (MPO) and head of the Central Bank of Iran, are trying to find ways to plug the gap and check deficit spending.
The precise amount of deficit is important because different figures have appeared and disappeared in and among the broadsheets in the past several weeks.
It is said that we have a deficit of 3,000 billion tomans due to non-realization of anticipated revenues, and 5,500 billion tomans short as a result of overspending. The local press gives us our daily quota of troubling headlines. The list is too long for this limited space.
Proposals for withdrawing from the Foreign Exchange Reserve Fund to meet gasoline and wheat shortages were recently endorsed by the parliament. The Majlis Plan and Budget Commission maintain that the we have to learn to live within our means and the government should not have the liberty to spend money it does not have.
There is little doubt that one main reason behind inflation, high prices of goods and our economic woes is the government’s budget deficit that does not seem to go away. Are deficits an institutionalized norm for the government? Is there a way to wisely address this problem?
Spending is the function of realistic forecasting of revenues and costs. If revenues are forecast realistically and costs are estimated in line with international standards, we should not be grappling with huge deficits. In forecasts margin of error of five to 10 percent is typically acceptable. But, if the figure exceeds 50 percent and sometimes reaches 100 percent or above, then something is very wrong. Under such circumstances, facts and figures become irrelevant as do budgets, or for the matter economic plans and objectives.
Our institutions and ministries claim to have more than their share of problems. They either claim that their forecast revenues were not realized, or costs were underestimated.
The oil and agricultural ministries, which comparatively enjoy more clout, find the way to convince the legislature to plug their deficits.
Will a ministry frankly tell the government that for example it earned more than what was forecast or spent less than the budgeted figure?
A simple calculation shows that in light of higher oil prices the government earned a surplus of 18 billion dollars. Budget writers had assumed the international price of oil at around $28 and put total receipts from oil exports in the range of 25 billion dollars, of which $14 billion would go to the national coffers and the balance to the stabilization fund.
But in the fiscal Iranian year a barrel of oil fetched $48 and minimum income from crude oil export reached close to $43 billion. The country earned an extra 18 billion dollars.
If the relevant bodies had incorporated this huge amount in the country’s general revenues, the problem of deficit spending would simply not arise. The question is how these excess revenues should be spent. All institutions know that when they pile up deficits, the place to rush to is the Majlis. But, what should they do when they have a surplus of funds? It needs recalling that we do not have surplus only in oil exports but also in several other sectors. For example, every year we export billions of dollars worth of petrochemicals and a range of oil byproducts. With the hike in global oil prices the prices of oil derivates have also jumped up.
If there is a firm will and unity of purpose, and income and expenditures are calculated realistically, deficit spending will soon become a thing of the past.