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Tehran, Iran – The Iranian currency has recorded new lows amid a continuing economic crisis, which is also reflected in the planned budget for next year which effectively cuts public spending.
Each U.S. dollar was valued at around 1.36 million rials on Tehran’s open market on Wednesday, its highest rate on record, before the Iranian currency regained ground slightly on Thursday.
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The national currency in difficulty decreased rapidly in recent weeks, as the United States and its Western allies increase their sanctions and diplomatic pressure, and the threat of a new war with Israel persists.
President Masoud Pezeshkian this week sent his administration’s finalized budget proposal to the a parliament dominated by the hard line for the next Iranian calendar year, which begins at the end of March. The budget will then have to receive the green light from the 12-member Guardian Council before being ratified in the coming weeks.
The budget presented increased nominally by just over 5 percent from last year, but inflation is currently running at around 50 percent – indicating that the government is planning to cut spending while managing a so-called “resilience economy” as it once again faces a massive budget crisis.
But the minimum wage must also be raised well below the rate of inflation, to just 20 percent, meaning Iranians will once again be guaranteed much less purchasing power next year as the struggling national currency collapses.
At the same time, the budget says the government plans a massive 62 percent tax increase next year, as authorities try to gradually reduce their reliance on oil revenues as part of U.S. efforts to reduce Iranian exports, which are transported by a ghost fleet of ships mainly to China.
At the current exchange rate, the entire budget amounts to around $106 billion, several times less than the projected 2026 budgets of regional players like Turkey, Saudi Arabia and Israel.
The distribution of annuities in Iran tiered exchange rate system is still in play, with the government proposing to assign one rate for customs duties, import valuation and budgetary accounting tables, and another closer to the free market rate used for oil revenue realization.
The old subsidized exchange rate, much lower than the free market rate, has now been abandoned. Any resulting surplus cash should be distributed to low-income Iranians in the form of electronic coupons which can be used to purchase essential items like food.
For the first time, the budget is written in new rials, as four zeros are expected to be removed from the ailing national currency by the time the budget becomes operational for next year.
After years of back-and-forth, Parliament in October approved the government’s plan to remove four zeros. The move is only cosmetic and will do little to combat soaring inflation, but supporters have argued it is necessary after years of currency devaluation.
Budget suggests gloomy outlook
Several major factors have already raised concerns about the possible deterioration of the economic situation next year.
Iranian netizens reacted badly to the government predicting that wages will be far outpaced by inflation and tax collection. Others feared that eliminating the subsidized rate for essential goods could not cause another price shock in the short term.
Many shared a video of Pezeshkian, who ran for president last year, in which he said during a television interview that the stark disparity between wage increases and inflation was a “grave injustice” done to the Iranian people.
“Unfortunately, as long as we do not resolve the structural problems, we are making workers and civil servants poorer day by day while those who have money are getting bigger and bigger,” Pezeshkian said at the time.
“This inflation is an additional tax on the poor and excluded. »
But successive governments have failed to eliminate budget deficits or curb the banks on the verge of insolvencytherefore relying on the central bank to print more money to run the country and, in turn, exacerbate inflation.
Earlier in December, the government decided to raise the ceiling price of oil, despite repeated assurances that it had no plans to do so this year. This move has already led to increased transportation costs, which will ultimately drive up inflation.
There are now four price tiers for oil, with the cheapest and lowest quality available to most Iranians costing up to 50,000 rials per liter (about $1.19) and the highest quality imported fuel delivered this week at 800,000 rials per liter ($19).
Hamid Pourmohammadi, who heads Iran’s Planning and Budget Organization, insisted the government has drawn up a 20-point plan to be unveiled soon that will reduce pressure on the livelihoods of Iran’s 90 million people.
“The government is trying to take an active approach to addressing the economic challenges facing the population, businesses and economists, so that there is no perception of complacency in the face of these economic conditions,” he said.
