Two-Thirds of Iran Budget Are Salaries
Two-thirds of all expenditure credits will be spent on salaries and benefits.
OE Watch Commentary: The Islamic Republic was born in a maelstrom of revolution and war. It was only a decade into existence when, with the Iran-Iraq War over, Iranian leaders initiated a serious discussion with regard to how to develop the economy. When Ali Akbar Hashemi Rafsanjani became president in 1989, he preached “pragmatic” reform of the economy. Whether he was sincere and simply could not overcome the already entrenched interests or whether his commitment to economic reform was rhetorical only, he did not keep his promises. Throughout the Rafsanjani and Muhammad Khatami eras the state continued to dominate the economy. As oil revenue quintupled between 2000 and 2005, the huge influx in hard currency enabled the Iranian government to delay any internal economic reform. In 2005 Mahmoud Ahmadinejad won office simultaneously as an economic populist and one committed to reform. He would often distribute—literally—bags of cash during his provincial tours and spoke often of the need for privatization of state-owned industries. While he sought some basic subsidy reforms—for example, placing a cap on subsidized gasoline purchases—his commitment to reform waivered as various constituencies, ranging from taxi drivers to military veterans, lobbied for exemptions. Meanwhile, time exposed his privatization efforts as a shell game: state-owned industries would be sold on the Tehran Stock Exchange, only to be snatched up by banks or companies affiliated with the Islamic Revolutionary Guard Corps (IRGC). Through it all, when the state ran short on cash, it would simply stiff employees in these state-owned (or IRGC-owned) factories and enterprises. Wages could sometimes run eight or nine months in arrears. In past years this has led to civil strife and sparked the creation of Iran’s first independent trade unions.
Never before, however, has the Iranian government faced the cash crunch that now confronts it. The fall in the price of oil below $50 per barrel effectively cuts the budget by almost half, as previous years’ budgets were calculated on the price of oil being at least $90 per barrel on average across the year. The commentary excerpted here reflects resistance within the Iranian government to embrace the reality of low oil prices over the coming year. It suggests many regime officials are unwilling to calculate a budget with a price of oil set below $72 per barrel, a figure which seems increasingly difficult to achieve. On January 15, Iranian Finance Minister Ali Tayebnia acknowledged in a meeting of senior clerics that the government should probably calculate its budget on the assumption that the average price of oil over the coming year would be $40 per barrel. The commentary excerpted here meanwhile suggests the government cannot make payroll unless oil averages $75 per barrel. While even this figure would drive a wedge between government employees and ordinary families, something that could lead to civil strife, a $40 per barrel average may put the Iranian government’s ability to meet payroll in jeopardy. Never before has the Iranian government faced the possibility of defaulting on the salaries of direct ministry workers. Should the price of oil remain below $75 per barrel, the Iranian government could be facing unprecedented challenges which might directly impact on its stability. Of course, if they believe itself painted into a financial corner, some Iranian officials might also counsel military action or sabotage of other states’ oil infrastructure in order to drive the price of oil higher. End OE Watch Commentary (Rubin)
Source: “Chalesh-e Afzayesh-e Haquq” (The Challenge of Increasing Salaries), Mardom Salari.com, 4 January 2015. http://mardomsalari.com/Template1/GetFileMagPaper.aspx?
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The Challenge of Increasing Salaries
A review of the funds for this section in the budget bill shows that 727 trillion rials [$26.5 billion] will be spent on government ministries, institutions and organizations, military and police and security personnel. This figure makes up 43.8 percent of next year’s expenditure credits in the budget. Retiree pensions, welfare payments, civil and military salaries, and salaries of veterans and parents of martyrs, make up a total of 1.102 quadrillion rials [$40.3 billion], paid for just the wages of active and retired employees. This is 66.3 percent of all expenditure credits in the 1394 [2015-2016] budget. In other words, two-thirds of all expenditure credits will be spent on salaries and benefits of the government’s family.
This figure was 64 trillion tomans this year (93) [2014-2015], 14 percent of which is 72.7 billion tomans. With 17 percent wage increase, 74.88 billion would be needed which is 2.18 billion more than the government’s proposed figure. Instead of the 72 dollar a barrel price of oil in the budget we would need oil at 75 dollars a barrel. Today price of oil is under 60 dollars.