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Resalat (Afternoon Daily)
Jan. 16, 2000, No. 4056
Page: 7
Summary: An economic expert has analyzed the budget for the year 1379 (March 2000 - March 2001) and believes that the budget has a deficit which can be problematic for the government and state. Right now, says Dr. Akbar Karbasian, the state companies and banks have about 14,000 billion rials accumulated debts to the banks and about 20,000 billion rials accumulated debts to the Central Bank. The more the state companies borrow from the banks the less the private sector and the people will be able to receive loans. This means the state companies are competing with the private sector and the people even over the bank resources. The intervention sale of petrodollars to the people (at the settlement certificate and open market rates) resolves the budget deficit of the government but it causes many problems for the people and even the government agencies which buy those currencies, says Karbasian.
Text: The proposed figure for the total budget for 1379 [beginning March 20] is 358,777 billion rials. This shows a rise of 30 percent from the approved figure for the current year. The budget consists of three parts:
Of the total budget 65 percent belongs to the state companies and banks and only 35 percent belongs to the general budget. This shows the importance of the executive operations of the government compared with the exercise of its political sovereignty.
I. General Budget of the Government
Receipts (Billion Rials):
General revenues of the government and other sources....110,395
Taxes
................................................................................33,828
Oil......................................................................................54,342
Others
...............................................................................21,285
Carried forward from last year..........................................940
Exclusive revenues............................................................15,558
Government's General Budget..........................................125,952
Payments:
Payments of General Budget of the government......110,395
Development expenditures.......................................24,935
Current expenditures...................................................85,460
From foreign loans.......................................................99
Exclusive payments.....................................................15,558
General Budget of the government............................125,953
Source: 1379 Budget Bill.
Of the receipts in the government general budget 31 percent are taxes, 49 percent are oil and gas and 20 percent other resources.
The tax figure shows a rise of 13.6 percent from the approved figure for the current year.
The bill provides raising the electricity rate and telecommunications charges and prices of energy carriers by 20 percent (raising the price of petrol to 450 rials a liter); 10 percent direct taxes on the selling price of every car manufactured domestically and raising taxes on steel, copper, mobile phones, imported cigarettes and beverages (under Note 58).
The oil revenues show a rise of 21 percent. The figure does not include only the sale of exchange to the Central Bank at the floating [which has remained unchanged for several years] rate of 1,750 rials and includes sale of exchange at the preferential and settlement certificate rates and the rate for intervention sale on the open market.
This method, while being anti-inflationary firstly separates much more resources (compared with the sale to the Central Bank) from the people and transfer it to the government. Secondly it conceals the real figure of deficits.
This simply means selling the petrodollars to the people at the rates several times the official rate and covering the real figure of the budget deficit.
The equivalent of 64 percent of the government receipts from export of oil and gas will be earned from the preferential rates (non-floating and non-export).
In the budget calculations the price of a barrel of oil is foreseen at $18 a barrel and the crude oil sale revenues have been considered to be $11.89 billion.
The intervention sale of petrodollars to the people (at the settlement certificate and open market rates) resolves the budget deficit of the government [but] it causes many problems for the people and even the government agencies which buy those currencies.
For instance this increase the production cost of goods and services. A comparison between the real profitability of two agencies one receiving dollars at 1,750 rials and one receiving at 8.000 rials will become impossible.
From next year payment [sale] of export exchange will be stopped.
The budget provides for establishment a fund to keep exchange earned from oil [exports] at above $13.8.
On the payment side in the general budget the current expenditures are 77 percent, development expenditures are 22 percent and the payment of foreign debts is about one percent.
Those figures on the face of it shows the government's not paying attention to economic development and instead putting emphasis on social affairs and livelihood of the people.
In this way right now thousands of development projects have remained half-finished.
The development expenditures in the general budget show a 20 percent rise compared with the adjusted figure of the approved budget of last year [this year?] (by the Plan and Budget Organization). But the current expenditures in the general budget show a rise of about 26 percent from the approved figure of last year [this year?].
II. Current Expenditures of the Government
85,460 billion rials in the current expenditures of the government, are mainly in four classes:
1. General affairs 12 percent.
2. Defense affairs 19.5 percent. The two figures (12 percent and 19.5 percent), 31.5 percent of the current expenditures, are mainly for law and order, justice administration and defense of the borders.
3. Social affairs 46 percent. This is spent on education, health, higher education, research and other social services (under Note 29) such as raising the capital of the Exports Development Bank by 800 billion rials, settlement of the deferred debts of the government to the Retirement Fund and the Social Security Organization and payment of foreign undertakings and payment of 1,300 billion rials direct government subsidies.
4. For economic affairs only 2 percent of the current expenditures of the government are allocated.
The total figures of the above four -- 67,964 billion rials -- are put under four main code numbers: 100,000 for personnel expenditures; 200,000 for administrative expenditures; 300,000 for capital expenditures and 400,000 for debts and undertakings.
In addition to the above four codes expenditures in the general budget are put under three other codes too. Code 500,000 is for miscellaneous expenditures, 600,000 is for expenditures related to the guaranteed profit of the loans [including?] partnership bonds and 700,000 for repayment of the government's debts...
The average salary of government employees is going to rise by 18.5 percent.
The major figure in the miscellaneous expenditures of the government is payment of 7,950 billion rials subsidies. That is 9.3 percent of the current expenditures of the government.
3,488 billion rials is for bonuses [profit rate?] paid for partnership bonds. That is four percent of the government current expenditures.
As regards payment of the government's debts the undertaking for sending Hajj pilgrims, 730 billion rials, is the major figure. That is about one percent of the current expenditures of the government.
The structure of the general budget has been as a result of the method used before the Revolution. The method has continued without any change.
In principle, the government must limit its current expenditures to its current receipts which are from taxes and sale of goods and services. Therefore, the oil revenue receipts do not have a logical place on that side.
Oil revenues must be used only for development and capital affairs... They must not be spent on purchase of wheat and sugar or for current expenditures of the ministries.
Furthermore, the development and capital expenditures of the government in the general budget must not be covered from the current receipts. The logical place of the development expenditures in the budget, which require exchange, should be against the exchange revenues from sale of exchange without being converted into rials.
Then the rial equivalent of the expenditures for development projects should be paid from that source at the official rates of exchange.
The exclusive revenues and expenditures of the government which are registered separately now should be kept under the said headings so that their effects can be studied.
In its present shape, the place of social security tax [Social Security Organization's contributions], which has a redistribution and support effect and separates about 10,000 billion rials from the people and employers and transfers it to the government agency which is called the Social Security Organization, is not transparent.
The receipts and payments of this organization must be included in the general budget under a specific heading.
If the current expenditures are put against the current receipts, the deficit in the general budget automatically shows itself.
Right now the deficit in the general budget is hidden under various Notes, many of them based on banking facilities, and the government's assistance in relation to the annual losses of many state companies.
In the coming year 64 percent of the government's receipts from the oil exports will be sold to the public at the settlement certificate rate and that covers a part of the deficit in the general budget.
In the meantime, the definite tax revenue figures in the past years have been mostly less than the approved figures. This has increased the deficit in the general budget.
III. Budget of State Companies and Banks
Receipts (Billion Rials):
Budget of the state companies and banks.........133,906
Revenues of the state companies and banks....193,670
Use of domestic loans.....................................27,481
Use of foreign loans.......................................12,755
Profit institutes affiliated to the government...5,475
Deducted: Double entries................................6,557
Total Budget [sic]...........................................358,777
Payments:
Budget of the state companies and banks...............233,906
Expenditures of the state companies and banks....209,922
Repayment of banking facilities..............................19,134
Repayment of foreign loans.......................................4,850
Profit institutes affiliated to the government.............5,475
Deducted: Double entries..........................................6,557
Total Budget [sic]..................................................358,777
(Source: 1379 Budget Bill)
About two-thirds of the activities of the government are related to economic activities and executive work and management of the national resources to make profit.
These activities have put the government in position of competition with the people and the private sector.
The statesmen approach the people from the position of power and destroy any potential private sector competition.
Despite their weak management and annual losses, such companies have been referred to as state companies in the Constitution. Such companies have found a parasite nature in the economy. The government collects hidden taxes from the people's purchasing people annually and transfer it to those companies through the Central Bank's loans.
The sooner these companies are privatized the more beneficial it will be for all the Iranian people.
If we consider the deficit in the total budget from the losses of the state companies and the banks to be equal to their domestic and foreign loans they are going to create 40,236 [billion rials] deficit, that is 31 percent of the general budget.
But that percentage in practice is more than 31 percent.
A part of the domestic loans which are provided by issuing new bank notes effects the volume of money and liquidity by a coefficient of 2.5-3. Loans from the banking system have led to creation of credit money by the banks and that increases the volume of liquidity...
The expenditures of the state companies and banks in the coming year are 209,922 billion rials and show a heavy deficit.
The state companies and banks intend to borrow 40,236 billion rials from the banking system and foreign banks and from those loans pay 23,984 billion rials to the Iranian and foreign banks.
Therefore, their net debts to the banks will increase by 16,252 billion rials, which equals their budget deficit.
Right now, the state companies and banks have about 14,000 billion rials accumulated debts to the banks and about 20,000 billion rials accumulated debts to the Central Bank.
The more the state companies borrow from the banks the less the private sector and the people will be able to receive loans.
This means the state companies are competing with the private sector and the people even over the bank resources.
The bill is now being studied by the specialist committees of the Majlis. Based on the past experience, many expenditure and revenue figures will change in the Majlis.
The budget for the coming year is going to be given final approval in early Esfand [beginning Feb. 20].