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Abrare Eqtesadi; Newspaper
Thursday, Dec. 16, 1999, No. 446
By: Economic News Desk
Summary: The country's budget for the next Iranian year, 1379 (March 2000 - March 2001) amounts to rls 358,777 billion which equals to over U.S. dlrs 42 billion at open market parity rate. Among the characteristics of the new budget, one should mention the payment of direct subsidies to some of the low income classes of the society instead of indirect and general payment. The following is the full text of President Mohammad Khatami's speech when presenting the Budget Bill to the Majlis.
Text: I praise God, the Almighty for assisting me to present the Budget Bill for the year 1379 to the Islamic Consultative Assembly (Majlis) during these blessed days (of the fasting month of Ramazan), hoping that this would be a source of blessing and welfare for our dear and noble people.
By the grace of God and thanks to the ceaseless efforts of experts and managers in the government and the attention and perseverance of you esteemed MPs, the Third Economic, Social, and Cultural development Plan has passed the stages of preparation, codification, investigation and approval so that, God Willing, it would be put at the disposal of the government as a document in guiding the administration of the country in the next five years. Although some changes made in the plan bill, will face attainment of the desired qualitative goals with problem, but since the realities and necessities have been the basis for formulating the main objectives of the plan, as undoubtedly is agreed by you sisters and brothers, the government will make its utmost in attaining these objectives.
The outstanding aspects of the Third Plan are broad and deep structural reforms in order to considerably reduce the government's responsibility, lifting of a great number of monopolies, strengthening the sovereign role of the government, promoting the private sector, introducing changes in the foreign trade strategy and other numerous cases that I mentioned when presenting the Third Plan Bill to the Majlis.
The direction adopted by the government in formulating the Third Plan articles was focused on presenting a comprehensive structure of the policies to attain maximum economic growth, reduce the inflation, and tackle unemployment within the extent possible. Definitely, moving in the direction of achieving these objectives requires solidarity as well as national resolve and assistance of all forces in the country, and the approval of the budget for the year 1379 will be considered among effective executive measures to this end. In formulating the Budget Bill for 1379, the government has strived to take into account the main axes of the policies of the Third Plan. Although full achievement of this objective was not possible due to time limit and because the final text of the Plan Law was not communicated, but it has been tried to attain this conformity as much as possible.
The esteemed representatives are aware that the economic growth of Iran slowed down due to a decrease in foreign exchange revenues in the past couple of years, the grounds for which surfaced three years ago. However, despite the considerable cut-back in government revenues, measures were taken to improve the financial affairs and economize in the government expenditures on the one hand, and implement policies to encourage non-oil exports and investment in economic sectors on the other, in order to check further deepening of the economic stagnation and prevent increasing unchecked inflation.
Fortunately, economic conditions improved gradually since the middle of the current year due to the relative stability in international oil markets and the appearance of the effects of the government's policies in the past two years so that it is predicted that the value of gross domestic product (GDP) of the country, at real prices, would increase about three percent compared to the past year. The Budget Bill for the year 1379 enjoys special features, both in terms of quality and of the policies taken into account in allocation of the resources for various activities. I would like to mention some of these important features:
1. The development credits of the general budget on the whole enjoys a growth of 20 percent. In comparison with the assessment of the current year performance, development credits of the industries sector shows an increase of over 3.5 times, that of mines sector two folds, of agriculture over 1.6 folds and of roads and transport 1.5 folds in the next year.
These figures and the significant growth in development credits of the various sectors of research, higher education as well as housing and urban and rural development demonstrate the government's resolve to create maximum economic growth rate in the next year.
It should be noted that according to the Third Development Plan policies, government investments in the oil, gas, electricity and telecommunications sectors will be mainly taken out of the general budget next year and will be considered within the framework of domestic resources of the relevant companies in order to provide the required infrastructure for the achievement of the plan.
Meanwhile, according to the Third Development Plan, a part of the resources and the general budge, instead of being used in direct government investment, will be spent for promotion of investment by the private sector through assets handled by the banking system.
At least rls 1,000 billion will be spent on this basis next year which beside the complementary resources of the banking system and the input by the private sector will mark a new experience in supporting non-governmental investments in order to be implemented in a broader dimension in the future. With respect to the policies predicted to reduce the government's undertakings to the banking system, and lessen the increase in the ceiling of the assigned facility outstanding by 10 percent, the banks are expected to put more resources at the disposal of non-governmental sector next year.
2. Among the major axes of the government's plans to increase the capacity of economic development in the long term is to achieve a high level of participation in the labor market through increasing job opportunities for the active population. Increasing job opportunities will not only help improve distribution of revenues but is the best way for the families to come out of poverty and use the benefits provided by the economic and social progress of the country. Therefore, the Third Plan is formulated on the basis of creating job opportunities to reduce unemployment rate.
In the next year budget, priority has been given to implementation of special job-creating projects and necessary mechanisms have been devised to support investment on small industries and job-creating groups in the form of cooperatives and self-employment units.
For instance, in Paragraph C of Note 3 of the Budget Bill, the share of cooperatives and private sectors from the increase in the ceiling of assigned facility outstanding of banks in 1379 has been considered 70 percent. At least 60 percent of the share of the cooperatives and private sectors will be distributed for granting facilities to generate jobs according to the population, unemployment, immigration, talents and capacities indices of each province so that they would be put at the disposal of the applicants through the agent banks.
Meanwhile, in Note 11 of the Budget Bill, in order to supply financial resources needed for investment in job creating fields, the executive organizations have been allowed to put at the disposal of the agent banks and relevant institutes the predicted credits in the form of controlled funds.
3. One of the major monetary policies of the Third Plan is moving toward decentralization and expansion of the role of the provinces in implementation of the annual plans and budgets. Provincial revenues have been assessed to amount to about rls 10,000 billion in the next year, up by 20 percent compared to the current year. In this respect, through encouraging mechanisms predicted in Note 45 of the Budget Bill, it is hoped that the said policy would be more successful next year.
Attempts for further decentralization through implementation of those development projects which provide major social and infrastructural services needed by various sectors and creation of a balance between various districts of Iran with the objective of promoting social justice, are among the characteristics of the provincial development budget next year.
The distribution of provincial credits for 1379 has been done by using new patterns which through benefiting from various indicators and taking into consideration the shortcomings of each province in each development activity, expansion of that activity in the province and the objective of the development plan have been combined to give the credit share of provinces. This share will be distributed by the province and through approval of planning committees between various seasons. The provincial development budget in 1379 is assessed to be rls 4012 billion which shows an increase of 33 percent compared to what had been predicted for the year 1378.
4. The general policy of the government in distribution of current credits of the next year budget based on policies of the Third Development Plan, is improvement of services of governmental organizations, more effective support for low-income groups and improvement of the living standard of the government staff together with an emphasis on economizing and restricting expansion of the public sector.
Building a society based on Islamic-humane values depends on elimination of poverty and assurances that all the social strata will enjoy economic and social achievements and all families the minimum living standard.
This, beside an improvement in social services such as education, health, hygiene and maintenance of security and campaign against crimes along with cultural development and achievement of civil and political freedoms within the framework of the Constitution, are among the most important priorities heeded in formulating the next year budget.
From the increase in current expenditures in 1379, rls 4850 billion is related to the credits for improving the quality of government services which will be put at the disposal of the chapters handling imposition of sovereignty and social responsibilities while taking into consideration the priorities. Rls. 2122 billion will also be earmarked to payment of direct subsidies to deprived and vulnerable groups in the society. Rls 1300 billion from the increase in the current credits will be related to payment of subsidies to basic commodities which will amount to rls 7950 billion the total of the credits predicted for this purpose. Meanwhile, in continuation of the policies of the recent years, rls 2680 billion will be allocated to an increase in the salary index of government staff which comprises about 4.2 percent of the increase in the expenditures of the current credits. In this way, the growth of other current expenditures compared to the year 1378 will be limited to 8.8 percent.
On the whole, according to the said policies, while the current credits of economic affairs have reduced compared to the year 1378, the total current credit of general, defense and social affairs will register a growth of about 33 percent.
5. One of the main features of the budget for 1379 is giving priority to the sovereign sectors while preserving the general balance in the budget. To strengthen the role of the government in the development process, it is essential to increase the government's efficiency in fulfilling its main duties. On the other hand, a desirable economic growth and increase in investment requires a secure atmosphere inside the country and a reliable atmosphere with regard to external vulnerability, a powerful judicial system to fairly and rapidly investigate into complaints, an acceptable level of policy-making as well as planning and supervision whose attainment is conditioned on giving priority to allocation of monetary resources.
Taking into consideration such priorities will not only make the government more powerful in rendering services but will prevent state-owned apparatuses to intervene in economic affairs in order to solve their monetary problems.
To attain this policy, the credits allocated to administration of judicial affairs have risen by 61.5 percent, preservation of order and security by 54.5 percent, defense affairs by 31 percent, and social security by 50 percent compared to what had been predicted for the current year. Also, the growth of the current credits for the higher education sector by 31.8 percent and education by 23 percent indicates the importance attached to development of manpower resources in the proposed budget.
6. One of the innovations of the next year budget within the framework of the Third Plan policies is establishment of a system for direct payment of subsidies beside the existing system. As it was mentioned, the credits predicted for payment of subsidies on basic commodities with a growth of 19.6 percent will be equal to rls 7,950 billion for the next year.
While we believe that the present subsidy payment system for basic commodities has some flaws, we are committed that replacing any other alternative depends on finding suitable mechanisms to protect the low-income groups and prevent any harm to the society.
To this end, paying indirect subsidies will continue next year. In addition, the Budget Bill predicts rls 2,122 billion with the objective of paying directly to the families whose income is lower than a specific level. We hope that in implementing this project through covering about 3.5 million families, the meaningful system of payment of subsidies will be founded and gradually expanded.
This will cover some salaried groups in the public sector, civil and military retired personnel, war disabled, the retired personnel of the Social Securities Organization, the needy people in rural and urban areas, those insured by the Social Securities Organization, urban self-employed persons and families with low income females in charge.
It is taken for granted that the successful implementation of this plan will not only be effective in providing the least living for the low income groups and wipe out the severe manifestations of poverty, but also will lay the foundation of establishment of a comprehensive system of social security in its protective dimension.
7. The international oil market enjoys a relatively desirable condition in the current year. If the solidarity and unity among the oil exporting countries continues, this trend will continue next year and therefore most probably the average oil price will be higher than the figure predicted in the Budget Bill.
According to Note 29 of the Budget Bill for the next year, the surplus foreign exchange revenue will be spent on repayment of foreign debts and government's debts to the Retirement Fund and Social Securities Organization Funds as well as commercial banks, payment of the controlled funds for productive affairs through specialized banks, strengthening of the capital of the Export Development Bank (Banke Tose'e Saderat), and payment of subsidies to cases whose rate of allocated foreign exchange next year would be more than the current year.
Therefore, in case of an oil price hike compared to the figure envisaged in the Budget Bill, not only the government would not spend the surplus revenues for current expenses but would disburse them to reinforce the financial strength of banks as well as the Insurance and Retirement Funds and to promote production and investment. In that case a serious step would be taken to reduce dependence of the state economy on the oil revenues.
8. Establishment of monetary discipline is one of the main mechanisms for curbing inflation in the economic system. Therefore, a gradual decrease in the inflation rate, according to the procedure predicted in the Third Development Plan, requires control of the government expenses and as a result regulation of the public sector's expenses in proportion to its incomes.
In the first budget we have regulated within the framework of the Third Development Plan, efforts have been made to lay the foundation for monetary discipline of the government so that at the end of the Third Plan, the general financial status of the country would enjoy the consolidation and health necessary for economic stability.
In the general incomes sector, improvement of structure and development of taxation basis and execution of more efficient taxation procedures will be paid attention to. Formation of a state taxation organization as predicted in the Third Plan would authorize the government to lay the foundations of structural improvement in taxation policies. In the expenditures of the general budget sector also, emphasis has been laid on reducing the number of notes to the budget, making the budget structure more simple and clear. Observing the policies of the Third Development Plan in allocation of current and construction credits has also been reiterated. Fortunately, the monetary condition of the government has become more stable gradually and this is completely visible through gradual payment of domestic debts of the government to the banking system on the one hand, and payment of foreign undertakings according to the schedule on the other.
Despite severe problems which arouse as a result of the drop in oil revenues last year, the foreign debts were paid on time and this policy will continue in the current year and the next year.
9. Since according to the approval of the honorable Majlis, making decision on the price of energy sources has been delegated to the annual budgets, in the Budget Bill for the year 1378, new prices have been proposed for energy sources in order to maintain the compatibility of the general outlines of the Third Five Year Plan and in view of the need to improve the energy consumption structure and prevent the ever-growing trend of energy consumption which has led to import of energy sources.
From the sale of energy sources, 82 percent will be allocated to supplying the current expenses and making investment in the gas, electricity and oil sectors and the rest to assisting the vulnerable and low income groups, implementing job-creating projects and those related to improvement and consumption of energy. In conclusion of my statements, I would like to refer to the major figures in the budget for the year 1379:
The country's total budget for the year 1379 is assessed to be rls 358,777 billion, up by 29.9 percent compared to the previous year budget. Of this amount, rls 125,953 billion is allocated to general budget. This shows an increase of 14.8 percent compared to the previous year.
The budget for government organizations and profit-making institutes affiliated to the government and banks, up by 30.8 percent, is estimated at rls 239,381 billion, of which rls 212,872 billion belongs to governmental companies, rls 21,034 billion to banks and rls 5,475 billion to profit-making institutes affiliated to the government.
Under the 1379 Budget Bill, the government incomes will stand at rls 110,395 billion, showing a 16.1-percent increase compared to this year's figure. Of this amount 31 percent are tax incomes, 49 percent oil revenues and 20 percent other incomes.
The estimates of oil revenues have been conducted with regards to considerations relating to the production and export of crude oil capacity, developments of the international market and control of oil price fluctuations in coordination with the policies of the Organization of Petroleum Exporting Countries (OPEC).
The oil revenues predicted in the 1379 Budget Bill shows an increase of about 21 percent compared to what has been predicted for the current year. In continuation of the policy to make the general budget transparent, the revenue gained from selling foreign currencies have been included in the oil incomes.
The expenditures in the general budget of the Budget Bill for the year 1379 have been assessed at rls 110,395 billion of which current expenditures comprise 73 percent, construction expenditures 22 percent and debts and undertakings five percent.
Current expenditures have been estimated at rls 80,849 billion, registering a growth of 26.3 percent compared to this year. Development expenses stands at rls 24,670 billion which is 20 percent higher than this year's figure without considering the expenses of fuel, electricity and telecommunication which in 1379 have been omitted from the general budget.
The government has tried to present the Majlis with a balanced and appropriate Budget Bill for the next Iranian year (to start March 20, 2000) which could relatively address the numerous needs of various sections.
I hope that the esteemed deputies, will investigate the presented bill with commitment and concern and while approving its points of strength, they would resolve its weak points in a way that the people could visibly observe the improvement in the economic situation.
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Before the President's speech, the Majlis Speaker Ali Akbar Nateq-Nouri thanked Khatami
for the timely submission of the next year Budget Bill to the parliament.
Addressing the open session of Majlis, Nateq-Nouri expressed hope that the Parliament, with due attention to the macro policies of the Third Five-Year Development Plan, would be able, to approve the next year Budget Bill through government's expert cooperation.
Nateq-Nouri also hoped that after being approved by the Majlis, the Budget
Bill would be submitted to the government on time for implementation.
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Meanwhile, President Khatami said the next year's Budget Bill is aimed at reducing the
government's monopoly, preparing ground for economic boom and investment, creating jobs
and reinforcing social security.
Speaking at a press conference after submitting the Budget Bill for the year 1379 to the Majlis (Parliament), he expressed reservation about the changes already made by the Parliament in the Third Five-Year Development Plan.
He said the Third Development Plan has been sent to the Guardian Council for final approval, but, he added, in the meantime that the changes in the plan may push it toward failure.
Khatami said the government will provide direct assistance to about 3.5 million poor families in the next year which would be a new experience.
The President said the government's debts to domestic banks is now less than before so banks would be able to extend more facilities to the private sector next year.
The Chief Executive also said the government has put the oil revenues at a level that could be earned thanks to the oil prices in the international market. The extra fund will be paid to banks for granting of loans or will be saved for investment projects, he said.
On the budget envisaged in the bill for higher education, he said over rls 200 billion has been earmarked for higher education in the year 1379 and the total budget for the higher education exceeds rls 150 billion in the Third Five-Year Development Plan.
The President said the government has adopted measures for the next year to control inflation and hoped that in the few coming years Iran would have one-digit inflation (compared to the current two digit one).
He said with the increase in the salaries of the government employees and payment of the direct and indirect subsidies, restructuring the economy, repayment of the loans to the banks and allocation of a special fund for creating jobs, the government hopes to lead the country to an economic boom and lower the inflation.
Asked about the possible rise in the government's oil revenue, President Khatami said the extra revenues from the export of crude oil would be channelled to repay the loans or be spent on investment.
On possible price rise of fuels in the domestic market, he said the price of fuel is lower than the production cost leading to more consumption so that the government has been forced to import fuels at higher costs. The President said the government has decided to raise the price of petrol and the other oil derivatives to head for a balanced economy.