Iran- Budget Deficits and Elections

By: Meir Javedanfar

23/08/2008

In terms of oil income, the government of president Ahmadinejad has been very lucky. Its is estimated that Iran will earn close to $70 billion from the sale of oil this financial year. This is equivalent to more than 3 years of income from the time when Ayatollah Rafsanjani was in charge of the presidential office, from early to mid 1990s.

However, with high income, comes high responsibility. While the government of Ayatollah Khatami created the Oil Stabilization Fund (OSF) for future emergencies, like when oil prices drop, Ahmadinejad, instead of adding, took money from the OSF to finance his projects. This is despite high oil prices.

With presidential elections less than 10 months away, the Iranian president is going on a massive spending spree. This financial year, it is estimated that his government will have accumulated a $10 billion deficit. Some believe that this figure will rise even more. With a budget totaling $296 billion for 2008-2009, that’s less than a 3% deficit figure, equivalent to half of Israel’s 6% deficit. Nevertheless, with runaway inflation rate of 20%, president Ahmadinejad is well advised by his economic consultants, who have called for reduction in spending.

Inflation as well as making Iran more internationally isolated than ever before, are some of the most notable failure of his term. The former is one area which his domestic competitors can publicly use against him, and will.

However public criticism of the latter is the confined to very few politicians, whose word mean very little, unless they have the backing of the Supreme Leader.

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