January 8, 2019 | Policy Brief

New Iranian Draft Budget Slashes Military Spending

January 8, 2019 | Policy Brief

New Iranian Draft Budget Slashes Military Spending

Iran’s military spending will significantly decrease while its domestic security expenditures will modestly increase, according to a draft of the 2019-2020 budget that President Hassan Rouhani submitted to parliament in late December. The new figures suggest that reimposed U.S. sanctions, which intensify the pressure on a regime already rocked by ongoing nationwide protests, have forced Tehran to prioritize its stability over its expansionary ambitions.

The proposed 4,700 trillion rial budget – $43 billion based on the black market exchange rate – calls for a 28 percent reduction of Iran’s overall defense outlays, leaving them at 7 percent of the state budget. This decline includes a 17 percent cut to the budget of the Islamic Revolutionary Guard Corps (IRGC), the regime’s praetorians; a 10 percent cut to the Artesh, or conventional military; and a 50 percent cut to the Ministry of Defense and Arms Forces Logistics (MODAFL), which plays a key role in the development and acquisition of weapons and related equipment. Together, the IRGC, Artesh, and MODAFL, which collectively manage hundreds of thousands of employees, receive 74 percent of the total defense and domestic security budget.

The proposed cuts represent a dramatic reversal of Iran’s fortunes. In the current fiscal year (March 2018-March 2019), IRGC spending increased by 28 percent, Artesh by 23 percent, and MODAFL by 32 percent. Expenditures for the three organizations also increased in the previous two fiscal years, largely due to the sanctions relief Iran received under the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action.

To be sure, Iran’s military establishment, especially the IRGC, does not depend solely on the state budget for its funding. The military establishment controls a fifth of the market value of companies listed on the Tehran Stock Exchange and owns thousands of other companies, all of which generate revenue for the armed forces. Additionally, the IRGC controls a significant portion of Iran’s underground economy.

The new budget, which covers the Iranian fiscal year beginning on March 21, 2019, does include a 7 percent increase in the expenditures for key security forces tasked primarily with preserving the regime’s grip on power and promoting its revolutionary ideology within Iran’s borders. Rouhani’s plan provides a 32 percent raise to the Ministry of Intelligence, which monitors and represses dissidents. The Basij, the paramilitary IRGC subsidiary responsible for enforcing Islamic law, received a 1 percent increase.

The budget also recommends a 28 percent raise – 8 percentage points more than the last year’s 20 percent raise – to the Armed Forces Social Security Fund, which supports both military and domestic security personnel and their families. In November, the Trump administration sanctioned several Iranian companies tied to the fund. The budget increase can thus offset the short-term economic impact of the designations.

The draft budget may undergo significant revisions by lawmakers. In previous years, defense hawks in the parliament, which includes dozens of former IRGC members, have significantly increased defense expenditures beyond the president’s suggested figures.

Still, the proposed budget offers a window into the Rouhani government’s own assessments of the country’s strengths and weaknesses. At this juncture, the regime recognizes that the greatest threat to its security stems not from its neighbors or from the West, but from within its own borders. At the same time, the planned U.S. withdrawal from Syria, as well as Iranian military gains in Syria to date, may have persuaded Tehran that it can preserve its geostrategic position despite the cutbacks.

Thus, by cutting its defense spending, Tehran can devote more funds to combatting Washington’s maximum pressure campaign and to preserving the security infrastructure necessary for its own survival.

Saeed Ghasseminejad is a senior advisor on Iran at the Foundation for Defense of Democracies, where Tzvi Kahn is a senior Iran analyst. Follow them on Twitter @SGhasseminejad and @TzviKahn.

Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

Iran Iran Politics and Economy