Raisi’s Contractionary Budget Implies No Definitive Resolution of the Nuclear Crisis in the Coming Months

Iranian President Ebrahim Raisi sent his first annual budget bill to the Islamic Consultative Council, or Majles, on Sunday, providing important insight into his priorities for the next Persian year, April 2022 to March 2023. The bill suggests that the government envisions no full revival of the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), and its accompanying sanctions relief in the coming months.

The budget bill usually goes through significant changes in the Majles. Still, the first draft provides an unfiltered look at what the Raisi government thinks about the country’s finances. There are five key points to consider.

First, the bill projects exports of 1.2 million barrels per day of crude oil during the April 2022-March 2023 period. Last year’s budget, covering April 2021 to March 2022, projected exports of 2.3 million barrels per day. This projection appears to indicate that Tehran has no intention of resuming full compliance with the JCPOA in the near future. However, the budget assumptions do not rule out a partial removal of sanctions, even though it is likely that the Raisi presidency is relying on its sanctions-busting capabilities to facilitate exports.

Second, the nominal value of the budget in rials, the Iranian currency, increased only 7 percent, and considering inflation, the real value of the budget decreased. The contractionary budget shows the president’s key priority is curbing inflation, similar to what the previous administration did in its first year. Nevertheless, a contractionary fiscal policy will not be enough to significantly cut inflation if the sanctions remain in place.

Third, Raisi intends to change the subsidies program for basic goods, which currently works by providing cheap foreign currency to importers. There are indications that Raisi may provide the subsidies directly as cash to citizens instead. Both moves are inflationary and will put upward pressure on prices. The president may hope that his other contractionary decisions will neutralize the effect of foreign currency reform. Iran’s economy suffers from multiple exchange rates, and if Raisi can guide the economy toward a single foreign-currency exchange rate, it would be a significant accomplishment that his predecessors failed to achieve.

Fourth, Raisi is increasing the retirement age by two years while limiting the increase in government employees’ salaries. The former is a response to the insolvency risk that retirement funds are facing. The latter is designed to fight the inflationary effect of the increase in the salary of government employees. Both moves will create discontent among the affected populations.

Fifth, the budget dollar — the central bank’s exchange rate when it converts export dollars into rials to fund the government — is worth 230,000 rial. The NIMA dollar — the exchange rate on the NIMA platform, where exporters and importers buy and sell foreign currencies — is currently around 240,000 rial, while the market price of the dollar is around 300,000 rial. Putting the budget dollar close to the NIMA rate is probably another step toward a unified dollar price at a higher rate. Whether this will stabilize exchange rates or the high rate will lead to an upward movement of the price in the foreign exchange market depends on the system’s ability to facilitate a steady and reliable supply of foreign currency in the market and avoid currency shocks.

The assumptions made by the budget do not signal optimism about a quick and definitive resolution of the nuclear crisis. The contractionary policies of the budget may further plant the seeds of further social unrest, which has erupted regularly since 2017.

Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). For more analysis from Saeed, the Iran Program, and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.