Politics of Iran

The Supreme Leader of Iran[11] is the head of state and highest ranking political and religious authority (above the President). The armed forces, judicial system, state television, and other key governmental organizations are under the control of the Supreme Leader. There have been only two Supreme Leaders since the founding of the Islamic Republic, and the current leader (Ali Khamenei), has been in power since 1989. His powers extend to issuing decrees and making final decisions on the economy, environment, foreign policy, education, national planning of population growth,[12][13][14][15][16][17][18][19] the amount of transparency in elections in Iran,[20] and who is to be fired and reinstated in the Presidential cabinet.[21][22]

The Supreme Leader is appointed and supervised by the Assembly of Experts. However, all candidates to the Assembly of Experts, the President and the Majlis (Parliament), are selected by the Guardian Council, half of whose members are selected by the Supreme Leader of Iran.[23] Also, all directly-elected members after the vetting process by the Guardian Council still have to be approved by the Supreme Leader.[24][25]

The Guardian Council is an appointed and constitutionally mandated 12-member council with considerable power. It approves or vetoes legislative bills from the Islamic Consultative Assembly (the Iranian Parliament), and approves or forbids candidates seeking office to the Assembly of Experts, the Presidency and the parliament,[26] Six of the twelve members are Islamic faqihs (expert in Islamic Law) selected by the Supreme Leader of Iran, and the other six are jurists nominated by the Head of the Judicial system (who is also appointed by the Supreme Leader),[27] and approved by the Iranian Parliament.[28]

Active student groups include the pro-reform "Office for Strengthening Unity" and "the Union of Islamic Student Societies';

• Groups that generally support the Islamic Republic include Ansar-e Hizballah, The Iranian Islamic Students Association, Muslim Students Following the Line of the Imam, Islam's Students, and the Islamic Coalition Association. The conservative power base has been said to be made up of a "web of Basiji militia members, families of war martyrs, some members of the Revolutionary Guard, some government employees, some members of the urban and rural poor, and conservative-linked foundations."[29]
• opposition groups include the Freedom Movement of Iran and the Nation of Iran party;
• armed political groups that have been almost completely repressed by the government include Mojahedin-e Khalq Organization (MEK), People's Fedayeen, Democratic Party of Iranian Kurdistan; the Society for the Defense of Freedom.

Government budget deficit has been a chronic problem in Iran. In 2004, about 45 percent of the government's budget came from exports of oil and natural gas revenues and 31 percent came from taxes and fees.[30]

Iran's fiscal year (FY) goes from 21 to 20 March of the following year.

Iran has two types of budget:

1. Public or "General" Government Budget
2. Overall or "Total" Government Budget; which includes state-owned companies

Iran's budget is established by the Management and Planning Organization of Iran and then proposed by the government to the parliament/Majlis. Once approved by Majlis, the bill still needs to be ratified by the Guardian Council. The bill will be sent back to the parliament for amendments if it is voted down by the Guardian Council. The Expediency Council acts as final arbiter in any dispute.[31]

Following annual approval of the government's budget by Majlis, the central bank presents a detailed monetary and credit policy to the Money and Credit Council (MCC) for approval. Thereafter, major elements of these policies are incorporated into the five-year economic development plan.[32] The 5-year plan is part of "Vision 2025", a strategy for long-term sustainable growth.[33]

A unique feature of Iran's economy is the large size of the religious foundations (called Bonyads) whose combined budgets make up more than 30% that of the central government.[34][35][36]

Setad, another organization worth more than $95 billion, has been described as "secretive" and "little known".[37] It is not overseen by the Iranian Parliament, as that body voted in 2008 to "prohibit itself from monitoring organizations that the supreme leader controls, except with his permission". It is, however, an important factor in the Supreme Leader's power, giving him financial independence from parliament and the national budget.[37]

The National Development Fund of Iran (NDFI) does not depend on Iran's budget.[38] But according to the Santiago Principles, NDFI must coordinate its investment decisions and actions with the macro-economic and monetary policies of the government of Iran.

Iran's projected oil and gas projected revenues by the International Monetary Fund

Officials in Iran estimate that Iran's annual oil and gas revenues could reach $250 billion by 2015 once the current projects come on stream.[39]

In 2004, about 45 percent of the government's budget came from exports of oil and natural gas revenues, although this varies with the fluctuations in world petroleum markets and 31 percent came from taxes and fees.[30] Overall, an estimated 50 percent of Iran's GDP was exempt from taxes in FY 2004.[40]

As of 2010, oil income accounts for 80% of Iran's foreign currency revenues and 60% of the nation's overall budget.[41] Any surplus revenues from the sale of crude oil and gas are to be paid into the Oil Stabilization Fund (OSF). The approved "total budget", including state owned commercial companies, was $295 billion for the same period.[42]

The Government seeks to increase the share of tax revenue in the budget through the implementation of the economic reform plan through more effective tax collection from businesses.

As of 2016, the formula set by law is that, for sales of oil at or below the budget's price assumption, 14.5% remains with the National Iranian Oil Company (NIOC), 20% goes to the National Development Fund (NDF), 2% goes to deprived and oil-producing provinces, and 63.5% goes to the government treasury.[43]

Iran has not yet implemented the treasury single account system.[44]

National Budget Expenditures for Social and Economic Purposes, Fiscal Year 2004. Government spending as percent of total budget was 6% for health care, 16% for education and 8% for the military in the period 1992–2000 and contributed to an average annual inflation rate of 14 percent in the period 2000–2008.

Because of changes in the classification of budgetary figures, comparison of categories among different years is not possible. However, since the Iranian Revolution, the government's general budget payments have averaged:[40]

• 59 percent for social affairs,
• 17 percent for economic affairs,
• 15 percent for national defense, and
• 13 percent for general affairs.

Iran spent 22.5% of its 2003 national budget on social welfare programs of which more than 50% covered pension costs.[45]

For a breakdown of expenditures for social and economic purposes, see the attached chart.

In FY 2004, central government expenditures were divided as follows:[40]

• current expenditures, 59 percent, and
• capital expenditures, 32 percent.
• Other items (earmarked expenditures, foreign-exchange losses, coverage of liabilities of letters of credit, and net lending) accounted for the remainder.

Among current expenditures, wages and salaries accounted for 36 percent; subsidies and transfers to households accounted for 22 percent (not including indirect subsidies). Earmarked expenditures totaled 13 percent of the central government total. Between FY 2000 and FY 2004, total expenditures and net lending accounted for about 26 percent of GDP.[40] According to the Vice President for Parliamentary Affairs, Iran's subsidy reforms would save 20 percent of the country's budget.[46]

According to the head of the Department of Statistics of Iran, if the rules of budgeting were observed in this structure, the government could save at least 30 to 35 percent on its expenses.[47]

Contrary to the main objective and because of a lack in the implementation of the subsidy reform plan, the volume of Iranian subsidies given to its citizens on fossil fuel, which increased 42.2% in 2019, equals 15.3% of Iran's GDP and 16% of total global energy subsidies.[48][49] As a direct consequence, Iranian taxpayers incur a loss of $3.3 billion annually because of fuel smuggling (& not including other smuggled oil derivatives), equivalent to the "development budget" of Iran.[50]

In 2014, Iran's banks and financial institutions total claims on the public sector (government and governmental institutions) amounted to 929 trillion IRR ($34.8 billion), which must be reduced according to the IMF.[52][53][54] IMF estimates that public debt could be as high as 40% of GDP (or more) once government arrears to the private sector are recognized.[55] These arrears are owed to banks (45%), private contractors (37%), and social security (18%) (FY 2016).[51]

In 2013, Iran's external debts stood at $7.2 billion compared with $17.3 billion in 2012.[56] Iran's external debt was $9.3 billion in December 2020. This is one of the lowest numbers globally.[57]

• 
  Money flow chart.
• 
  Iran's balance of payment (2003-2007)
• 
  Iran's total debt service as percent of exports of goods services and income increased sixfold between 1990 and 1997
• 
  Iran's oil vs non-oil real GDP growth projections.
• 
  Military expenditures (% GDP)
• 
  US dollar/Iranian rial exchange rate (2003-2014 est.)
• 
  Oil and gas production (1970-2030 est.)
• 
  Iranian budget process.

Notes:
1) Since 2002, the latest International Monetary Fund Guidelines on government financial statistics have been used as a model to prepare annual budgetary acts. Accordingly, revenues are classified into “taxes and other revenues”, and “oil sales” which had earlier been classified as revenue are now referred to as "transfer of capital assets".
2) In 2007/08, it includes budget supplement at Rls. 9,500 billion.
3) The government budget does not include state revenues and expenses derived from state owned commercial enterprises.[63]
4) The government budget does not account for subsidies paid to state owned commercial enterprise. See also Subsidy reform plan.[63]
5) Excluding special revenues and expenditures and the figure for transparency in the price (subsidy) of energy bearers.[59]
6) For "Total Government Budget" (including state owned commercial companies), see Statistical Center of Iran.
7) Hidden spending and liability not included.

In Iran's state budget for the Iranian calendar year 1388 (2009–2010), of the $102 billion earmarked for government spending,[42]

• 53% will be funded through revenues from the sale of crude oil and gas,
• 28% will come from taxes and the remaining
• 19% from other sources such as the privatization program.[42]

Oil revenues are calculated based on the average price of $37.50 per barrel at the US Dollar conversion rate of 9,500 Rials.[64] Iran balances its external accounts around $75 per barrel.[65]

The budget for Iranian year 1389 (2010–2011), which starts on 21 March, amounts to $368.4bn, representing an increase of 31 per cent on the previous year and is based on a projected oil price of $60 a barrel compared with just $37.50 last year.[64]

The public budget was $165 billion (1,770 trillion rials) in Iranian year 2011–2012. The Iranian Parliament also approved a total budget of $500 billion (5,170 trillion rials) that factors in $54 billion from price hikes and subsidy cuts and aside from the government (or public budget) also includes spending for state-owned companies.[66][67] The budget is based on an oil price of $80 per barrel. The value of the US dollar is estimated at IRR 10,500 for the same period. the 2011-total budget shows a 45-percent increase compared with that of 2011 which stood at $368 billion.[68]

The proposed budget for 2011–2012 amounts to 5.1 quadrillion rials (approximately $416 billion).[69] The funding for running the government has been decreased by 5.6 percent and the government's tax revenues have been envisaged to rise by 20 percent.[69] The defense budget shows an increase of 127 percent. The government also is seeking higher sums for development, research, and health projects.[70] Approved budget of 5,660 trillion Rials $477 billion is based on an oil price of $85 per barrel and the average value of the U.S. dollar for the fiscal year has been projected to be 12,260 rials, allowing the government to gain $53.8 billion from subsidy cut.[71] The approved total state budget figure shows an 11% increase in Rial terms, in comparison to the previous year's budget. Of this amount, $134 billion relates to the government's general budget and the remaining $343 billion relates to state-owned companies and organizations. Of the $134 billion for the government's general budget, $117 billion relates to operating expenditure and $17 billion is for infrastructure developments. The government's general budget for 2012–13 shows a 3.5% decline in comparison to the previous year, while the budget for state-owned companies and organisations has risen by 18.5%. Revenues from crude oil make up 37% of the state's total revenues in the budget. Revenues from taxes have been projected at 458 trillion Rials ($37 billion), which shows a 10% increase year-on-year.[72] In the first half of 2012, Iran announced in Majlis that it has taken in only 25% of its budgeted annual revenue.[73] According to Apicorp, Iran needs oil to average $127 a barrel in 2012 for its fiscal budget to break even.[74]

In May 2013, the Iranian parliament approved a 7.27-quadrillion-rial (about $593 billion) national budget bill for 2013–14. The new national budget has forecast a 40% drop in oil revenues compared to the previous year's projected figure. The bill has set the price of oil at $95 per barrel, based on the official exchange rate of 12,260 rials for a U.S. dollar, which has been fixed by the Central Bank of Iran.[75] The budget law also includes income of 500 trillion Rials from the subsidies reform plan. Out of this amount, 410 trillion Rials is allocated for direct cash handouts to those eligible who have registered and for social funds.[76]

Iran's earmarked government spending for the year starting in March 2014 at $75 billion, calculated on an open-market exchange rate, with an overall/"total" budget ceiling estimated at about $265 billion. The draft budget estimates oil exports at about 1.1 million barrels per day (bpd). The 2014 budget assumes an average oil price of $100 per barrel, inflation at 21%, GDP growth at 3% and the official USD/IRR exchange rate at 26,000 Iranian rials.[77][78][79][80] The budget bill permits the government to use more than $35 billion in foreign finance.[81] Capital expenditure is set to rise by 9.7%.[82] The administration has set the goal of 519 trillion rials, (about $20.9 billion) government's income from implementation of the subsidy reform plan in budget bill and will be likely forced to double fuel prices.[83] In February 2014, Parliament approved a total budget bill worth 7,930 trillion rials ($319 billion at the official exchange rate).[84] The International Monetary Fund has estimated Iran needs an oil price above $130 a barrel to balance its 2015-state budget; Brent crude was below $80 a barrel in November 2014. The IMF estimated in October 2014 that Iran would run a general government deficit of $8.6 billion in 2015, at the official exchange rate, to be compensated by drawing on the National Development Fund.[85]

Iran's 2015 proposed budget is nearly $300 billion. The overall/"total" budget shows a 4% growth compared with the 2014 budget. The budget assumes that the country exports 1 million barrels per day of crude oil and 0.3 million barrels per day of gas condensates at an average price of $72 per barrel of crude.[86] The official exchange rate is projected to be on average US$28,500/IRR.[87] Dependency on oil exports in this overall budget bill has dropped to 25% (down from over 30% of government revenues in 2014.)[31] The plan is to increase taxation on large organizations by reducing tax evasion/exemption. The Iranian state is the biggest player in the economy, and the annual budget strongly influences the outlook of local industries and the stock market. The 2015 budget is not expected to bring much growth for many of the domestic industries.[87][88] An average oil price of $50 for the coming year would result in a deficit of $7.5 billion. The government can lower this deficit by increasing the official exchange rate but this will trigger higher inflation.[89] The proposed expenses are $58 billion including $39 billion is salary and pension payments to government employees. Proposed development expenditure amounts to $17 billion.[89] R&D's share in the GNP is at 0.06% (where it should be 2.5% of GDP)[90][91] and industry-driven R&D is almost non‑existent.[87]

Proposed government budget is 9.52-quadrillion Iranian rials (about 262 billion US dollars).[92] Assumptions made in the budget are $50 billion in foreign investment and foreign loans, 5-6% GDP growth and 11% inflation.[92] Sixty-five percent of the budget is to be financed through taxation and the remaining 35% from oil sales, based on 2.25 million barrels of oil sales per day, an average oil price of 40 dollars a barrel and US dollar-Iranian rial exchange rate at 29,970.[92]

According to the sixth five-year development plan (2016-2021), the subsidy reform plan is to continue until 2021.[92]

An amendment to the budget was passed in August 2016. This amendment allows the government to issue debt based instruments and the use of forex reserves in an attempt to clear its debt to the private sector, including contractors, banks and insurers.[93]