Annual budget bill for upcoming year has been drafted to parliament on December 2018 by President Rouhani and as a reference for country’s annual planning, it is of utmost importance. Capital market as a significant financial market has been affected by various micro and macro-economic variables. In this article, we discuss different sectors of budget and its effects on capital market.
First of all, we take a look at transfer of financial assets sector(privatization). Sources of this transfer show 19.1 percent decrease in comparison to last year budget law. This is because of 86 percent reduction in sources of foreign facilities and also decrement in sources of principle of loans, national development fund of Iran and transfer of governmental companies. A downturn in government’s borrowing from banking system and national development funds of Iran lead to weaken liquidity growth and as a result makes inflation rate growth and domestic currency shrinkage a tad slower. It is believed that decline in liquidity and inflation growth leads to economy stability and financial markets such as capital market outperforms in absorbing liquidity and allocating it to appropriate sectors of economy.
Budget details revealed that exported oil price is forecasted to be 55-dollar per barrel that doesn’t show any significant difference compared to current year. Nevertheless, oil revenue share in government’s general budget slipped into ascending trend and reached from 23 percent in last year to 30 percent in upcoming year. Oil revenues growth will lead to not only improvement in economic status in short-term but also increasing petrochemical and refinery listed companies’ revenues. But in long-term, government’s dependency to oil revenues increases and this will hurt the stable growth of economy. With scrutiny on numbers that coming out of oil revenues in upcoming year budget bill, we will find out that 41 percent growth in oil revenues in comparison to previous year budget law is because of 48 percent depreciation of Rial and volume of oil export hasn’t been changed significantly.
Moreover, in the budget bill 1 USD is equal to 57,000 Rial for next year which is around 48 percent higher than previous year. To discuss its effects on capital market it can be said that Rial-based revenue of listed companies that export domestic products such as petroleum products and commodities increase and on the other hand the revenues of listed companies that import their materials and equipment decrease. Besides this, analysts agree that deprecation in a country`s currency will result in inflation with a time lag.
All in all, government can affect capital market significantly by financing through financial instruments in capital market, transfer of government’s corporates and etc.