As it has previously been described in more depth in Iran’s Budget Structure article, Iran’s budget is composed of three main sections including Government’s General Budget, which itself is divided into two major parts of resources and expenditure. The resources mainly come from oil revenues, tax revenues and issuing in financial assets.
This article is to focus on oil revenues and various factors which can have effect on it. These factors are as following:
- Oil Export Revenues
With around $10 increase in estimation of the crude oil export price per barrel, the crude oil is consumed around $50, compared to the $40 in the budget bill for 2016-17. This leads to a rise in the country’s oil revenue which consequently effects in the currency rate in Iran. Oil export surpluses would be transferred to National Development Fund which is Iran’s sovereign wealth fund. The National Development Fund was established to transform oil and gas revenues to productive investment for future generation. Upon the 1396 budget law, 20% of oil income is to be transferred to the National Development Fund and this percentage increases annually until it reaches to 100% up to the end of 1404 Persian Calendar Year according to Socio-Economic Development Plans.
There are two separate rates for the foreign currencies in Iran, the free market rate which is valued based on the market’s supply and demand, contrary to the rate which is introduced by the government annually in the budget bills known as official FX rate. The official FX rate has set to be 33,000 IRR in the latest budget bill, recording a 10% increase in the budget bill compared to the previous year.
To improve in overall economic transparency and facilitation in foreign investment, the government has planned to unify the so-called introduced rates, according to some official sources. This policy justifies the increase in the official FX rate annually, from one hand, as well as to adjust the purchasing power parity in the other hand. Since the inflation rate is interpreted as a decisive parameter in foreign exchange rate fluctuations, if the current year’s 10% inflation rate remains in this range until the next year, the predicted rate sounds logical. Besides, the hike in the FX rate can increase the revenue of exporting companies while reducing those of that are mostly import-oriented.
All in all, the revenues and the required resources in the government budget are mainly correlated to the amount of oil export and since the FX rate has not been unified, the government can have a significant role in balancing the oil revenues by varying the exchange rate in the free marketplace.