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“Oil for development” budget, challenges and opportunities

“Oil for development” budget, challenges and opportunities thumbnail

Iran has recently announced that its next fiscal year’s budget is going to be set with less reliance on oil revenues.

Last week, Head of the Country’s Budget and Planning Organization (BPO) Mohammad Baqer Nobakht said “In the next year’s budget – it starts on March 19, 2020 – oil revenues will be only spent for development projects and acquisition of capital asset, and not even one rial is going to go to government expenditures and other areas.”

At first glance, the idea is very appealing and it seems if the government manages to pull it off, it will be a significant step for Iran in its movement toward an oil-independent economy. However, it seems that cutting oil revenues from the budget and allocating them only to a specific part of the country’s expenditures is not going to be an easy task.

Although, BPO has already suggested various substitute sources of revenue to replace those of oil, some experts believe that the offered alternatives are not practical in the short-term.

So, how successful will the government be in executing this plan? What are the challenges in the way of this program? What are the chances for it to become fully practical next year?

To answer such questions and to have a clearer idea of the notion, let’s take a more detailed look into this [so called] ambitious program.

The history of “oil for development”

It is not the first time that such a program is being offered in Iran. Removing oil revenues from the budget and allocating it to development projects goes way back in Iran’s modern history.

In 1927, the Iranian government at the time, decided to go through with a plan for removing oil revenues from the budget, so a bill was approved based on which oil incomes were merely allocated to the country’s development projects.

This law was executed until the year 1939 in which the plan was once again overruled due to what was claimed to be “financial difficulties”.

Since then up until recently, Iran has been heavily reliant on its oil revenues for managing the country’s expenses. However, in the past few years, and in the face of the U.S. sanctions, the issue of oil being used as a political weapon, made the Iranian authorities to, once again, think about reducing the country’s reliance on oil revenues.

In the past few years, Iran’s Supreme Leader Ayatollah Seyed Ali Khamenei has repeatedly emphasized the need for reducing reliance on oil and has tasked the government to find ways to move toward an oil-independent economy.

Now that Iran has once again decided to try the “oil for development” plan, the question is, what can be changed in a program that was aborted 80 years ago to make it more compatible with the country’s current economic needs and conditions.

The substitute sources of income

Shortly after BPO announced its decision for cutting the oil revenues from the next year’s budget, the Head of the organization Mohammad-Baqer Nobakht listed three alternative sources of income to offset oil revenues in the budget planning.

According to the official, elimination of hidden energy subsidies, using government assets to generate revenue and increasing tax incomes would be the main sources of revenues to compensate for the cut oil incomes.

In theory, the mentioned replacements for oil revenues, not only can generate a significant amount of income, but they could, in fact, be huge contributors to the stability of the country’s economy in the long run.

For instance, considering the energy subsidies, it is obvious that allocating huge amounts of energy and fuel subsidies is not a good strategy to follow.

In 2018, Iran ranked first among the world’s top countries in terms of the number of subsidies which is allocated to energy consumption with $69 billion of subsidies allocated for various types of energy consumption including oil, natural gas, and electricity.

Based on data from the International Energy Agency (IEA), the total amount of allocated subsidies in Iran equals 15 percent of the country’s total GDP.

The budget that is allocated for subsidies every year could be spent in a variety of more purposeful, more fruitful areas. The country’s industry should compete in order to grow, people must learn to use more wisely and to protect the environment.

However, practically speaking, all the above-mentioned alternatives are in fact long term programs that take time to become fully operational. A huge step like eliminating hidden subsidiaries cannot be taken over a one or event two-year period.

The development aspect

One big aspect of the government’s current decision is the “development” part of the equation.

A big chunk of the country’s revenues is going to be spent on this part and so the government is obliged to make sure to choose such “development” projects very wisely.

Deciding to allocate a huge part of the country’s income on a specific sector, makes it more prone to corruption, and therefore, a plan which is aimed to help the country’s economy could become a deteriorating factor in itself if not wisely executed.

The question here is, “Is the government going to spend oil money on all the projects which are labeled as ‘development’ even if they lack the technical, economic and environmental justification?”

So, the government needs to screen development projects meticulously and eliminate the less vital ones and then plan according to the remaining truly-important projects.

Final thoughts

Even if the “oil-free” budget is a notion that seems a little ambitious at the moment, and even if there are great challenges in the way of its realization, but the decision itself is a huge step toward a better future for Iran’s economy. Although realizing this plan seems fairly impossible in the short-term, it surely can be realized with proper planning and consideration in the long term.

Sooner or later Iran has to cut off the ties of reliance on oil incomes and start moving toward a vibrant, dynamic and oil-free economy; a journey of which the first step has been already taken.

Tehran Times



123 Comments on "“Oil for development” budget, challenges and opportunities"

  1. Cloggie on Sat, 19th Oct 2019 2:30 pm 

    “Cloggie neither dutch nor in london.”

    Ik heb nog nooit een zo stompzinnige idioot als joe gezien.

    I’m a jew, right? LOL

    Elaborate on your assertions. You can’t.

  2. Cloggie on Sat, 19th Oct 2019 2:34 pm 

    BoJo setting himself up to be arrested:

    https://www.independent.co.uk/news/uk/politics/boris-johnson-brexit-deal-vote-live-debate-news-speech-second-referendum-march-jeremy-corbyn-a9162581.html

    “The prime minister insisted he “would not negotiate a delay” – despite being legally compelled to do so”

    This could easily get out of hand, exactly like in the US, albeit for different reasons.

  3. joe on Sat, 19th Oct 2019 2:36 pm 

    bojo has now officially said in the house he will not ask for an extension. remoaners will try and make the courts force him to sign it, but they will not remove him from power. unter uk international treaty, any letter signed under coercion (by court or otherwise) is not law in the uk (the eu never signed up to this very wise law), therfore its not bojos signature. the remoaners will have to dip their own hands in blood (appoint their own pm) to revoke art50. the eu would be wise to ask the UK for a general election (not a referendum ) prior to agreeing to any more extension.

  4. joe on Sat, 19th Oct 2019 2:38 pm 

    QUE THE COUP

  5. joe on Sat, 19th Oct 2019 2:40 pm 

    bojo goal has never been a deal, its always been a general election. now Corbyn must decide if he really does beleive in democracy or in autocracy like his hero Karl Marx.

  6. joe on Sat, 19th Oct 2019 2:43 pm 

    EUSSR will be wise to keep out of this arguement. Merkel has interfered too much already. if the tories get a majority or a coalition of some kind with DUP and Brexit party, the UK will leave the EUSSR the next day.

  7. Cloggie on Sat, 19th Oct 2019 3:12 pm 

    Bercow volunteers to do the job, BoJo refuses to do:

    https://uk.news.yahoo.com/brexit-news-latest-john-bercow-142700667.html

    “Brexit news latest: John Bercow to ask EU for extension if asked by Parliament”

    The net is closing around BoJo. This is not good at all.

    Brexit-boob joe keeps foulmouthing about the “EUSSR”. The truth is that in contrast to the GDR, Czechoslovakia and Poland, who tried to escape from the USSR (UK’s ally in WW2 as we all remember), the UK could leave tomorrow with impunity, but won’t. It is unlikely if the Brexit-boobs a la joe could field more than a few thousand demonstrators in favor of Brexit.

    I came to London to witness a second Berlin-1989 caliber event, but I begin to fear that the unexpected Brexit gift could be withdrawn and we are stuck with anti-Europeans joe esquire and empire dave.

    Let’s hope Macron gives the Anglos the boot.

    EU: there will be no new negotiations:

    https://www.spiegel.de/politik/ausland/brexit-abstimmung-im-unterhaus-eu-politiker-gegen-neue-verhandlungen-a-1292373.html

    Everybody in the EU is sick and tired of the UK political class. Although a further extension isn’t ruled out, it will only happen if the British present a credible course of action to break the deadlock.

    I for me would advise the EU to pull an inverse USSR and give the British the boot and rake in Scotland and much of British big companies and realize superpower status.

  8. Cloggie on Sat, 19th Oct 2019 3:21 pm 

    Italy is NOT UK:

    https://www.spiegel.de/politik/ausland/matteo-salvini-in-rom-tag-des-italienischen-stolzes-a-1292376.html

    Massive rightwing demonstration in Rome, incl. Berlusconi and Salvini. They together are going to take over the Italian government at the earliest opportunity and enforce the opening towards Russia.

    How to get rid of the British, that is the question?

    Oops sorry, Anglo forum, Shakespeare… too white… again, sorry.

  9. Lol. What a dumbass on Sat, 19th Oct 2019 3:49 pm 

    “They together are going to take over the Italian government at the earliest opportunity and enforce the opening towards Russia.“

  10. Cloggie on Sat, 19th Oct 2019 3:50 pm 

    This just in: BoJo’s prestige is “dead in a ditch”

    https://www.theguardian.com/politics/2019/oct/19/eu-will-grant-brexit-extension-if-johnson-sends-letter-says-brussels

    “Boris Johnson confirms he will seek Brexit delay, says Brussels”

    No if’s and butt’s.ROFL

  11. Cloggie on Sat, 19th Oct 2019 3:59 pm 

    Conflicting signals:

    https://www.dailymail.co.uk/news/article-7591359/Remainers-BLOCK-Boris-Johnsons-crunch-Brexit-vote.html

    “Defiant Boris Johnson reveals he will get around Remainer law by telling EU leaders NOT to delay Brexit past Oct 31 and will refuse to negotiate extension – after MPs pass Oliver Letwin’s Brexit-wrecking amendment by 322 to 306 votes‘

    To reconcile these signals… apparently BoJo intends to request an extension, because he has to by law, yet at the same time will he beg the EU not to grant him one. This farce is getting bigger and bigger.

    https://www.dailymail.co.uk/news/article-7590999/March-Remainer-Rabble-Hordes-placard-waving-anti-Brexit-activists-pound-London-streets.html

    “Organisers claim ‘close to one MILLION’ anti-Brexit protesters are marching on Parliament to demand second referendum while hoisting demonic Dominic Cummings effigy”

    Note to self: the anti-Iraq war demonstration of, I believe 2003, was of similar size as this one, but had no effect on the Bliar. So it is still possible the Brexit farce will go ahead anyway.

  12. Cloggie on Sat, 19th Oct 2019 4:01 pm 

    “Lol. What a dumbass”

    Considering the total absense of any intellectual content, this contribution must originate from empire dave, the guy who stopped developing at an age of 12.

  13. Cloggie on Sat, 19th Oct 2019 4:09 pm 

    It’s OK to be concerned about “peak oil” and what not, but like with smoking, you shouldn’t do it over your lungs:

    https://www.dailymail.co.uk/news/article-7591449/Dutch-police-probing-doomsday-father-weird-markings-point-Satanic-practices.html

    “Dutch police probing doomsday cult father who locked up family for nine years find ‘weird’ markings that may point to ‘Satanic’ practices in remote farmhouse prison”

    Before you know it, a decent Italian girl ends up in the evil hands of a goat farmer, who brainwashes her into thinking that “the end is neigh”, only to get stuck in the Ozarks, rather than in the beauty of the Italian Alps:

    https://images.app.goo.gl/3wdKxjcntnTyHKtS8

  14. Cloggie on Sat, 19th Oct 2019 4:24 pm 

    Whooptidoo: the chaos gets even bigger now that senior figures within Labour distance themselves from Corbyn and have declared Labour a Remain party, no doubt greatly inspired by the giant demonstration today. I saw many Labour flags today:

    https://www.independent.co.uk/news/uk/politics/brexit-march-labour-second-referendum-jeremy-corbyn-emily-thornberry-a9163181.html

    “Brexit march: Labour’s most senior figures break with Jeremy Corbyn to declare it is now a Remain party”

    This is big. Corbyn (who is a Leaver) has always maintained that “the people must decide” and refused to give a recommendation. Quite the leader, Corbyn is.

    The rope is tightening around the necks of both most prominent Brexiteers: BoJo AND Corbyn.

    Bye-bye Brexit.

    F*ck.

  15. Lol. What a dumbass on Sat, 19th Oct 2019 4:34 pm 

    “Considering the total absense of any intellectual content”

    Are you referring to this:
    “They together are going to take over the Italian government at the earliest opportunity”

  16. Anonymouse on Sat, 19th Oct 2019 4:57 pm 

    Got a skill testing for you, kloggKosher.

    If ’empire dave’, stupid name btw, I doubt the moron even considers it remotely insulting. Probably the best your limited imagination could come up with,

    Anyhow. If empire exceptionalturd stopped developing intellectually at age of 12, would that make him..

    A) Ever so slightly smarter than you
    B) Ever so slightly dumber than you
    C) About the same. Too close to measure.

    Pick one, kloggedrectum

    Try not to blow your limited cranial power on this one. But, Id be interested to know how you think he stacks up to you. Like, do you see yourself as an autistic 13 year old, or an 11 year compared to him?

    [Helpful tip] If you find the 3 choices far too much for you to handle, just pick C.

  17. Another Insane davy sock on Sat, 19th Oct 2019 5:29 pm 

    Lol. What a dumbass

  18. Cloggie on Sat, 19th Oct 2019 6:37 pm 

    No more Poles:

    https://www.dailymail.co.uk/news/article-7592051/Shortage-pickers-leaves-50-million-apples-rotting-UK-orchards.html

    “Shortage of pickers leaves 50 million apples rotting in UK orchards amid fears Brussels sprouts, cabbages and kale could also be affected”

  19. wow, how clever juanpee on Sat, 19th Oct 2019 6:46 pm 

    Another Insane davy sock on Sat, 19th Oct 2019 5:29 pm

  20. Davy on Sat, 19th Oct 2019 6:53 pm 

    Anonymouse on Sat, 19th Oct 2019 4:57 pm

    Dumbass, you haven’t figured out you are irrelevant yet, have you? Stalking and lame ad-homs just show how low IQ you are. I can’t remember the last time you said something intelligent.

  21. Another Insane old fart Davy sock on Sat, 19th Oct 2019 8:34 pm 

    wow, how clever juanpee

  22. More Insane old fart juanpee garbage on Sat, 19th Oct 2019 8:35 pm 

    Davy on Sat, 19th Oct 2019 6:53 pm

  23. joe on Sat, 19th Oct 2019 10:39 pm 

    hey cloggie, told you bojo wouldnt sign that letter. now they will try to use the courts to force him to.

    que the coup.

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