Will the budget schedule of the next year actualize the exchange rate for US Dollar?

The Key Figures of 2018-2019

The budget schedule of 2018-2019 demonstrated the behavioral pattern of the government. This schedule is similar to the schedule of 2017-2018 in many aspects and revisions are made only to some ratios. For instance, the employee salary increase coefficient is increased for 5% , this is while this figure was 10% for the current year.  Furthermore, the news indicate income shrinkage in both  oil and non-oil sectors . Considering the international changes, it is said that the anticipation for the oil prices are even less than the current year.  Also considering the limitations of OPEC quota system, there would not be any jumping increase for exportation of oil in comparison with the current year. In the non-oil sector,  considering the performance of tax incomes ,the increased figure is less than the sixth development plan.

Therefore it seems that considering income bottlenecks in both oil and non-oil sectors, the most critical variable for the budget of 2018-2018 will be the exchange rate of US Dollar.  Annual  increase of currency exchange rate for 3.5% is one of the assumption of the sixth development plan. The current circumstances, however, have formed two perspectives regarding this variable. The first perspective believes in actualizing the currency exchange rate proportionate with the market status , however, the second perspective emphasizes on modification with a gentle slope. Although the negotiations are ongoing regarding the ratio of actualizing, however, it seems that modification of currency exchange year for the budget of 2018-19 will be more than the 3.5% as stated in the sixth development plan.

The Timing for Submission of  the Bill to the Parliament

Planning and Budget Organization has demonstrated the timing for  preparation of the budget bill for the year 2018-19. According to this plan, the executive agencies must submit their proposed annual plan to  Planning and Budget Organization utmost October 7th . Furthermore the date of submitting the proposed budget based on costing activity of the executive agencies will be October 26th of the current year.  Based on this timing , it is stated that the report on the fundamentals of the whole budget of the country shall be completed by November 13th  and afterwards, this report will be provided for the economy committee and the cabinet. It is stated that the generalities of the budget bill shall be analyzed and approved in cabinet on November 27th . In  the end, and concerning the preparation schedule and set up of the budget bill section,  it was stated that the budget bill shall be submitted to the Parliament by December 3rd ( 2 months and 2 more days ).

The Growth of tax Incomes and the Employee Salary Coefficient

It is stated that the amount of tax incomes shall reach to about 160,000 billion Tuman.  The average growth of tax incomes is assumed equal to 20% which considering the decreased realization of such tax incomes in the current years, it seems a little optimistic. In the section for expense budget, the financial regulations supervising the preparation and set up of the 2018-19 budget have  determined the increase of employee salary coefficient equal to 5%. This is while this figure was forecasted 10% in 2017-2018. In this circular, however, it is mentioned that the actual amount will be approved by the cabinet. This figure, of course, will be added to the salary coefficient that based on the achieved scores varies for each employee. This salary coefficient is announced by the government considering the rate of inflation.  This coefficient will be multiplied by the scores of the employees and the receivable amount for each employee will be calculated.  The reward at the end of the year is forecasted equal to 932,000 Tuman in the budget of 2018-19 , this is while the amount for the same title in the budget of 2017-18 was 847,000 Tuman . Therefore, if this amount of reward gets approved  in the cabinet, then the growth of employee’s reward will be equal to  10%. The other  important change in this section , was that the credit for missions abroad in the budget of 2017-18 was forecasted equal to the forecast of the  credit performance in 2016-2017 . This is while the credit for domestic missions are also added to this title in the budget of 2018-19.

Targeting for the Currency Exchange Rate in the Budget of 2017-18

 In addition to the general form of the budget and financial regulations and its existing frameworks, a series of forecasts concerning the oil price in the budget can be provided. According to the forecasts , the average of oil incomes is considered 12% per year in the sixth development plan. Such increases are dependent on three factors comprising of  oil price in the global market, oil exportation and the currency exchange price. The reports indicate that the basic price for oil in the budget of 2018-19 is based on the performance of the current year and the statistics display that the average of oil prices has been less than 50 US Dollars in the budget.  This is while the basis for calculating oil price in the sixth development plan was assumed to be over 55 US Dollar. Furthermore it seems that the volume of Iranian oil exportation will be limited considering the extra OPEC supply and the concluded agreements. This will cause Iran to have some considerations regarding oil exportation in the future years. Considering the limited changes in the international oil prices and oil exportation and also limited growth of the non-oil incomes , the only factor that can realize the forecasted incomes is changing the currency exchange rate in the budget.  According to reports, it is stated that the currency exchange rate should increase 3.5% comparing the each previous year. Considering the rate of 3300 Tuman per 1 US Dollar in the budget of 2017-18, the exchange rate for US dollar should be 3415 Tuman in the budget of 2018-19. The reports, however, indicate that the proposed rate in the budget of 2018-19 will be more than this figure.  On this basis, it is forecasted that this figure will be determined around 3500 Tuman. Increasing the currency exchange rate in budget will be  a forward move toward actualizing the exchange rate in the currency market.  The ascending trend of currency exchange rate within the past years in the free market and its gradual increase in the budget caused an increasing  gap between the exchange rate and its balanced rate. Under present circumstances, this gap have increased to 600 Tuman per US Dollar. This is while the Central Bank and government both intend to provide the preliminary grounds for equalization of the currency exchange rate in a short period of time. Decreasing the gap between the currency exchange rates in the budget and its balanced rate in the market would be a step forward for currency exchange rate  equalization.

In this circular, the government has not  expressly specify a particular orientation concerning the figure of inflation rate in 2018-19. However, considering the 5% growth of employee income coefficient it can be forecasted that the government’s target is to decrease the rate of inflation to this range. This forecast seems to be probable considering the 10% increase of employee salary coefficient in 2017-18, therefore,  the rate of inflation will remain within the range of 10-11 % until the end of the present year according to the forecasts .  Of course  decreasing the rate of inflation to the level of 5% within one year  is very difficult , however, it seems that the government emphasis is on continuing the variations of the inflation rate within the  single digit level in 2018-19.

Macroeconomic orientations

In the mentioned circular, the government has announced the prophecy of the budget in 2018-19, comprising of the following items:

  • Mainlining the economic stability of the country
  • Reducing poverty
  • Creating sustainable jobs with extensive utilization of the capacities of the private sector and cooperatives.
  • Activating the unused potentials of the country’s economy.
  • Focusing on the driving areas of the economic growth including transportation sector and commodity and energy transit, mine  and mineral industries  sectors , petrochemicals and industries related to oil , housing specially in inefficient urban textures  ( the city suburbs and exhausted urban textures ) , tourism sector and knowledge –based services and industries.
  • Using the positive post- Joint Comprehensive Plan of Action (JCPOA ) atmosphere and employing economic diplomacy for the international arena of the country.

Timing of submitting the budget bill to the parliamentDecember 3rd 2017
Average growth of tax incomes25%
Average growth of oil incomes12%
Average of the oil price in the sixed development planUSD 55
Average of the oil price in the budget of 2018-19Less than USD 50
The price of USD in the budget of 2017-1833000 Rials
The price of USD in the budget of 2018-19Over 35000 Rials
Increase of the growth of employee salary coefficient in 2017-1810%
Increase of the growth of employee salary coefficient in 2018-195%
Inflation forecast10-11%

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