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What rial devaluation means for Iranian government

While the devaluation of the rial has had a negative impact on Iranian society, it has the potential to help key economic players — including the government and the Central Bank — to gain a new and sustainable balance in their finances.
A currency exchange dealer counts U.S. dollar banknotes at his shop in a shopping centre in northern Tehran, January 17, 2016. REUTERS/Raheb Homavandi/TIMAATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY.  - GF20000097640

The devaluation of Iran’s currency has led to a number of conspiracy theories, one of which focuses on the premise that the government has intentionally devalued the rial in order to improve its own finances. The thesis argues that the government’s financial position has improved significantly as the main source of its revenues is in hard currency while its liabilities are mainly in rials. Nonetheless, the devaluation of the rial has had various negative impacts on the Iranian economy and the question is thus whether the government would actually benefit from an intentional devaluation.

The latest Central Bank of Iran (CBI) report on the government’s financial position covering the first four months in the current Iranian year (March 21-July 22) indicates that the government has been running a budget deficit. In fact, revenues from taxes and privatization stood at 421.1 trillion rials (roughly $10 billion), i.e., only 57% of the planned revenues in those categories. Some of the loss in revenue was compensated through the higher-than-expected proceeds from the petroleum sector that amounted to 420 trillion rials, i.e., 15% higher than budgeted. Nonetheless, the government was running an operational budget deficit of 312.5 trillion rials ($7.43 billion).

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