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What to do about Iran’s expected budget deficit

The impact of US sanctions on Iranian energy exports is bound to cause a budget deficit in Iran, with the Rouhani administration facing tough choices ahead.
EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran. 

A petrol station attendant (R) counts money as a man waits for his change at a petrol station in northwestern Tehran December 19, 2010. The price of gasoline will rise four-fold in Iran in the coming days, state television announced late on Saturday, as the most politically sensitive part of President Mahmoud Ahmadinejad's subsidy cuts plan takes effect.  REUTERS/Morteza

The outlook for the Iranian government’s finances in the current Iranian year (which began March 21) is bleak. The economic downturn that started with the May 2018 US withdrawal from the Joint Comprehensive Plan of Action (JCPOA), and the consequent nonrealization of planned oil and gas export revenues, has squeezed the government’s finances. While external pressure is expected to continue, the Iranian authorities have some remedies to address the expected budget deficit. However, each of these remedies will have socioeconomic consequences. The key question, then, is how potential actions by the authorities could help the government reduce the expected budget deficit in order to contain its devastating inflationary impact.

At the same time, the government has an opportunity to initiate some structural reforms to the overall approach to generating and expending state revenues in light of the instructions by Supreme Leader Ali Khamenei to introduce needed reforms.

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