What’s on Rouhani’s second-term economic agenda?

May 25th, 2017

Awake Goy

Al-Monitor | Bijan Khajehpour: Hassan Rouhani’s re-election on May 19 is welcome wind in the sail of the moderate political forces in Iran. The sharp rise in the index of the Tehran Stock Exchange can also be seen as an indication that economic players view the election results as a positive development.

During the election campaign, the Rouhani camp produced a comprehensive set of policies for the next four years. In this article, we will take a closer look at the policies titled “developmental economic policies,” as these plans will have a major impact on the country’s economic development beyond Rouhani’s second term. The main challenge to the Iranian government in the next decade will be unemployment, and plans and policies should thus be assessed through the prism of their impact on job growth.

While Rouhani’s plans call for reforming the management of oil export revenues, it is not clear how the revenues will be allocated. The country’s five-year plans have already foreseen an increase of the flow of funds into the National Development Fund, the sovereign wealth fund that would allow the government to use oil and gas export proceeds for longer-term investments and sustainable job creation rather than ongoing expenditures. However, Rouhani’s program does not clarify what other revenues could be allocated to the treasury. Currently, Iran’s government budgets are funded by oil export revenue, tax income and privatization proceeds. As privatization inflows are in decline, the only item that could be increased would be tax income — an instrument that may put pressure on corporate Iran at a time when the country needs jobs. Consequently, as long as the oil price hovers around $50 per barrel, it will be difficult to reduce the oil income allocation to the treasury. Therefore, it would be important for the government to clarify where the replacement revenues would come from. One possibility would be to fully implement laws and regulations that would oblige semi-state institutions such as military, revolutionary and religious foundations to pay taxes and hence increase the treasury’s revenues.