Iranupdated 25m ago2 min read
Iran’s 1406 Budget Circular Sets Stability, Resilience, Reconstruction Amid High Inflation
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1406 budget prioritizes stability, resilience, reconstruction amid high inflation and sanctions. Finance needs and potential tax increases shape 1406 funding in inflationary economy.
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Budget 1406 priorities
Iran’s budget circular for the year 1406 set “stability, resilience, and reconstruction” as the three main axes of next year’s fiscal policies under conditions of limited financial resources and persistently high inflation. Mohammad-Qasem, Deputy for Coordination of the Planning and Budget Organization, said the government must be ready for a scenario of zero oil revenue, adding that war reduces government revenue sources while increasing costs. Mohammad Hossein Hosseini said the annexes to the 1406 budget circular put taming inflation and maintaining economic stability at the top of government priorities, with the deficit from reduced oil revenues deferred to non-inflationary channels.
The Planning and Budget Organization’s guidelines for preparing and drafting the 1406 budget bill projected an average 35% salary increase for government employees next year, implemented on a progressive basis so that lower salaries see larger increases. Mohammad Qasemi, Deputy for Planning Coordination of the Budget and Planning Organization, said the government’s planning challenges in wartime include severe restrictions on oil revenues, and he stressed preserving payroll payments and preventing direct borrowing from the Central Bank.
Wartime planning and constraints
Mohammad Qasemi said the government selected the Seventh Development Plan as the basis for its activities and that a group within the Planning and Budget Organization drafted a contingency program for emergency conditions. Mohammad Qasemi said warnings were issued to executive bodies after it became clear in May 2025 that part of the anticipated foreign exchange revenues, especially resources required to secure about €12 billion of essential goods, might not materialize. Mohammad Qasemi said the emergency conditions program entered the execution phase with the outbreak of war, and he said later versions also considered risks to key infrastructures such as South Pars, bridges, and the transportation network.
Mohammad Qasemi said the government decided on a cautious, contraction-oriented approach when formulating the budget bill, but Parliament did not approve it and broad changes shifted nominal budget growth from about two percent proposed by the government to around thirty percent. Mohammad Qasemi said the Planning and Budget Organization divided expenditures into three groups, including essential and unavoidable costs such as salaries, retirees’ pensions, and principal and interest on government bonds.
Deficit transparency debate
Albert Bagziyan, an economist, argued that the government should not hide the budget deficit and said a predictable budget deficit should be written into the budget from the outset. Bagziyan said the government should not draft the budget solely to show a revenue-expenditure balance, but should include the expected budget deficit from the outset so it is not forced to resort to inflationary resources later. Bagziyan said war costs money, imposes limits on oil sales, and returning resources from oil sales may also face obstacles that must be considered when drafting the budget.
Bagziyan warned that when government revenues do not materialize, the government may resort to borrowing from the Central Bank or other methods that ultimately increase the monetary base and inflation. Bagziyan said the main issue behind wage increases is inflation and the problem of purchasing power for wage earners every year.