Iran's 'Empty Treasury' Panic is Back With a Vengeance. Who's Right?

On the night of Tuesday, November 26, 2013, the president of the 11^th government of the Islamic Republic of Iran sat down in front of three reporters from the IRIB to share the performance of his first 100 days in office.

Hundredth-day reports were not a regular occurrence in Iran at that time. And so it remained: instead of talking about his first 100 days in power as expected, Hassan Rouhani spoke at length about the previous administration, and the state of affairs handed over to him by his predecessor, Mahmoud Ahmadinejad.

Rouhani spoke of the "empty treasury" he had inherited: public coffers that were apparently so badly depleted, he hadn’t even had the funds to pay the salaries of government employees for the first month of his tenure.

The Revolutionary Guards-affiliated Tasnim News Agency waited 1,795 days – until the Tuesday just gone – to avenge the "empty treasury" remark. On October 26, 2021, Tasnim published a letter dated July 31 this year: in the transition period after the presidential election, and before Ebrahim Raisi and his team came to power. In it, Mahmoud Vaezi, Rouhani’s ex-chief of staff, wrote to Mohammad Bagher Nobakht, then-head of the Planning and Budget Organization: "The treasury has been emptied at your request. There is nothing left."

According to Vaezi's letter, Nobakht had previously written to the outgoing president asking him to "pay the named amount in order to complete and operate the Abyek water supply project". Hassan Rouhani had acquiesced, via the letter sent back to him by Vaezi.

However, the publication of this internal correspondence was instantly met with a response from Mohammad Bagher Nobakht, who clarified in an interview with Eghtesad News that it wasn’t correct to interpret this as meaning the treasury was empty. Rather, he said, according to a mechanism put in place in the last few months of Rouhani’s tenure, a portion of public funds would be set aside to finance the completion of semi-finished and priority development projects.

He added: "The treasury has a continuous inflow, and [new] amounts are accumulated every day. This means the treasury will never be empty. Were such a false claim true, then how could salaries have been paid by the new government for the last three months?"

“Not Empty” Doesn’t Mean Solvent

The Iranian treasury, as Nobakht said, has a continuously-changing balance sheet. All government revenues and expenditures must – officially at least – enter and leave the treasury in one way or another. In the same explanation, Nobakht also called attention to the payment of government employees’ salaries for the last three months, to prove the point that the treasury could not be empty.

The same argument has been made before. In mid-September 2016, Shamseddin Hosseini, who had served as minister of economic affairs in Ahmadinejad’s second government, made this point in an interview with Tasnim in response to the previous “empty treasury” accusation. “Government spending figures show that the claim the 11^th government took over an empty treasury is false and invalid,” he said, “especially since its expenditure in the first year [2013-14] grew by 40 percent. With this level of increase, how can such a claim be accepted?”

Of course, it would be incorrect to state that Iran’s treasury is actually “empty”. But that is not to say it hasn’t had serious problems covering its outgoings. Governments typically struggle to secure the financial resources they need in the first months of each year because of lower revenues, including tax revenues. True, the treasury might have had some cash outstanding from the previous year, but this by itself wouldn’t be enough to cover everything needed.

By the close, the 12^th government did not have enough resources to pay all of its employees, leading to multi-sector strikes and protests over wage arrears breaking out in late summer. It is conceivable that the Raisi government is in even deeper difficulty now. Recently, new Minister of Economy Ehsan Khandouzi said government employees’ September salaries had been paid “without a single rial of borrowing from the Central Bank” – but part-funded through the sale of a record 27 trillion tomans’ (US$973.6m) worth of bonds in the same month.

Paying Expenses from Petty Cash

A report published by the Treasury in September stated that the 12th government had compensated for its budget deficit over a five-month period by paying some 52.9 trillion tomans ($1.9bn) of outgoings from petty cash. Interestingly, in a decree dated June 19, 2021, the cabinet had increased the maximum amount of reserves that could be used in this way to pay salaries, from three percent of the general budget to four. This allowed it to withdraw a maximum of 54.95 trillion tomans ($1.98bn) per period.

Recent reports by the Central Bank of Iran have warned that overdrawing from the treasury’s petty cash reserve is one of the main reasons for increased liquidity and the intensification of inflation in recent months. The National Audit Office has referred to the same issue in its bi-monthly budget monitoring reports.

Statistics on the new government's financial situation in September and October have not yet been released. But even if we discount the “empty treasury” remarks made by both Tasnim News Agency and Hassan Rouhani, and accept the explanations of Mohammad Bagher Nobakht and Shamseddin Hosseini, what is indisputable is that the government’s financial situation has deteriorated further. The budget deficit is now estimated at 450 trillion tomans. This deficit and how to compensate for it, rather than a mythical “empty treasury”, is what’s keeping Iranian economists awake at night.

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