Title: Navigating Economic Headwinds: Iran’s 2025 Inflation Outlook Amid Fiscal Challenges
Introduction: A Persistent Fiscal Challenge
In recent years, managing the national budget deficit has become a significant and chronic challenge for Iran’s economy. While a deficit existed even prior to the imposition of US sanctions, oil revenues had historically offset this financial imbalance. The current sanctions regime, however, has restricted access to foreign currency from oil sales, removing this key buffer. Consequently, the scale of the budget deficit has seen a year-on-year increase, creating a complex economic scenario.
A Tumultuous Year and Its Economic Fallout
The past year presented considerable difficulties for national administration. Initial months were marked by active diplomatic engagement, including several rounds of talks. However, just two days before a scheduled session, a military attack on Iran, reportedly with US support, led to the cancellation of that dialogue. Though the subsequent conflict lasted only twelve days, its economic impact was immediate and twofold. Firstly, the breakdown of talks blocked a potential pathway to diplomatic de-escalation, implying the continuation of external economic pressures. Secondly, the conflict itself incurred significant costs, placing further strain on the government’s financial resources.
The Scale of the Deficit and Projected Remedies
Analysis indicates that the unsecured budget deficit—the portion with no designated source of funding—is projected to reach 400 trillion tomans by the end of the current Iranian year. A substantial portion, approximately half, is attributed to the Targeted Subsidies Law. To address this shortfall, the government is expected to reduce expenditures by withholding resources from certain activities. It is further estimated that at least 200 trillion tomans of this deficit will be covered by leveraging banking resources, a move that is projected to increase liquidity and the money supply.
The Inflationary Consequence
Financing a budget deficit through monetary channels is considered a costly strategy due to its inflationary consequences. Previous calculations have demonstrated that for every 100 trillion tomans of deficit covered by this “monetization” method, the inflation rate in the following year increases by 1.5 to 2 percentage points. This established relationship points toward mounting inflationary pressures for the 2025 forecast, as the government navigates its constrained fiscal options.