Iranian president Ebrahim Raisi has announced that his government will not be seeking to increase liquidity in the country and the country’s monetary base will not be increased. And he will decrease the budget deficit and inflation.
The question here is, how will Raisi do this?
Simply said, liquidity is the demand of the people from the government or the government’s debt to the people, so the higher the value, the higher the government’s debt to the people. Liquidity covers the following:
- Banknotes or coins
- Savings or bank credits (visual deposits)
- Government budget deficit that leads to loans from the Central Bank
- Banks’ debt to the Central Bank
Since under clerical rule, the country’s production has been destroyed and its national wealth has been spent on the export of terrorism and its anti-national missile and nuclear projects and since the sanctions imposed on the regime due to these policies have closed the ways of earning money for the country, the regime is faced with a huge budget deficit.
For this reason, to compensate for this loss, the regime is forced to rely on fiat money which has been injected into the country’s market. This action has increased the demand in the market and while the prices of the commodities in the market have been balanced with the dollar, this fiat money is losing its worth constantly against the dollar and the price of the commodities is increasing. Therefore, the increase of liquidity is increasing inflation.
The created liquidity and the lack of economic growth will ultimately put its burden on prices. It is currently emptying the people’s livelihood baskets.
The question is, in which hands is this liquidity?
An expert from the regime’s Economic Research Center of Parliament said: “90% of the country’s liquidity is in form of bank deposits, and 90% of these bank deposits are in the hands of 2% of depositors.”
This means that Iran’s state media are incorrect to claim that only 2 percent of the country’s population are controlling the wealth in the country; rather, only 2 percent of the country’s “depositors” are controlling 80 percent of the money in the country, which are the regime’s officials, their children, and affiliates.
Raisi claims that he has been able to solve economic issues and salaries during his time at work without printing money or increasing the monetary base.
Raisi made this allegation, while he in his previous remarks he had said: “Some governments have declared the treasury is empty. If I say in what situation the treasury was, they might say that you are starting the job by complaining.”
Indeed, while the treasury of the country is empty and the situation of the country’s economy is dramatic, the first question that has been raised is, with the help of what magic has Raisi been able to solve the economic obstacles and move the country forward?
That’s in a situation where the regime has lost at least 70 percent of its oil export and is facing a budget deficit of about $946 billion, which means a budget deficit of 50 percent.
Of course, another way to finance the budget deficit is to release fiscal papers. The regime’s economic ministry said that the government instead of borrowing from the Central Bank was able to earn $640 million from selling fiscal papers.
But how long will the regime be able to do this? Next year, the government must pay back the profits of these bonds, and the question is, from which sources will they do it?
The consequence will be an increase in people’s poverty, according to analysts. The release of fiscal papers helps the government postpone its debt to the future, but it is also a crisis for the government, which is facing a super economic crisis.
The release of fiscal papers is tantamount to ‘future selling’, hostage-taking of Iran’s economy, and passing current problems to future generations.
The situation is so critical that even the state-run media are questioning Raisi’s decisions.
“While government officials point to non-borrowing as their most important achievement, a survey of the central bank’s recent report shows that the government has continued to move towards banks so that the daily decline in the number of interbank transactions and the mild slope of interest rates in the interbank market indicate that the level of surplus reserves of banks in the interbank market has been accompanied by a sharp decline. That’s the result of the government’s fiscal behavior.
“As a result, the government has withdrawn from the banks’ resources to finance its costs instead of borrowing from the Central Bank, which because of withdrawing over the specified ceiling, the banks have no reserves with the Central Bank.
“Therefore, as a result, there is no difference in the whole story, and the Central Bank has no choice but to create money to provide overdrives and conversions.” (State-run daily Arman, October 23, 2021)
Trying to hide this disaster, the government’s economic experts have confessed that all the financial statements of the banks are fake.