Poor wheat harvest to increase Tehran’s budget deficit

08 August 2008
Tehran’s growing budget deficit will increase further in the second half of 2008 as the government imports wheat for the first time in years, following a poor May harvest as a result of bad weather.

Iran will import at least 2 million tonnes of wheat this year after crop damage forced Tehran to reduce its production forecasts to 12 million tonnes from 15 million tonnes, according to the UN Food & Agriculture Organisation (FAO).

The crop damage also undermines the Agriculture Ministry’s plans to export 1 million tonnes of wheat. “I do not think that they can export any more,” says Cheng Fang, the FAO’s country officer for Iran. “Their import requirement is at least 2 million tonnes.”

As Tehran heavily subsidises bread, this will add a significant amount to government spending. Tehran will have to meet most of the cost of the expected 2 million tonnes of imported wheat, some $660m.

“There are implications for the government budget,” says Fang. “It is a bad time for any country to have a fall in [wheat] production.”

The news of future imports will not please Economy Minister Shamsaldin Hosseini, who was elected to the post by the Majlis (parliament) on 5 August.

Iran’s public finances have deteriorated steadily since President Mahmoud Ahmadinejad came to power in the summer of 2005.

The government’s increased earnings from oil exports have been outweighed by a higher public spending programme.

Fitch Ratings, the only international agency to rate Iran, forecasts that the budget deficit would reach 3.2 per cent in 2008 and 6.1 per cent in 2009.

The Iranian budget had a modest surplus as recently as 2004.

The International Monetary Fund (IMF) expects the economy to grow by 5.8 per cent this year and 4.7 per cent in 2009.

Mohammad Jafari, the acting general director of the ministry’s General Trading Corporation, told MEED in March that international buyers had been lined up for all the expected exports (MEED 14:3:08).

Jafari now acknowledges “we cannot export wheat anymore.”

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