Tyranny of numbers

This is a short followup note to my previous post which compared the proposed budget for next year with the budget bill for the current one.  I was looking for a table that included the numbers for basic expenditure items that would reveal the budget priorities for next year and could not find one in English, so I decided to post one here.  Then I found an excuse to grumble about lack of attention to long term development priorities, such as education, which have been eclipsed by all the talk about inflation as enemy number one and the poor climate for business as the enemy number two.   

Since Rouhani’s first budget was mostly fixing the broken macroeconomy, not much could be read into it by way of his vision for the future.  From what I can see, not much can be learnt from this budget either.  That does not mean that there is not a more refined plan somewhere else; it just means that the budget does not say much about long term priorities.  For what they are worth, here are the public expenditure priorities (if you cannot see the table, click here):

Note: I have used the budget bill’s proposed exchange rate of 28500 rials per USD to convert both years’ rials into dollars.
Source: Budget Bills for 1393 and 1394, Tables 6.

To get a sense of how large the overall budget is consider the fact that Iran’s GDP is about $560 billion (using the same exchange rate as in the table and my estimate of next year’s GDP), so government spending is about 16% of the GDP, which is lower than what it has been in the recent past.

The overall budget structures for the two years are very similar, which is to be expected if you know how these budgets are made — you take last year’s budget and tweak it.  Nevertheless there are two noteworthy changes: in health, which receives the largest increase in share (15.0%, up from 12.4%), and in defense, which is up from 9.8% to 11.2%.

The savings come mainly from social protection, whose share is down to 19.7% from 22.3%.  I wonder if this is a reallocation of funds for the same purpose from social protection to health.  When Rouhani announced universal health insurance in his first year, I wondered where the money would come from.  Here is one possibility, but readers may know more.  There is also savings from the large category labeled “other”, about which I know nothing.

Education expenditures are unchanged.  Hopefully, this is only in the budget totals and there will be changes in how the education money is spent.  If there is one sector that needs fundamental change to improve productivity in Iran it is education.  The low productivity of public education expenditures is not hidden from anyone.  The fact that unemployment is higher among the educated speaks volumes.  The mushrooming of private schools and private tutoring is also very telling.  The richest (and the brightest?) are abandoning public schools in droves hoping to increase their chances entering the heavily subsidized and superior public universities.  No wonder that with all the talk about free public education, Iran has one of the least opportunity equal education systems in the Middle East (you can read about it in this technical paper of mine).

To end on a positive note, there is a small increase in the allocation to the item listed as “Planning” in my table (listed as “financial services, technical, management and planning” in Table 6 of the Bill).  Perhaps this is associated with the revival of the Management and Planning Organization, which can then address questions like how to spend the public education funds.