Iran’s president-elect Masoud Pezeshkian is facing several serious challenges nearly all of which are linked to the country's long-standing foreign policy impasse and the problem of sanctions.
Before even beginning to tackle those problems, Pezeshkian warned the interim government under vice president Mohammad Mokhber to avoid creating new problems by signing contracts with individuals and organizations and creating long-lasting financial commitments for the new government.
Before the letter was sent, news was going around that Raisi's legacy government has been hiring and firing individuals, and entering into long-term contracts with some public and private sector entities during the past week.
Meanwhile, Iranian media enumerated up to six problems the new government has inherited from President Ebrahim Raisi’s administration. A voluminous dossier about every one of those problems will be on Pezeshkian's desk once he officially takes office at the end of July.
Many of those problems are the outcome of sanctions as well as mismanagement and indecision by the previous government. A bigger problem for the new government is that the annual budget for the coming year has been already finalized and there is very little it can do to address a huge deficit and major spending decisions.
In fact, the first problem Pezeshkian will face is the budget deficit. The government still owes money to banks and other organizations for debts dating back to 2022 and even before. Since the United States imposed oil export sanctions in 2018, the government’s main source of revenue was badly affected.
The Raisi administration lacked financial discipline, according to Rouydad24, pro-Pezeshkian news website in Tehran. It spent more foreign currency in 2022 and 2023 than it earned.
Only the Ministry of Agriculture has spent more than $20 billion on importing essential commodities while it was allowed to spend $15 billion. A large part of this debt remains for the years to come. On the other hand, pharmaceutics and machinery importers have been facing big losses because of mismanagement of funds as well as losing the trust of their trade partners abroad. All of these debts and shortfalls need to be addressed by the Pezeshkian administration in 2024.
Businesses in Iran predict that the government will be in trouble paying for the import of essential commodities this year, particularly as China has not been introducing any discipline in repatriating several billion of dollars of Iran's oil money, according to Tehran media.
The second issue the new government has inherited is the challenge of adjusting pay for millions of retired government employees and military personnel. In recent years, not a day has passed in Iran without protest demonstrations by pensioners. Despite this ongoing unrest, no solution appears to be on the horizon.
The third problem is about Iran's ailing industrial infrastructure and its need for investment. Industries are short of financial resources and do not have any hope of attracting any capital. The government's solution has been printing money and expanding the monetary base, which exacerbates an already 50% annual inflation. This has eaten away at workers’ real incomes, leaving them deeply disgruntled and restless.
Aging public infrastructure is the fourth major issue. Iran lacks a sufficient transportation fleet, relying on up to 10,000 Afghan trucks to help transport goods. The shipping industry is nearly non-existent and fraught with problems, including a shortage of containers. Consequently, unloading cargo can take anywhere from 45 days to 6 months.
The fifth problem is the issue of taxes. Businesses are unhappy about rising taxes and the difficulties created by inefficient tax collection software. At the same time, the government has not been successful in dealing with tax evasion and this has made an additional burden for real taxpayers. The last issue mentioned by the press is inefficient and even harmful regulation inhibiting the healthy functioning of capital markets.
Despite these challenges, a group of economists and social scientists in Iran have expressed hope that Pezeshkian's administration presents one of the last peaceful opportunities for solving the country’s problems. These experts have their doubts about the country's future under Pezeshkian. They note that the presidential debates revealed that while two groups in Iran emphasize ideological and economic solutions for the nation's issues, neither assumes responsibility for the country's plight, despite both having been in power over the past 45 years.
