Iran’s economic priorities clear

Iranian president Hassan Rouhani has announced a budget with a massive increase in defence spending. Photo: Denis Balibouse / Reuters
Iranian president Hassan Rouhani has announced a budget with a massive increase in defence spending. Photo: Denis Balibouse / Reuters

For an economy in the midst of a steep recession, Iran seems to have had no difficulty finding money to boost its defence spending. President Hassan Rouhani’s self-described “subtle and realistic” budget actually increases military spending by more than a third in the next fiscal year, despite the economy contracting by an estimated 8.6 per cent in the past two years.

Given that Iran’s economy is expected to continue shrinking and with oil prices having dipped below the $70 [Dh257] a barrel price on which the country’s earnings projections have been based, what should be made of this large increase in defence spending?

The budget as a whole is six per cent more than for this year, but the total is less in real terms after accounting for Iran’s significant inflation rate. However this makes the 33.5 per cent increase in defence spending – most of which will go to the Revolutionary Guard – even more noteworthy.

The obvious conclusion is that even as Iran continues with negotiations over its nuclear programme with the P5+1 group, it is preparing for more fractious relations in the future. This includes creating a deterrent against threats from Israel, the US and Sunni militants in the form of stockpiles of rockets, missiles and other conventional weapons.

Is Iran simply covering its bases while still intending and expecting to reach an agreement with the P5+1 group? If a deal can be made, it is likely to cause an easing of the international sanctions that have been the source of so much of the country’s economic pain. Any deal would enable Iran to return to growth and to quieten the growing discontent towards the leadership felt by the general public who have endured the brunt of the economic woes.

Given the pain that the increase in defence spending will cause to other sectors of Iranian society, it could also be a sign that no deal is expected to emerge from the negotiations. Instead Tehran is preparing for the day when other players in the region seek to achieve through force what they could not gain at the negotiations table.

Published: December 8, 2014 04:00 AM

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