As work begins on next year’s budget bill, a looming deficit in the 2026–27 fiscal year has become a central concern. For years, successive governments of the Islamic Republic of Iran have focused on closing the widening fiscal gap rather than crafting budgets that support development or sustainable economic growth.
Over at least the past two decades, Iranian administrations have largely ignored the economic goals outlined in the Five-Year Development Plans. Instead, they have relied on unrealistic and often arbitrary revenue projections to fund expenditures. Each year, fewer of these projected revenues materialize, and the deficit grows larger.
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Although President Masoud Pezeshkian claims that “operational budgeting” will be implemented next year, economists widely expect a substantial deficit in 2026–27.
A similar promise was made for the 2025–26 budget, which the administration said was drafted on realistic economic assumptions meant to align revenues and expenses. However, just five months into the fiscal year, Economy Minister Ali Madanizadeh announced that the government would face a deficit of 8,000 trillion rials (about $72 billion) — a figure many experts believe understates the problem.
Forecasts suggest that several developments — including stalled negotiations with the United States, intensified oil sanctions, the activation of the snapback mechanism, the return of UN sanctions, the heavy cost of the recent 12-day war with Israel, declining government revenues, and the depletion of Central Bank and National Reserve Fund resources — will push next year’s deficit beyond 10,000 trillion rials (roughly $90 billion).
Meanwhile, profound structural weaknesses in Iran’s economy — severe energy and water shortages, stagnating production, and minimal growth in non-oil exports –leave the government with little room to raise additional tax revenue to offset declining oil income.
Economic analyst Shahin Shayan Arani argues that inflation and high government spending are the two central challenges in the 2026–27 budget.
“The core problem is the instability of Iran’s economic environment,” he says. “Every budget is built on assumptions, but for more than two decades Iran has faced chronic volatility and persistent inflation.”
He emphasizes that meaningful budgeting requires simultaneous banking reforms, inflation control, reduced wasteful spending, and a leaner, more disciplined government. Only under such conditions can a realistic and workable budget be drafted.
“The upcoming budget is being prepared at a time when government expenditures are extraordinarily high,” Shayan Arani notes. “A large share of spending goes to institutions that generate no economic value and are accountable to no one. This defective structure has created a bloated, inefficient budget.”
In its newly issued 2026–27 budget directive, the government states that controlling liquidity growth and inflation depends on careful management of the budget deficit and reducing imbalances in the banking sector.
In late October, Economy Minister Ali Madanizadeh said: “Measures to compensate for the budget deficit have begun, and the government is working to keep the gap as small as possible.”
“We aim to reduce the deficit by cutting unnecessary expenditures, using resources more efficiently, and increasing revenues wherever we can,” he added.
A portion of the shortfall, he explained, would be covered through asset monetization — selling or transferring state-owned assets.
“By putting idle government assets to productive use, we can help narrow the deficit,” he said.
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However, experts note that the expenditures most in need of reduction are the vast allocations to ideological and propaganda institutions as well as to the Islamic Republic’s regional proxy networks.
Official statistics show massive increases in the budgets of ideological bodies –ranging from 359 percent to 9,616 percent over the past six years.
Between 2020 and 2025, for example, the budget of the Art Bureau of the Islamic Development Organization rose by 2,182 percent; the Supreme Council of Seminaries by 1,575 percent; the Seminary Services Center by 1,663 percent; and the Islamic Development Organization itself by 2,210 percent.
In 2025, the Islamic Development Organization received nearly 62,580 billion rials (around $56 million). The Enjoying the Good and Forbidding the Evil Headquarters — Iran’s state body for overseeing moral conduct — was allocated 2,590 billion rials (about $2.3 million).
Ghar Baqiyatallah (the Jihad Cultural Camp of Hazrat Baqiyatallah) received 19,540 billion rials (approximately $17.5 million). The Imam Khomeini Relief Foundation was granted 3,100 billion rials (close to $2.8 million), while the Secretariat of the Supreme Council of the Cultural Revolution (SCCR) obtained 10,430 billion rials (roughly $9.3 million). The Prayer Headquarters received 1,380 billion rials (about $1.3 million).
The Ahl al-Bayt World Assembly received 2,910 billion rials (around $1.3 million); the World Forum for the Proximity of Islamic Schools of Thought (WFPIST), 1,410 billion rials (also about $1.3 million); the Islamic Development Office of the Qom Seminary, 9,140 billion rials (approximately $8.2 million); the Supreme Council of Seminaries, 88,610 billion rials (nearly $79 million); and the Seminary Services Center, 140,970 billion rials (about $126 million).
The Imam Khomeini Institute, linked to Ayatollah Mesbah Yazdi, received nearly 5,000 billion rials (roughly $4.5 million), and the Al-Mustafa International University received 17,550 billion rials (around $15.6 million). The Research Institute for Islamic Culture and Thought was allocated 1,350 billion rials ($1.2 million), the Friday Imams Policy Council 2,710 billion rials (about $2.5 million), and the Center for Managing Mosque Affairs 1,510 billion rials (approximately $1.4 million)
Together they total about 841,500 billion rials (roughly $750 million).
These vast sums represent only a portion of the funds that, in one of Iran’s most economically challenging years, Pezeshkian’s administration has allocated to state bodies widely regarded as ineffective and unproductive.
In previous years, elements of the Islamic Republic’s propaganda apparatus attempted to attribute the budget deficit solely to so-called “unjust” sanctions.
However, the country’s dysfunctional, rent-seeking, mafia-like economic system –and the proliferation of ideological institutions that drain national resources — shows that even lifting sanctions or increasing revenues would not necessarily improve economic conditions or eliminate the deficit.
For example, after the 2015 Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal, lifted many sanctions and allowed crude oil exports to rebound, President Hassan Rouhani’s administration used the resulting windfall not to draft growth-oriented budgets or strengthen infrastructure, but to expand payouts to ineffective state bodies and further entrench patronage networks.
The major corruption scandals of that period, involving figures such as Mehdi Jahangiri (brother of First Vice President Eshagh Jahangiri) and Hossein Fereydoun (brother of President Rouhani), stemmed directly from the post-JCPOA surge in oil revenue.
Within such a system, it is clear that the government is structurally unable to reduce funding for ideological and propaganda institutions. Indeed, in the 2025–26 budget — the first prepared by Pezeshkian’s administration — allocations for these bodies actually increased.
At the same time, the Islamic Republic is investing heavily in rebuilding its regional proxy networks, stretching from Lebanon to Syria, after the heavy losses it sustained over the past two years.
This effort requires significant financial resources — including major cash and foreign-currency commitments — which are expected to place additional pressure on the 2026–27 budget. Pezeshkian’s promise of “a budget bill for next year with no deficit” is, under the circumstances, highly unlikely.
