Iran’s government on Tuesday submitted its draft budget for the year starting in March 2026 to parliament, with early indications suggesting one of the most restrictive fiscal frameworks in recent years amid persistent economic strains.
Officials familiar with the drafting process at the Planning and Budget Organization say the bill was prepared with tight spending limits.
President Masoud Pezeshkian has previously blamed budget deficits for fueling inflation, while the economy minister has said the government aims to eliminate the deficit in the coming year.
Unofficial estimates suggest the overall budget ceiling may increase by less than 5%. With inflation still running above 40%, economists say this would amount to a real contraction of around 35% in government spending power, a scale of adjustment that could weigh heavily on public services, development projects and support programs.
Wage increases draw early criticism
The draft was submitted to parliament amid immediate criticism from lawmakers, particularly over a proposed 20% rise in public-sector wages, which several MPs said lags inflation and risks further eroding household purchasing power.
The bill, state media reported, is the first budget prepared under a new format in which parliament no longer debates accompanying legal provisions, reviewing only numerical tables.
The draft, Budget chief Hamid Pourmohammadi said, was submitted after removing four zeros from the national currency, in line with recent legislation.
Inflation risks in the background
In his budget speech, Pezeshkian warned that water shortages pose an urgent national challenge, saying weak management could have lasting consequences.
The budget debate comes as gold and foreign-currency prices in Tehran have surged in recent weeks, particularly after the approval of a third gasoline price tier, developments that have reinforced expectations of higher inflation.
Lawmakers earlier on Tuesday held a closed-door session with senior ministers and central bank officials to discuss currency volatility and price controls.
Pharmaceutical sector representatives say the flow has accelerated after Pakistan curtailed drug exports to Afghanistan, turning Iran’s subsidized market into an attractive source for traffickers.
They argue that wide price gaps between Iran and neighboring countries have made smuggling structurally profitable, sidelining legal export channels.
Drug production has increased by around 50% but shortages persist, Mohsen Abdollahzadeh, a board member of the Drug Distributors Syndicate said on Tuesday.
“Drug smuggling from Iran to Iraq and Afghanistan is so extensive that traders in those countries are unable to import medicines legally and cannot compete with smuggled Iranian drugs,” he added.
Food and Drug Administration of Iran has conceded that so-called “reverse smuggling” exists, driven by sharp price differences with neighboring markets.
However, spokesperson Mohammad Hashemi disputed a widespread surge, saying documented cases remain limited. Continued leakage, he warned, could trigger intermittent shortages and place further strain on an already fragile supply chain.
Recent talks with an Afghan delegation, Hashemi said, focused on expanding formal pharmaceutical exports and improving monitoring, a move critics say reflects belated damage control rather than a solution to entrenched enforcement gaps.
Food market shows same fault lines
The controversy mirrors developments in food markets, where currency policy shifts and the removal of subsidized exchange rates have driven sharp increases in staple prices.
Analysts say both sectors show the same pattern: multiple pricing regimes and weak oversight have encouraged arbitrage and cross-border leakage.
For consumers, the result has been recurrent shortages and rising costs, as subsidized goods – whether medicine or food – slip out of regulated channels faster than authorities can contain them.
Authorities say medicines are still available for now, but concede that delays in transferring allocated foreign exchange, mounting arrears to suppliers and dwindling inventories have pushed the sector to the brink, increasing the risk of shortages in the final months of the Iranian year, which ends on March 20.
In an economy battered by chronic inflation and currency volatility, officials say, keeping drug prices frozen shifts the burden onto manufacturers and ultimately jeopardizes national drug supply chain.
The session was held to share information between the government and lawmakers on how to address public grievances, Abbas Goudarzi, spokesperson for parliament’s presiding board, told reporters after the meeting.
He said a five-member joint committee had been formed between the government and parliament, with briefings delivered by the heads of the Planning and Budget Organization and the Central Bank of Iran.
Ineffective policies
Goudarzi cited oil sales, the return of export earnings and unresolved foreign-currency obligations as key factors shaping current economic conditions, saying their combined impact had produced the present situation.
He pointed to the allocation of about $10 billion in subsidized foreign currency for essential goods as an example of ineffective policy design, adding that roughly $8 billion was directed to livestock feed while consumers continued to pay market prices for basic items.
“There is no logic in allocating this volume of currency if it does not reach its target,” Goudarzi said, adding that existing mechanisms had failed to translate support into lower costs for households.
Iran introduced its preferential foreign-exchange system in April 2018 under then president Hassan Rouhani, fixing the dollar at 42,000 rials in an effort to cushion households from price shocks and ensure imports of essential goods and medicines using oil revenues.
As the gap between the official and market rates widened – and the rial slid to record lows above 1.32 million per dollar this week – the policy became increasingly costly.
The administration of Ebrahim Raisi dismantled the system as part of what it branded “economic surgery,” arguing that it fueled arbitrage, corruption among importers, and failed to benefit consumers.
Several months later, the government reinstated subsidized currency at 285,000 rials to the dollar, roughly half the market rate at the time. The scheme initially covered 25 categories of goods, though the list has since been pared back.
In recent months, preferential currency has been removed from imports of staples including rice, vegetable oil, red meat, animal feed, and some medicines.
Budget pressure builds
The Tuesday morning session, Goudarzi said, was held behind closed doors, with an open afternoon meeting scheduled with the president.
The government will submit the draft budget to Iran’s parliament on Tuesday for the first time based on the new rial, following the removal of four zeros from the national currency.
The new year's budget bill is being submitted to parliament amid signs it has been drafted as one of the most contractionary budgets in recent years.
Goudarzi described the Tuesday meeting as an attempt to coordinate the executive and legislative branches to manage economic and currency challenges.
He outlined a compressed review timetable, saying the draft budget will be examined by the combined budget committee within three days before being sent to the plenary, whether approved or rejected.
If endorsed, it will then move to specialist committees for further study under strict deadlines before returning to the combined committee and, ultimately, the full chamber.
Goudarzi noted that under parliamentary rules the government was required to submit the budget on December 23, but did so a day later because no open session was held to formally trigger the review process.
Abolfazl Shekarchi, the armed forces’ cultural deputy, said a “wide spy network” had taken shape over several years with significant investment in training and organization.
“A large network of spies and enemy agents had been formed, and years of effort and heavy costs were spent to build it,” Shekarchi was quoted as saying by Iranian state media.
Shekarchi said the arrests started months before the fighting and continued through the end of the war.
“From a few months before the start of this war, because of the readiness in place, until the end of the war, around 2,000 of these agents were arrested,” he said.
He said rebuilding such networks would take time. “Reconstructing a network like this is not simple and requires years of time and cost,” Shekarchi said.
'Severe punishment'
Iran’s judiciary chief also cited roughly the same number of arrests in comments made in July, and said some detainees could face execution if convicted of working with Israel.
“In our law, anyone who cooperates with a hostile state during wartime must be arrested and prosecuted,” judiciary chief Gholamhossein Mohseni Ejei said in an interview with state TV.
“Some of these individuals face severe punishments, including the death penalty,” he said, adding that others could receive lighter sentences or be released after investigation.
US cites executions, student case draws rights focus
The US State Department said on Tuesday that Iranian authorities executed more than 17 prisoners within 48 hours, including Aghil Keshavarz, a 27-year-old architecture student convicted of spying for Israel.
“Only in 48 hours, the Islamic Republic regime executed more than 17 prisoners,” the US State Department said in a post on its Persian-language account.
Iran’s judiciary said Keshavarz was executed after the Supreme Court upheld his death sentence and legal procedures were completed.
The execution prompted condemnation on social media and renewed focus by rights groups on Iran’s use of the death penalty in national security cases linked to alleged cooperation with Israel.
The Human Rights Activists News Agency said on Monday that at least 17 people have been executed in Iran over the past two days in prisons across Iran.
