Iran’s fiscal outlook is facing growing pressure as new estimates suggest the government may require substantial additional resources to meet its spending commitments this year. Even before the latest military escalation, projections indicated a significant gap between expected revenues and expenditures. The economic disruptions caused by war are now likely to deepen that imbalance.
According to a report by the Iranian Parliament’s Research Center, about 88% of the government’s public budget revenues are expected to be realized by the end of the Iranian fiscal year 1404 (March 20, 2026). However, if all planned expenditures are fully implemented, the government would still need roughly 500 trillion tomans ($3.57 billion) in additional resources to cover its spending.
The report examined fiscal performance during the first five months of the Iranian year 1404 (March 20–August 22, 2025). During this period, only 58% of projected public revenues were realized, indicating early signs of strain in the government’s financial position.
Tax revenues remained the most stable source of funding for the state. According to the data, taxes reached 68% of their projected level in the first five months of the year and accounted for the largest share of government income. Customs revenues, however, underperformed significantly, reaching only 43% of the amount anticipated in the budget.
Rising Gap
On the expenditure side, the government faced a rising financing gap. The report estimates that the cash deficit during the first five months reached about 300 trillion tomans ($2.14 billion). Authorities covered the shortfall mainly through treasury advances and other financing mechanisms allowed under Iran’s fiscal regulations.
Borrowing has also played an important role in bridging the funding gap. Total government borrowing during the same period reached 641 trillion tomans ($4.58 billion), representing about 43% of total government expenditures in the first five months of the fiscal year.
Part of this borrowing came through the issuance of government bonds, which generated 194 trillion tomans ($1.39 billion). In recent years, bond issuance has become one of the key tools used by the government to manage budget deficits without relying entirely on monetary expansion.
Another source of funding has been withdrawals from the National Development Fund, Iran’s sovereign wealth fund. According to the report, the government used 147 trillion tomans ($1.05 billion) from the fund during the first five months of the fiscal year, equivalent to about 65% of the amount authorized for that period under the budget law.
Weakest Area
At the same time, several anticipated revenue streams have performed far below expectations. The weakest area was the sale of government assets—commonly referred to in Iran as “asset monetization.” This category generated only 1% of the revenue projected in the budget. Revenues from the transfer of state-owned companies also lagged significantly, achieving only 8% of their planned level.
Capital expenditures, mainly infrastructure and development projects, reached about 58% of their projected level during the period under review.
The parliamentary research center suggested several measures to improve fiscal performance and reduce the deficit. These include expanding the tax base while supporting productive sectors, strengthening efforts to combat tax evasion, making better use of asset monetization to generate government income, and reforming the structure of cash and non-cash subsidies to increase efficiency.
However, the report’s projections were prepared before the latest military escalation, meaning the fiscal outlook may now be significantly more challenging.
Major Shock
Iran’s economy experienced a major shock earlier this year when the country faced a 12-day conflict in the summer of 1404 (late June–early July 2025) following attacks by Israel and the United States. The escalation occurred while diplomatic negotiations were still underway, catching many economic actors off guard.
During the conflict, parts of the economy faced significant disruption. Internet outages, temporary business closures, reduced industrial activity and layoffs in some sectors were among the immediate consequences. Small businesses and self-employed workers, which typically have limited financial buffers, were particularly vulnerable to these shocks.
Military conflicts tend to impose economic costs in several layers. The first involves direct damage to infrastructure, buildings and production facilities. The second includes indirect disruptions, as damage to one part of an economic chain can affect broader production and service networks.
A third layer of costs arises from the government’s response. Authorities must allocate financial resources to compensate victims, rebuild damaged infrastructure and support affected households and businesses.
Heightened Uncertainty
Following the ceasefire announced in July 2025, the country entered a period often described as “neither war nor peace,” marked by heightened uncertainty. Renewed military tensions and additional attacks have caused further damage to parts of Iran’s infrastructure, suggesting that reconstruction costs and emergency support measures could place additional pressure on the government’s finances.
As a result, many analysts now expect Iran’s operational budget deficit in fiscal year 1404 (ending March 20) to exceed earlier estimates. The need for additional financing—already projected at 500 trillion tomans ($3.57 billion)—could therefore increase further if economic disruptions persist.
