Iran’s Sovereign Wealth Fund Down To A Fraction Of Deposits

In the third annual gathering of officials to discuss the National Development Fund (NDF), the chairman of the National General Inspection Organization, Zabiollah Khodayan finally came up with general but clear figures about what the fund represents.

The fund collected $150 billion over the years from saving a portion of Iran’s oil export revenues, but successive governments dipped into the fund and spent $100 billion, while another $40 billion “was borrowed” by state entities, Khodayan said. So, in short, Iran has only $10 billion saved, which is negligible compared with other oil-exporting countries.

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In contrast, the United Arab Emirates has more than one trillion dollarssaved in several sovereign wealth funds, an even Oman, the poorest of Persian Gulf oil exporters has $17 billion.

Khodayan argued that the main reason why NDF has not been successful is lack of transparency by the government. While governments dip into the fund to finance their deficits or projects, the public is usually kept in the dark.

Since its establishment in 2000 as a currency reserve to supplement the Oil Stabilization Fund, successive governments dipped into the NDF for current spending, including the withdrawal of billions of dollars for military spending. The administration of President Mahmoud Ahmadinejad (2005-13) borrowed heavily from the fund, which contained $24 billion when he was elected, even though Iran earned an estimated $700 billion from oil exports during his presidency. 

This was the highest amount the country had earned during 100 years of oil production. The populist president withdrew $2.7 billion to pay New Year cash handouts to all Iranians in 2013.

In the last three years of Ahmadinejad’s presidency, Iran’s oil exports declined because of international sanctions imposed to force Tehran to accept limits to its nuclear program. After a brief respite in 2016-2018 when the JCPOA nuclear deal was in effect, the United States imposed fresh sanctions in 2018, which slashed oil exports by as much as 90 percent in 2019-2020.

This brief overview of the past shows that although sanctions had a major role in limiting the growth of Iran’s sovereign wealth fund, financial and budgetary mismanagement has also played a role. Otherwise, with saving 20-30 percent of oil export revenues since 2000 should have made the fund worth at least $250 billion.

Another factor is the inefficiency of Iran’s state-controlled economy, which has made the state largely dependent on crude oil exports to finance government budgets.

Khodayan in his remarks also argued that wealth funds should not be considered as instruments for stabilizing the foreign currency markets. He was referring to efforts by successive Iranian governments to dip into the fund to defend the ever-declining national currency, rial. From Ahmadinejad’s time, the rial has declined 50-fold from 10,000 rials to the dollar to more than 500,000.

Although sanctions were the main reason for the disastrous performance of the national currency, capital flight in the past 15 years has played a major role. Government officials have indicated that capital flight has been well over $10 billion a year.

Both Iran’s inefficient economy and its constant confrontation with the United States and its allies eroded investor confidence, which led to people investing in other countries.

Khodayan also complained that although NDF has lent $40 billion for various projects, it has no control over how the money is spent. “The fund has no role in studying projects that receive financing. Also, the Central Bank fails to properly manage eight foreign currency accounts holding the funds.”