Assessment and Measurement of Fiscal Condition Index for Iran

This paper presents a framework for assessing the fiscal condition index (FCI) and develops a concept to assess fiscal condition of governments and implements it into Iran government as an oil exporting country. The concept consists of four dimensions -revenue, expenditure, budget balance, and debt structure-and each dimension has its own indicators. There are seven indicators examined namely expenditure to GDP ratio, non-oil revenue to total revenue ratio, public debt to GDP ratio, non-oil balance to non-oil GDP ratio, oil revenue to total revenue ratio, capital expenditure to total expenditure ratio, and overall budget balance to GDP ratio. Assessing cycle of fiscal indicators shows that these indicators have been pro-cyclical individually. Then, fiscal policy not only doesn’t have stabilizing role in macroeconomic conditions, but also increases the macroeconomic fluctuations. Likewise, the results indicate that Iran’s fiscal condition index is very volatile and pro-cyclical. Also, assessing this index demonstrate that Iran’s government has experienced fiscal health in 2003, 2006, and 2008. However, it has been in fiscal stress in 2012 and 2013. Iran’s governments did not have fiscal policy discipline in the period 1990-2011. This is because the oil price is the leading indicator of fiscal condition index. In addition, sanction is one of the reasons that caused decrease of FCI in 2010-2012.