Khamenei raids sovereign fund to pay off government's mounting debts

Iran’s Supreme Leader has approved diverting over $5.8 billion from the National Development Fund (NDF)—initially reserved for the nation's future—to settle the government’s immediate debts to wheat farmers and truck drivers.

The Supreme Council of Economic Coordination announced on September 1 that the NDF's share from oil and gas revenues, initially set at 40% of oil income, will be slashed to 20% this year (ending in March). The decision, proposed by President Masoud Pezeshkian and greenlit by Khamenei, redirects the equivalent of $5.8 billion to pay off overdue debts to struggling farmers and drivers—debts that the government has repeatedly failed to manage.

This move, framed as a "loan" from the NDF to the government's budget, is a reminder of Iran's ongoing financial crises. The NDF, established with the lofty goal of converting Iran's oil and gas revenue into long-term economic assets for future generations, has been steadily depleted since international reactions began against Iran's nuclear program and economic sanctions intensified around 2009.

Despite the NDF's intended purpose, the government has treated it as a piggy bank. Earlier this year, Mehdi Ghazanfari, the head of the NDF, revealed that of the $36.5 billion allocated from the Fund, a staggering $17.76 billion has never been repaid. With the government showing no intention of returning the borrowed money, the Fund's original purpose has been all but abandoned.

The National Development Fund (NDF), established to save up to 30 percent of oil revenues initially for future generations, experienced withdrawals amounting to $13.6 billion from 2010 to 2013, a period when global oil prices remained above $100 per barrel. Despite this, more funds were retained in the NDF than withdrawn during Ahmadinejad's administration.

International sanctions imposed by the UN, along with most US and EU economic sanctions, were lifted in mid-2015 following the conclusion of the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement, which limited Iran’s nuclear activities in exchange for the removal of most sanctions.

However, withdrawals from the NDF continued during President Hassan Rouhani's two terms (2013-2021). In his first term, $30 billion was withdrawn. After former US President Donald Trump withdrew from the JCPOA nuclear accord and reimposed severe sanctions, Iran increasingly depended on its reserves, leading to a negative cash flow in the NDF. During Rouhani’s second term (2017-2021), the government withdrew another $37 billion to maintain fiscal stability, despite the NDF's charter prohibiting its use for routine government operations.

The systematic depletion of the NDF is further compounded by the government's continued refusal to honor its obligations. Nasser Mousavi Largani, a parliament member and observer of the Fund's board, admitted last year that the government owes nearly $100 billion to the Fund—an amount that continues to grow as the government fails to increase the NDF’s share from oil revenues as mandated.

The latest raid on the Fund comes at a time of unrest among Iran's workforce. Small truck operators across the country, already suffering from reduced income and fuel quotas, have repeatedly gone on strike in protest. Just this past May, drivers in cities including Tehran and Sistan and Baluchestan halted work, citing the government's failure to allocate subsidized diesel fuel and enforce fair wages.

Similarly, wheat farmers, who are now the supposed beneficiaries of this latest financial maneuver, have been protesting the government's inability to pay for the harvest, collected and processed by the state. With only partial payments made and many farmers left waiting, their trust in the regime has been further eroded.

Pezeshkian, who proposed the Fund diversion, openly acknowledged the dire state of the government’s finances in a recent interview, lamenting the empty treasury and the inherited mess left behind by previous administrations. Yet, instead of addressing the root causes of the country's economic woes, the government has once again chosen to rob future generations to pay for its current failures.