Iranian government admits it has no choice but to print money to cover budget deficit

Iran’s executive deputy president, Mohammad Jafar Qaempanah, said the quiet part out loud this week: the government is printing money because it has to. In a public acknowledgment that would make any central banker wince, Qaempanah pointed to the budget deficit and banking sector dysfunction as the primary drivers of Iran’s punishing inflation, and conceded that monetary expansion has become an unavoidable tool to keep the lights on.

The admission comes at a particularly uncomfortable time. Official inflation in Iran hit approximately 52.6% in late December 2025, with food prices surging over 66% during some periods.

The anatomy of Iran’s inflation spiral

Qaempanah broke down the math in surprisingly specific terms. He attributed roughly two-thirds of Iran’s inflation to imbalances within the banking sector, with the remaining third driven by the budget deficit itself.

Iran’s banking system has long operated as a quasi-fiscal vehicle, extending credit in ways that blur the line between monetary policy and government spending. When banks lend beyond what deposits and reserves support, the Central Bank eventually steps in to backstop the system. The practical result is new money entering circulation without corresponding economic output to absorb it.

The budget side of the equation is equally grim. Iran’s budget deficits have consistently exceeded 30% of planned figures since 2018, according to the research. That seven-year streak of overshooting reflects a government caught between the revenue it can actually collect, heavily constrained by sanctions on oil exports, and the spending it feels obligated to maintain through subsidies and public sector commitments.

President Masoud Pezeshkian himself has drawn a direct line between money printing and the inflation hammering ordinary Iranians. He has emphasized that printing currency without proper backing inevitably degrades purchasing power.

Austerity as aspiration

The Pezeshkian government proposed capping overall budget expenditure growth at just 2% for the fiscal year beginning March 2026, which would mark the first such restraint in recent memory. The stated goal is a deficit-free budget, built around performance-based spending allocations and cuts to non-essential outlays.

The 2% cap on spending growth, set against inflation running above 50%, amounts to a significant real-terms cut in government expenditure. Iran’s revenue base remains fundamentally impaired by international sanctions that restrict oil exports, its most important revenue stream. Subsidies on fuel, food, and other essentials consume enormous portions of the budget but are politically radioactive to cut. And the banking sector’s structural issues predate the current administration by decades.

What the rial’s erosion means beyond Iran’s borders

For Iran specifically, the rial’s ongoing devaluation has historically pushed citizens toward alternative stores of value. Gold, foreign currencies, and real estate have long served as informal hedges against inflation in Iranian households. In more recent years, cryptocurrency adoption in Iran has grown as residents seek assets that sit outside the reach of both domestic monetary policy and international sanctions regimes.