Rowhani targets stagflation in budget

December 09, 2013 - 11:05:13 am

Iran President Hassan Rowhani (right) presents the proposed annual budget to Parliament Speaker Ali Larijani (centre, left) yesterday.
DUBAI: Iranian President Hassan Rowhani presented his first budget to parliament yesterday, vowing to bring down inflation and boost growth to lift an economy reeling from sanctions and what he says was mismanagement by predecessor Mahmoud Ahmadinejad.

Inflation has soared for two years and productivity has slumped as ever tougher economic sanctions imposed to counter Tehran’s nuclear programme have taken their toll. 

Rowhani says Ahmadinejad squandered vast oil revenues on cash handouts and housing projects during his two terms in office from 2005 and racked up enormous government debt. 

Gross domestic product had contracted by six percent over the past year, Rowhani told lawmakers yesterday, while inflation was running at 44 percent when he took office in August, a situation he described as “very worrying”. “Employment is the most important future issue for the economy but now the biggest problem is (tackling) stagflation,” Rowhani said in parliament in an address shown live on state television.

“The combination of stagnation and inflation over the past two years was unprecedented,” he said.

Rowhani earmarked government spending for the year starting in March 2014 of $66bn, calculated on an open-market exchange rate.

The overall budget ceiling is estimated at about $265bn, Iranian media reported, leaving flexibility to lift spending depending on income received during the year.  Ahmadinejad’s overall draft budget ceiling for this year was about $200bn but it was never approved. In August, officials under Rouhani indicated the spending plans faced massive shortfalls.

“The (Rowhani) government has dared to present a 12-month budget and that’s a bit of a risk. He’s prepared to tell people what can be afforded but he’s also showing an element of financial discipline,” said Mehrdad Emadi, an Iran-born economist at Betamatrix consultants, based in Britain. 

Ahmadinejad presided over a period of unparalled revenue growth due to high oil prices and was able to fund ever increasing budgets until Iran’s oil receipts were targeted by new sanctions at the start of 2012.

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