Iran’s president, Hassan Rouhani, presented parliament with his government’s first budget on Sunday, saying that tackling high inflation and unemployment were top priorities. However, his proposals did not anticipate any easing of international sanctions despite the success of recent international talks on the country’s nuclear programme.
The overall budget – comprised of the government’s current spending and development projects – is worth 1,950 trillion rials ($78.6bn) – a 30 per cent rise compared to the revised budget for the current fiscal year, which ends on March 20.
Despite the increase, the budget – which still needs to be approved by the legislative body – is not considered expansionary. Analysts say, excluding development projects, spending has risen by only 16 per cent, which unlike previous years is far lower than the official inflation rate of about 40 per cent.
Instead, the emphasis has been on development. In an effort to cut youth unemployment, which stands at about 24 per cent, spending on development projects has risen by almost half.
“Job creation is the most significant issue in the future of the country’s economy while the combination of inflation and stagnation is now the most important problem,” Mr Rouhani told members of parliament on Sunday.
Saeed Laylaz, a reform-minded economic analyst, said the budget bill was “the most realistic we could expect” after eight years of populist policies under the previous government of Mahmoud Ahmadi-Nejad, which fuelled inflation and damaged domestic industrial production.
Although Iran recently reached an interim nuclear deal with six leading powers – the US, UK, France, Russia, China and Germany – according to which there will be some modest easing of sanctions, the budget has not predicted a rise in foreign exchange revenues, which have been severely hit by US and European banking and oil embargoes.
Iran, which used to sell more than 2m barrels of oil per day before sanctions were imposed, is currently exporting about 1m b/d – an amount predicted in the budget to continue next year, generating $30bn in revenues.
Mr Rouhani largely blamed the policies of his predecessor for Iran’s economic crisis as well as the stagflation of the past two years, but added that “unjust sanctions” had created uncertainty and limitations in trade and financial transactions. He failed to clarify why his government had not anticipated any rise in revenues despite the nuclear deal, but some parts in the budget bill indicated such an expectation.
“When the government increases its development budget, it shows it expects sanctions to be eased,” said one economic analyst. “A rise in development spending means more imports of raw materials and machinery, which is doable only if sanctions are eased.”
As Iran’s new government has said it is going to allay international concerns and make its nuclear activities more transparent, inspectors from the International Atomic Energy Agency on Sunday paid a visit to the Arak heavy water reactor – one of the most contentious facilities which could be used to manufacture plutonium.
Iran’s business community hopes such measures could lead to a comprehensive nuclear agreement next year under which banking and oil sanctions would be gradually lifted.
Mr Rouhani said his government would improve the business atmosphere by returning to financial discipline, energising the housing sector and strengthening the capital market.
“With the calmer atmosphere in the country since the June [presidential] election and especially after the first round of nuclear talks has born results, we will see more activities in the capital market rather than [the current] meddling in the hard currency and gold coin markets,” he said.
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