News / Middle East

Iranian Parliament Passes Budget in Win for Rouhani

Iranian President Hassan Rouhani, gestures as speaks during a session of the World Economic Forum in Davos, Switzerland, Jan. 23, 2014.Iranian President Hassan Rouhani, gestures as speaks during a session of the World Economic Forum in Davos, Switzerland, Jan. 23, 2014.
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Iranian President Hassan Rouhani, gestures as speaks during a session of the World Economic Forum in Davos, Switzerland, Jan. 23, 2014.
Iranian President Hassan Rouhani, gestures as speaks during a session of the World Economic Forum in Davos, Switzerland, Jan. 23, 2014.
Reuters
The first state budget proposed by Iranian President Hassan Rouhani has sailed through parliament, handing him a political victory as he seeks to build domestic support for international negotiations on the country's nuclear program.
 
Parliament approved on Sunday a budget bill worth 7,930 trillion rials ($319 billion at the official exchange rate) for the next Iranian calendar year, which starts on March 21, official media reported.
 
The budget slows growth in spending in an effort to repair state finances that have been ravaged by economic sanctions. Expenditure is to rise about 9 percent from the original budget plan for the current year - not nearly enough to keep pace with inflation, which is running near 40 percent.
 
“Everything passed by parliament is acceptable to us. There are only a few differences but they are not major,” a deputy to Rouhani, Vice President for Parliamentary Affairs Majid Ansari, was quoted as saying by the IRNA news agency.
 
Rouhani, who took power last August after elections, needed only 10 days of debate to get his budget passed, an apparent endorsement of his administration as it tries to get the sanctions lifted by reaching a deal with world powers on Iran's disputed nuclear plans.
 
By contrast Rouhani's predecessor Mahmoud Ahmadinejad, who took a hard line with the West, continually feuded with parliament over economic issues including the budget, which was passed with delays of several months.
 
To seal a nuclear deal, Rouhani will need to overcome domestic opposition from opponents of his relatively conciliatory approach towards the West, including some of Ahmadinejad's allies and senior members of the Revolutionary Guards.
 
Spending
 
Rouhani told parliament in December that Ahmadinejad had squandered oil revenues on cash handouts and housing projects, and that Iran faced a mix of high inflation and stagnating growth, with the economy shrinking 6 percent in the past year.
 
His budget suggests he views spending discipline as key to rescuing the economy; the 9 percent rise in his plan is much lower than the 31 percent increase envisaged in Ahmadinejad's last budget.
 
Iranian-born economist Mehrdad Emadi, of the Betamatrix consultancy in London, said that after years in which Ahmadinejad tried to offset the economic sanctions with huge jumps in government spending, Rouhani was starting to reimpose normal budget constraints, a process that would take years.
 
“He is addressing serious problems like the fact that Iranian banks have started to face rial shortages,” Emadi said. “The budget begins to address these problems and is designed to rein in inflation.”
 
Iran's budget announcements are fragmentary and involve a string of revenue assumptions that are subject to sudden change, so analysts said it was impossible to make firm estimates for the government's budget deficit next fiscal year.
 
For example, Rouhani's budget estimates crude oil exports, Iran's top revenue source, at 1.5 million barrels per day. Exports, slashed by the sanctions, are now running at just over 1 million bpd, and look unlikely to rise much unless Iran reaches a comprehensive nuclear deal with the West.
 
But if Rouhani sticks to economic reforms, the deficit may shrink significantly. Last week parliament approved politically sensitive plans to slash subsidies on fuel and food, potentially saving some 630 trillion rials annually in subsidy payments.
 
Implementation of the reform has been delayed for several months while authorities try to soften the blow to consumers by handing out food packages to over 15 million poorer families.
 
Next year's budget plan projects a rise in spending on government operations - excluding items such as activities of state enterprises - of about 14 percent to 1,950 trillion rials.
 
It still needs to be approved by the Guardian Council, a supervisory committee of clerics and lawyers answering to supreme leader Ayatollah Ali Khamenei.

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