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 Inflation has soared for two years and productivity has slumped as
ever tougher economic sanctions imposed to counter Tehran's nuclear
program have taken their toll.
Rouhani 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 6 percent over the past
year, Rouhani told lawmakers on Sunday, 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," Rouhani 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.
Rouhani earmarked government spending for the year starting in March
2014 of $66 billion, calculated on an open-market exchange rate.
The overall budget ceiling is estimated at about $265 billion,
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
$200 billion but it was never approved. In August, officials under
Rouhani indicated the spending plans faced massive shortfalls.
"The (Rouhani) 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.
He also implemented reforms that withdrew massive subsidies on food
and fuel in favor of direct cash handouts. Applauded in theory, it
has been much criticized in practice.
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Rouhani indicated a new mechanism for subsidy payments would be put
forward soon.
"The crucial battle will be over the subsidies bill. Rouhani has to
find a way of targeting those in need and that will be very
difficult," said Siavush Randjbar-Daemi, a lecturer on Iranian
studies at Britain's Manchester University.
Rouhani secured a landslide election victory in June promising a
policy of "constructive engagement" with the outside world would
help ease international sanctions on the Islamic Republic imposed
over its nuclear program.
Iran denies Western accusations that it is seeking to develop
nuclear weapons capability.
The draft budget estimates oil exports at about 1.1 million barrels
per day (bpd), oil ministry website Shana said on Tuesday,
indicating Tehran sees no major recovery in sales next year despite
the prospect of limited sanctions relief.
Iranian media reported last week that the 2014 spending assumes an
average oil price of $100 per barrel, about $10 below benchmark
Brent crude prices.
The International Monetary Fund expects Iran's economy will shrink
1.5 percent this year in inflation-adjusted terms, after an
estimated 1.9 percent contraction last year which was the biggest
since 1988, when Iran's eight-year war with Iraq ended.
(Editing by Louise Ireland)
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