The Iranian president Hassan Rouhani has outlined his economic priorities of taming inflation and reviving growth in his first austerity budget.
The country has been beset by recession and spiralling inflation as a result of tightening global sanctions and the economic mismanagement of Mr Rouhani’s predecessor, Mahmoud Ahmadinejad.
“Employment is the most important future issue for the economy but now the biggest problem is stagflation,” the president said yesterday in a live address on state television.
“The combination of stagnation and inflation over the past two years was unprecedented.”
Mr Rouhani has set aside a government budget of US$66 billion for the fiscal year starting next March. The amount is calculated using an open-market exchange rate. The overall budget ceiling has been estimated at $265bn, according to Iranian media reports.
Kevan Harris, a research academic at Princeton University, wrote in a research note that “Rouhani is engaged in a precarious balacing act”.
“So far, his administration has decided not to massively curtail government spending on cash grants, energy subsidies, and other public arenas,” he wrote.
“Given the importance of government spending in the economy through various formal and informal networks, a rapid move toward austerity to reduce inflation would drive the economy into a deeper recession.”
Instead, budget cuts this year and next year would be offset by the “smarter” spending of revenues, wrote Mr Harris.
The government needs to tackle inflation, which is estimated to have exceeded 40 per cent in the current fiscal year that ends in March. The economy’s growth has slipped 5.8 per cent during this period, central bank data has shown.
Unemployment has been estimated at more than 12 per cent, but the figure is twice as high among youths.
Anticipation of an easing of sanctions following an interim nuclear agreement between Iran and six world powers last month has ignited hopes of a brighter outlook for the economy.
Regaining direct access to “locked” revenues, a trimming of trade restrictions on cars and petrochemicals, and the shelving of planned further oil curbs are worth US$10bn to $15bn to Iran, Roubini Global Economics has estimated.
In a speech to students on Saturday, Mr Rouhani defended the nuclear deal in response to criticism from some conservative hardliners.
“Nuclear technology and uranium enrichment are our definite right,” Mr Rouhani said in the address, which was also televised. “But progress, better living conditions and welfare for the people are also our definite right. Breaking and dismantling the architecture of the ominous and oppressive sanctions are also our definite right.”
tarnold@thenational.ae
