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Iran plans more public spending

By Guy Dinmore in Tehran
Financial Times
November 29 2000

President Mohammad Khatami of Iran, presenting his last budget before elections next year, on Wednesday defended his administration's economic record against harsh attacks by his conservative opponents.

Iran's sluggish economy, weighed down by enormous subsidies on food and fuel and loss-making state enterprises, is widely regarded as Mr Khatami's weakest point by an electorate struggling to cope with high inflation and unemployment.

Analysts said a big increase in spending, well above the projected rate of inflation, appeared to reflect the domination of socialist-style thinking within the president's broad, pro-reform administration.

The president, speaking to parliament, projected an increase in spending of nearly 25 per cent, mostly on the back of higher oil revenues. The total state budget for the next Iranian year (from March 23 2001), he said, would amount to 449,400bn rials, about $56bn at the open market exchange rate.

Spending on state-owned companies and banks plus non-profit making affiliates is projected to total 298,700bn rials, while the government's budget for spending by ministries is estimated at 159.3bn rials. Both amounts are up by almost 25 per cent on this year.

Expenditure for "national security" would rise by 40 per cent, defence by 22 per cent and social security by 24.7 per cent. Subsidies on basic foodstuffs are to rise by more than 20 per cent.

The smaller government budget would be balanced by revenues, Mr Khatami said. But it was not clear how much would be spent on subsidies to state-owned enterprises, although the president said: "Attention has been paid to the principle of economising and to reliance on domestic sources instead of using general revenues."

The government projected the economy would grow by about 5 per cent this year and next. This compares with an average growth rate of 2.9 per cent over the past three years, an official figure that some independent economists argue is exaggerated. Iran's external debt had fallen to $10bn, its lowest in 10 years, the president said, and the government was continuing to repay its debts to the domestic banking sector.

The rial, he said, had stabilised at around its current open market rate of 7,900 to the dollar. The government planned to make the currency convertible over the next four years, he added. Sales of petro-dollars on the open market by the Central Bank of Iran have driven the rial to its highest level against the dollar for two years.

Oil revenues this year are forecast to reach $21.5bn, up from $13bn last year. Oil production next year is projected at 3.82m barrels per day, up by about 100,000 b/d. Next year's budget is based on a price for Iranian crude of $20 a barrel, against the current price of about $29.

The conservative Tehran Times attacked Mr Khatami on Wednesday, saying the economy had worsened since he came to office in 1997 and that the hopes of the people were "almost shattered".

Parliament, dominated by Mr Khatami's loose pro-reform coalition, is due to debate the budget plan in January.


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