Iran announces a $368 billion annual budget, based on oil price of $60 a barrel

Iranian President Mahmoud Ahmadinejad on Sunday presented to parliament a large annual budget of $368 billion based on an oil price of $60 per barrel, nearly double the price from last year, indicating rising optimism over energy prices.

Last year, parliament approved a budget based on $37.5 per barrel for the fiscal year ending in March, reflecting the steep drop in prices that severely impacted the economy. About 80 percent of Iran’s foreign revenue comes from oil exports.

The $368 billion budget, nearly 24 percent bigger than last year’s, comes as the government is preparing to enact a law in April that would sharply slash energy and food subsidies. The move could provoke more unrest in a country already struggling under international sanctions, high inflation and a government crackdown on the opposition.

The law would gradually cut energy subsidies over a period of five years, bringing the heavily discounted fuel prices more in line with international prices.

The government Web site said Ahmadinejad informed government agencies of the law on Sunday.

Addressing an open session of parliament broadcast live on state television, Ahmadinejad claimed that cutting subsidies would help the government contain inflation, bringing it down to 5 percent within 2 1/2 years.{loadposition in-article}

While experts say inflation remains at about 25 percent, the government contends that it is around between 13 and 15 percent.

Officials say the step is needed to recoup some of the roughly $100 billion spent yearly on subsidies by OPEC’s second largest oil exporter. Subsidies currently consume about 30 percent of the government budget at a time when high spending and last year’s collapse of oil prices have hammered Iran’s economy.

The aim is to channel the funds directly to the poorer segments of the population and for undertaking development projects.

Of the estimated $100 billion forecast to be saved, the government pledges to spend half on cash payments to families it considers vulnerable. That money would be given to families over a five-year period.

Another $30 billion would be earmarked for industries and economic infrastructure projects, and the remaining $20 billion will be placed in the treasury to finance future projects.

A moderate lawmaker strongly criticized Ahmadinejad in parliament over the plan, saying his government has failed to achieve the targets set in a five-year development plan that ends March 21.

Mohammad Reza Khabaz said Iran had been expected to register an economic growth of 8 percent, when it fact it could only achieve 5.4 percent. He also attacked the government’s handling of unemployment and inflation.

Ahmadinejad didn’t respond to the growing criticism over his economic policies but claimed the national budget for the next Iranian calendar year (March 21, 2010-March 20, 2011) will reduce Iran’s reliance on oil revenues. He didn’t say how he planned to do this, saying only that more money would be allocated to agriculture, education and research.

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