* Iran's economy has contracted, says Rouhani
* Vows to decrease inflation and create jobs
* Government spending earmarked at $66 billion
* New subsidies plan part of president's agenda
By Marcus George and Isabel Coles
DUBAI, Dec 8 Iranian President Hassan Rouhani
presented his first budget to parliament on Sunday, vowing to
bring down inflation and boost growth to lift an economy reeling
from sanctions and what he says was mismanagement by predecessor
Inflation has soared for two years and productivity has
slumped as ever tougher economic sanctions imposed to counter
Tehran's nuclear programme 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
"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
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
"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 favour of direct cash handouts. Applauded in
theory, it has been much criticised in practice.
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 programme.
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.