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Oil Report

Ahmadinejad seeks budget boost ahead of election

TEHRAN (Reuters) - Iran’s president proposed a bigger budget for 2008-09 to parliament on Monday that he said would promote social equality but critics fear will further stoke double-digit inflation in OPEC’s second biggest producer.

Iranian President Mahmoud Ahmadinejad speaks during a news conference in Tehran December 11, 2007. Ahmadinejad proposed a bigger budget for 2008-09 to parliament on Monday that he said would promote social equality but critics fear will further stoke double-digit inflation in OPEC's second biggest producer. REUTERS/Raheb Homavandi

President Mahmoud Ahmadinejad, presenting the budget before a March parliamentary election that will pit hardline allies against more moderate politicians, outlined a bill totaling 2,745 trillion rials ($294 billion) for the next Iranian year.

“The main direction of the budget is ... increasing and attaining justice, creating equal opportunities for the whole nation ... and reducing inflation,” he told the conservative-dominated legislature in a speech broadcast on radio.

Ahmadinejad, who swept to power in 2005 on a pledge to share out Iran’s oil wealth more fairly, did not give a comparison or any deficit figures.

But the total figure would represent an increase of around 18 percent compared with the budget approved by the legislature for the current Iranian year, which ends on March 19.

About 715 trillion rials of the total is for the public budget, covering items like wages, subsidies and development projects. This will rise about 4 percent on the same figure approved for this year of 690 trillion rials.

The rest covers the budget for state firms and entities.

Development spending would increase by 30 percent, the president said, without specifying which projects would benefit. “The main reason why the budget for this year has grown is because of the growth of the development sector,” he said.

He also said subsidies would increase by a limited amount but did not provide details. Iran subsidizes a range of goods and sectors, including gasoline and bread.

Economists blame the government’s spending policies for fuelling inflation, which has climbed steadily since Ahmadinejad took office in 2005 and is now running at about 19 percent.

Ahmadinejad has relied on windfall earnings from high oil prices to boost spending. But inflation is hurting many and economic growth has fallen below targets.

“There is no financial discipline in the government. This is the main problem of the country at the moment,” said business consultant Saeed Laylaz.

OIL RICHES

Although parliament has often criticized Ahmadinejad’s economic policies, analysts say it has also approved mid-year budget supplements, meaning actual spending by end of each financial year has often been higher than planned.

MPs can amend the budget bill in the weeks ahead.

Moderate politicians opposed to Ahmadinejad are seeking to seize control of parliament in March 14 elections from conservatives, who now dominate the 290-seat assembly, and could put impose more control on finances if they succeed.

Oil revenues are Iran’s main source of earnings, and Iran could earn about $70 billion in the year to March.

The government has proposed basing the new budget on $39.70 a barrel, above this year’s figure but well below international crude prices which hit a lifetime high of $100 this month.

Revenues from oil exports above the proposed oil price are transferred to an Oil Stabilization Fund, part of foreign reserves that are supposed to be used in times of need when oil prices fall perilously low or for investment projects.

In practice, analysts say the government has often dipped into reserves, so the fund has recently hovered around $9 billion despite the oil earnings windfall.

International credit ratings institute Fitch last month said Iran and Venezuela were the only major oil exporters running a budget deficit at current high oil prices.

“Although Iran’s budget deficit is estimated to be only just over 1 percent of GDP (gross domestic product) this year, it is likely to widen, even with unchanged oil prices, as spending continues to rise rapidly,” it said.

Writing by Edmund Blair and Fredrik Dahl; Editing by Ruth Pitchford

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