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Iranian president proposes tightened budget amidmounting sanctions

The Wall Street Journal

LONDON (Dow Jones)--Iranian president Mahmoud Ahmadinejad on Wednesday submitted a budget that will cut spending by 5.6%, seeking to reduce the country's reliance on oil as it faces potentially stifling new sanctions.Ahmadinejad presented lawmakers with a draft budget of 510 trillion rials ($450 billion) for the Iranian year starting in late March, Iranian official agencies said. The Iranian president said the budget reflected a drive toward more government efficiency after already implementing drastic cuts in fuel subsidies last year.

The move comes after Iran's currency sharply dropped in value as the country braces for mounting sanctions, including a planned embargo on its oil in the European Union and a U.S. ban on transactions with its central bank.

Ahmadinejad said the proposed spending plans will seek to reduce "dependency on oil" exports from which Iran gets 80% of its foreign revenues. The budget is based on a projected oil price of $85 per barrel, up from $82 a barrel in the previous year but still well off of current prices of about $110 a barrel.

The proposal also includes a boost of 127% in defense spending, after Iran conducted military exercises for a possible blockade of the Strait of Hormuz.

Ahmadinejad also offered a boost on investments in development projects by 20%. "Special attention will be given to small towns in rural development and the funding of construction," he was quoted as saying by the ISNA agency.

The pledge is in line with Ahmadinejad's policies, who was first elected in 2005 on a vow to better redistribute the country's revenues. Despite the mounting sanctions, the Iranian president said he expects 8% growth in gross domestic product over the next 12 months.

-By Benoit Faucon, Dow Jones Newswires