Iran's Rouhani Needs A Nuke Deal To Balance Big Budget Cuts

President Hasan Rouhani has presented a draft budget for the coming Iranian fiscal year, which begins in March. It stands in stark contrast to the rosy revenue estimates and big-spending budgets of his predecessor, Mahmoud Ahmadinejad. Economists say in real terms, accounting for Iran's still-high inflation rate, the Rouhani budget is a whopping 70 percent smaller on the spending side. And despite the optimistic talk from Iran's oil minister, the budget does not assume any significant rise in oil and gas revenues. Analysts say Rouhani's clear-eyed fiscal approach is a welcome change. But it puts even more pressure on nuclear negotiators to reach a comprehensive agreement with six world powers that will lead to the lifting of oil and banking sanctions, so the private sector can begin to fill the void left by the shrinking public spending.

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Iran's President Hasan Rouhani has presented his first budget to parliament. Economists say it's remarkably different from the free-spending plans of recent years. The budget comes as negotiators are hashing out the details of Iran's nuclear program. Limiting its uranium enrichment will ease sanctions, which will help lift Iran's economy.

NPR's Peter Kenyon reports that Rouhani's budget puts even more pressure on Iran to make a deal.

PETER KENYON, BYLINE: This budget won't be final until parliament approves it but it gives Iranians their first look at how Rouhani plans to carry out his campaign promise to get the economy moving again. Rouhani is not out to antagonize his adversaries with this budget. Iranian media accounts show increases for the powerful Revolutionary Guard Corps, the intelligence services and the armed forces.

Analysts do note, however, that the paramilitaries known as the Basij are slated for a cut. And the Ministry of Foreign Affairs, doing much of the heavy lifting on the nuclear diplomacy front, is recommended to receive a large increase.

NPR reached economist Djavad Salehi Isfahani in eastern Iran, where he's visiting from his usual position teaching economics at Virginia Tech. Isfahani says this modest, sensible budget reveals at least two dramatic changes. The first is the reduction in public spending, long a mainstay of the Iranian economy, especially under President Mahmoud Ahmadinejad. Isfahani says when you factor in Iran's inflation rate, which is coming down since Rouhani's election but still likely to be at least in the 20-25 percent range over the coming year, the spending discipline in this budget becomes apparent.

DJAVAD SALEHI ISFAHANI: You're really talking about a 70 percent decline in real terms. And I want to emphasize that. In real terms, meaning if you account for inflation, the government budget is going to be 70 percent smaller than the Ahmadinejad budget of two years ago.

KENYON: The other important change is slashing the rosy oil revenue estimates used by Ahmadinejad. Despite Iran's oil minister touting recent talks with Western oil companies and claiming that Iran could ramp up production to four million barrels per day in a matter of months, Rouhani's budget only relies on exports of about a million barrels a day. That appears to reflect a sober assessment, says Isfahani, of how difficult it will be to reach a comprehensive nuclear agreement and get the most serious oil and gas and banking sanctions fully lifted.

Rouhani is right to be cautious, says professor Scott Lucas at England's Birmingham University. He says major companies are unlikely to have more than preliminary discussions about returning to Iran until there's major progress toward a comprehensive nuclear agreement, as opposed to the temporary deal struck in Geneva.

SCOTT LUCAS: The problem or the challenge is, is that the interim nuclear deal doesn't give immediate relief to Iran. The promise in the deal is that several billion dollars of Iranian assets will be unfrozen but that process is going to take some time. There is an even bigger promise, which is the ban on insurance on Iranian oil tankers will be lifted. But again, that's going to take time. And generally, companies are going to be cautious.

KENYON: Economists agree that time is not on Rouhani's side. His budget slashes public spending and relies heavily on the private sector to step into the gap until sanctions can be lifted. But those very sanctions are preventing Iranian companies from buying parts, moving capital, keeping their factories open.

Economist Djavad Salehi Isfahani says that makes Rouhani's version of austerity especially risky.

ISFAHANI: Mr. Rouhani is expecting a lot from the private sector to come in as the government retreats. So we're talking about big retreat of the government from the economic scene. If the private sector is not able to come in, to provide the jobs, then we are going to see a much worse outcome than in Germany.

KENYON: Analysts note that even this difficult scenario rests on a major assumption, that the U.S. Congress doesn't damage or derail the upcoming nuclear talks by blocking sanctions relief or imposing new sanctions on Iran.

Peter Kenyon, NPR News, Istanbul.

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