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Mon 18 Feb 2008 12:19 PM

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Iran hikes annual budget to $310bn

Islamic state's parliament approves spending spree despite fears it may stoke inflation.

Iran's parliament has approved a bigger budget for 2008-09 totalling the equivalent of $310 billion, Iranian media said on Monday, despite fears this will further stoke inflation in Opec's second biggest producer.

President Mahmoud Ahmadinejad, a hardliner whose popularity faces a test in a March 14 parliamentary election, said he aimed to promote social equality when he proposed a budget increase last month of 18% for the coming Iranian year.

But the legislature, now dominated by his conservative backers, appeared to have increased spending even further, approving a budget on Sunday totalling 2,902 trillion rials compared with his proposal of 2,745 trillion rials.

Of 197 MPs present in the 290-seat assembly, 159 voted for, and 16 against, the Fars News Agency said. The next Iranian year starts on March 20.

Ahmadinejad swept to power in 2005 on a pledge to share out Iran's oil wealth more fairly, but critics say lax spending policies have helped increase annual inflation to some 19% while failing to dent stubbornly high unemployment.

About 715 trillion rials of his budget proposal was for the public budget, covering items like wages, subsidies and development projects. The rest covers the budget for state firms and entities.

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.

Although parliament has often criticised 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.

Moderate politicians opposed to Ahmadinejad are seeking to seize control of parliament in the election from conservatives, who now dominate the assembly, and could impose more control on finances if they succeed.

Oil revenues are Iran's main source of earnings, and Iran expects to earn about $63 billion in the year to March. (Reuters)

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