Iranian lawkers on Monday attacked President Mahmoud Ahmadinejad’s proposed budget for 2010/11, saying planned cuts on food and energy subsidies could set off soaring inflation and trigger social unrest.

Ahmadinejad hopes to save money by phasing out a costly subsidy programme in fiscal 2010/11, which begins on March 21. However the government has already said cutting food and energy subsidies will add 15 percentage points to its average inflation forecast of 10 percent in 2010/11.

Analysts estimate the cuts could send inflation spiralling back to 30 percent or more and lead to a repeat of rioting seen in 2007.

“Do we have any solution to curb the inflationary impact of this plan to solve the people’s problems?” moderate MP Mostafa Kavakebian said in a debate on the budget in parliament on Monday, broadcast on state radio.

“According to government officials, the inflation rate in the next year will reach 25 percent, while experts believe it will be higher than this figure.”
Inflation currently stands at 8.9 percent but is on the rise again after coming down from nearly 30 percent since late 2008.

A senior official has said the government projects revenues of 596 trillion rials (about $59.6 billion) in 2010/11 — including the planned subsidy cuts — which will result in a $6 billion deficit.

Iran is the world’s fifth-largest crude exporter but while oil prices have surged Iran’s economy has slowed as a result of the global economic downtown, policital isolation and sanctions over its nuclear energy programme. Analysts estimate it probably will have grown just 0.5 percent in the year ending March 2010.

Prominent lawmaker Ahmad Tavakoli said government plans to distribute oil revenues directly to social programmes for the poorer sectors of the population — a move intended to soften the subsidy cuts — could backfire if the oil price slips.

“What if the oil income falls and the government cannot pay the pre-planned cash to the people?” he said. “The inflationary impact of this budget is dangerous as experts believe the inflation rate might reach 50 percent.”

A senior official has said the budget is based on an oil price of $60 per barrel, higher than last year’s $37.5 per barrel. On Monday, the oil price topped $82.

Parliament is expected to vote later on Monday on the budget but it was not clear if Ahmadinejad would get an easy ride. He has made surprise appearances at the assembly in the past to persuade the body to approve legislation.

Iranian media reported last week that a parliamentary committee had questioned the government’s calculation of $40 billion savings through subsidy cuts, saying $20 billion was more realistic.

Critics accuse Ahmadinejad of squandering windfall oil revenues Iran earned when crude prices soared in the first half of 2008, leaving the country more vulnerable now that it faces possible additional U.N. sanctions over its nuclear programme.