Hassan Rouhani’s government signals intention to stop paying billions of dollars in allowances introduced under former president

This article is more than 5 years old

This article is more than 5 years old

Iran can no longer sustain the billions of dollars needed to pay cash handouts enacted by former president Mahmoud Ahmadinejad, a top official has said, signalling plans to halt them.

Since coming to power in 2013, Hassan Rouhani, his successor, has sought to put Iran’s economy back in order after it plunged into recession and was hit hard by inflation.

Tackling the handouts – a partial replacement after subsidies on staples such as electricity, gas, water and bread were cut – has proved politically difficult. But Ali Rabii, the minister of labour and social welfare, wrote in an open letter that change was needed as the bill for the individual monthly payments of 455,000 rials (about £10) was too high.

“We should face reality. Reforming the current allowance payment system is a major step toward increased social justice,” he said, noting all Iranians receive the money regardless of their income.

Accused of economic mismanagement, Ahmadinejad, who was in office from 2005 to 2013, used funds gained from a then-high oil price to finance populist policies. He spent Iran’s petrodollars on the controversial scheme at a time when western sanctions imposed as punishment for the county’s disputed nuclear programme deepened its economic difficulties.

Iranians brace for price hikes as government rolls back on subsidies Read more

Despite repeated calls from Rouhani’s government for affluent families to refuse the allowance, only 2.4 million from a population of almost 80 million have opted out.

Inflation has fallen from more than 40% when Ahmadinejad left office to under 15%. The rial plummeted against other currencies, mainly the dollar, under his presidency.

Rouhani’s economy minister, Ali Tayebnia, on Monday said the national debt stood at about $88bn (£57bn), noting: “No one knows the exact figure.”

Ahmadinejad, in two terms, “had $800bn in oil revenue and gained $52bn – at the current exchange rate – from selling assets. But all we have inherited is large debts,” Tayebnia said.

Rabii said the subsidy plan ordered by Ahmadinejad should have been based on people’s eligibility, rather than being universal. “To continue this system is not defensible with the current situation of the country,” he added.

The slump in crude oil prices in the past year has hit Iran hard. The current budget halved reliance on oil sales to 25%.

Rabii, signalling the government’s plans for reform, also said money spent on handouts was harming domestic production and investment. “Since 2010, 500,000 people have lost their jobs in development projects,” he said. “This is the result of raiding development funds in order to pay cash allowances.”

His comments echo those of one of Rouhani’s vice-president, Mohammad Bagher Nobakht, who has cited a one-third shortfall in the annual $19.5bn needed to fund the handouts.

“We will have to eliminate a great number of people” from the payment list, he added.