The World Bank’s MENA division has welcomed the relative success of the Iranian government’s drastic subsidies cuts to subsidies, which in 2008 were estimated to be the highest in the world amounting to 27% of Iran’s GDP. In its 1 September Iran Overview it notes that “preliminary reports suggest that the Government’s comprehensive cash transfer program accompanying the ongoing subsidy reform has reduced extreme poverty and income inequality significantly.” Phase 1 of the subsidy cuts, initiated in December 2010, is estimated to have increased state savings by $44bn in 2011 and $53.8bn in 2012, according to Iranian 2012-13 budget projections. The government paid out $33bn in direct cash handouts to the lowest and middle income classes last year. And according to the budget’s provision for this year it is expected to pay $40bn in cash rebates while also dedicating another $8.15bn and $4.9bn respectively to the industrial and health sectors (MEES, 21 May).

Nevertheless, the report notes that the government had not honored its obligation to direct around 30% of the expected subsidy savings to Iran’s industrial sector, stressing that “it was not until September 2011, that the government started to fulfill its commitment to producers.” The increasing effectiveness of international sanctions may further hinder the government from paying the $8.15bn earmarked for the industrial sector in this year’s budget. The report also underlines the increased vulnerability of the Iranian economy to international sanctions, which are expected to limit the economy’s growth to below to 2% for 2012, while keeping inflation at around 20% for fiscal 2012-13. (CONTINUED - 453 WORDS)