Iran’s President Masoud Pezeshkian told parliament the government could not afford to raise wages in line with inflation as lawmakers opened debate on the budget for the Iranian year starting in March, with a sliding currency and rising living costs adding pressure to the plan.
“When people are struggling with livelihoods, you cannot govern,” Pezeshkian told the open session. “They say increase wages; someone tell me where I should bring the money from?”
The draft budget submitted to parliament proposes a 20% rise in public-sector wages, while expanding income-tax exemptions to soften the hit from inflation, which has remained among the highest in the world.
Pezeshkian acknowledged the increase “is not proportionate to inflation,” but said the government had tried to compensate by raising tax-free thresholds.
Under the proposal, salaried workers earning up to 400 million rials a month (about $282) would be exempt from income tax, while those earning between 400 million and 930 million rials ($282–$655) would pay a 10% rate, according to figures cited by Iranian media.
Pezeshkian said the budget’s main aim was to reduce what he called “the fire of inflation” and avoid a deficit that fuels money creation. He said the government had raised its own current spending by only 2%, cutting what he described as nonessential lines and moving toward “performance-based budgeting,” under which ministries would have to specify services to receive funds.
Parliament Speaker Mohammad Bagher Ghalibaf said the budget’s wage assumptions needed further work, warning that household livelihoods were at stake.
“The importance of the budget is clear for all of us … the budget is people’s lives,” Ghalibaf told lawmakers, adding that the 20% wage increase “has its problems and needs to be corrected.”
Lawmakers warn currency slide and subsidy policy risk stoking prices
Several lawmakers used the debate to attack what they described as a lack of credible plans to stabilize the currency and contain inflation.
MP Mohsen Zanganeh said advisers to Pezeshkian believed the exchange rate would rise in line with inflation, which he said implied a roughly 40% increase by the end of the next year.
“Mr. Pezeshkian, your economic team has accepted that it does not have the ability to reduce inflation and control the currency rate, and therefore it is only seeking to give vouchers,” Zanganeh said.
Jabbar Kouchakinejad, a deputy head of parliament’s budget committee, said officials appeared unwilling to curb the exchange rate’s rise and suggested the government might be using hard-currency sales to plug fiscal gaps.
“It seems there is no will in the government to control the exchange rate and balance it,” Kouchakinejad told ILNA, adding: “This trend is continuing quickly and prices are rising rapidly.”
Pezeshkian said the government planned to expand targeted support, including a consumer voucher program, arguing that price swings in the currency market feed directly into household costs.
The government spent about $6 billion importing gasoline this year and had budgeted around $8 billion for subsidized foreign exchange for essential imports next year, while many goods were effectively priced at the market rate, according to the president.
He also pointed to energy subsidies as a core distortion, arguing that higher consumption channels more state support to wealthier households. He described the system as inequitable.
Iran has recently introduced a three-tier gasoline pricing system, keeping subsidized rates while adding a higher tier aimed at limiting subsidy costs and discouraging non-card refueling and quota overuse, a move officials have presented as gradual reform after past price hikes triggered unrest.
The budget deliberations come as Iran’s economy faces chronic inflation, sanctions pressure, and financial constraints that officials say limit room for maneuver, even as the government argues it is trying to protect lower-income households through tax exemptions and targeted aid.
The rial slid on Sunday to a new record low of 1,420,000 per dollar, as point-to-point inflation ran at over 50% and the central bank reported the economy had contracted despite a modest rise in oil output and sales.
Fresh central bank data showed gross domestic product shrank by 0.6% including oil and by 0.8% excluding oil in the first six months of the year 1404 (started on March 21), reflecting weak demand, falling investment and heightened uncertainty across the real economy, Tasnim reported.
The downturn came despite modest growth in the oil sector, which expanded by 1.1% but failed to offset deeper declines elsewhere.
Agriculture contracted by 2.9% and industry and mining by 3.4%, while construction suffered a sharp 12.9% slump, the central bank said, pointing to a deepening recession in a sector that is a key engine of employment and related industries.
At the same time, inflation pressures intensified. The statistics center said point-to-point inflation rose to 52.6% in the month to late December, up 3.2 percentage points from the previous month, while average annual inflation climbed to 42.2%.
Food inflation was far higher, with prices of food, beverages and tobacco up 72% year-on-year, compared with 43% for non-food goods and services. Monthly inflation reached 4.2%, led by sharp increases in staples such as dairy and bread.
The deteriorating data frame a contentious budget debate in parliament, where Pezeshkian has warned that the state lacks the resources to cushion households fully from price rises.
“They tell me to raise wages, but someone should tell me where the money is supposed to come from,” he told lawmakers while defending the draft budget, which proposes a 20% public-sector pay increase – well below inflation – alongside broader tax exemptions.
Pezeshkian has said the priority is to prevent a deficit-fueled surge in prices by restraining spending growth and tightening fiscal discipline.
“An orderly budget without a deficit reduces the fire of inflation and can contain price rises to some extent,” he said, adding that the government would expand tax exemptions and roll out targeted subsidies to protect low-income households.
Parliamentary leaders and lawmakers from across factions have pushed back, arguing the budget risks aggravating inflation and living costs.
Some lawmakers have been more blunt. “The 1405 budget has an inflationary nature,” said Hossein Samasami, a member of parliament’s economic committee. “Budget decisions are among the most important drivers of prices and inflation, and ignoring their impact directly weakens purchasing power.”
Volatility in the currency market has added to the pressure. The rial has fallen sharply in recent weeks, fueling gains in gold and hard assets as households seek protection from inflation.
Guards-linked Tasnim news agency said in an analysis on Sunday that the dollar had become “a symbol of lost confidence,” criticizing what it described as inaction by the government and central bank as expectations worsened.
Markets have continued to test policy credibility. On Sunday, the rial weakened to a new record low of about 1,420,000 per dollar.
Air quality in nine monitoring stations across Tehran Province was classified as red on Saturday, according to the National Air Quality Monitoring System. Pollution levels in the cities of Damavand, Varamin, Pakdasht, Gharchak, and Shahriar in Tehran province ranged between 150 and 170 on the Air Quality Index (AQI), placing them in the “unhealthy for all” category.
The average air quality across Tehran’s 22 municipal districts stood at 136, categorised as “unhealthy for sensitive groups.” Under AQI scale, readings above 150 are considered unhealthy for the general population, while levels above 200 are deemed very unhealthy.
Khuzestan sees most severe conditions
Air pollution reached more alarming levels in Khuzestan Province in the south, where officials reported some of the worst conditions nationwide. The air quality monitoring center said the AQI in the city of Hendijan rose to 212, placing it in the purple category and signalling “very unhealthy” air.
Several other cities, including Ahvaz, Khorramshahr, Mahshahr, Dezful, etc. recorded AQI readings above 150, leaving air quality unhealthy for all age groups. Authorities advised elderly people, children, pregnant women and those with heart or respiratory illnesses to avoid outdoor activity, urging others to limit time outside.
Isfahan and Mashhad affected
In Isfahan Province, conditions were also severe. The AQI in the city of Isfahan reached 186 on Saturday morning, while some stations recorded readings above 200.
Meanwhile, officials in Mashhad said air quality there had reached “unhealthy for sensitive groups,” with pollution recorded in 16 areas of the city.
Despite recurring winter pollution crises, Iranian authorities have so far relied largely on temporary measures such as short-term closures, with critics saying no effective or lasting solution has been implemented to address the underlying causes of chronic air pollution.
“The costs of making a carpet are high and the profits low,” Akram Fakhri, a 45-year-old weaver in Kashan, told the FT, describing the pressures facing artisans across Iran.
Once a flagship of Iran’s non-oil exports, Persian rugs are expected to generate less than $40mn in the year to March 2026, down from $41.7mn the previous year, according to the Carpet and Handicrafts Commission of Iran’s Chamber of Commerce.
Export revenues have stayed below $100mn for six consecutive years, compared with a peak of more than $2bn three decades ago – figures that commission chair Morteza Haji Aghamiri described as “so meagre we can say it is practically zero.”
The downturn accelerated after 2018, when then US president Donald Trump withdrew from the Iran nuclear deal and imposed “maximum pressure” sanctions. As foreign reserves tightened, Iran required exporters to sell part of their foreign-currency earnings to the central bank at the official exchange rate rather than at market rates.
The rule destroyed incentives to export, Industry representatives said. “It completely paralysed the sector. None of them have any motivation to stay active in global markets,” said Abdollah Bahrami, head of the National Union of Handwoven Carpet Co-operatives.
For weavers such as Fakhri, the economics no longer work. She told the FT she must invest $250 in wool and silk and spend a year weaving a single carpet, only to hope it might sell for more than $600. Without social security or state support, she said the work has become physically exhausting. “I work with constant back and leg pain. But hiring an assistant weaver is beyond my means.”
Iranian carpets were once exported to about 80 countries, but sales are now largely limited to markets such as the UAE, Germany, Japan, the UK and Pakistan. As Iran lost ground, competitors from Turkey, India, China and Afghanistan moved in. “After the US market closed, some traders began rerouting Persian rugs to the US through third countries… hurting Iran’s craft by concealing its identity,” said Mohsen Shojaei, a carpet trader in Mashhad.
Regional tensions have compounded the decline. Shojaei said: “The disruption of regional airspace after the war with Israel, along with other political tensions, caused foreign traders to lose confidence.”
While officials have promised support, industry figures remain bleak. “The future? The future is gone. The sound of the loom in villages and towns has fallen silent,” Bahrami said.
