The subsidized foreign currency allocation policy (at the rate of 42,000 rials per dollar), which was ratified and implemented during the second term of former president, Hassan Rouhani, didn’t do the economy any good and the only wasted the country’s forex resources.
Mohammad Lahouti, the head of Exports Confederation affiliated with Iran Chamber of Commerce, Industries, Mines and Agriculture, noted that the new administration of President Ebrahim Raeisi is well aware of this, which makes one optimistic that this policy could be revoked.
“Raeisi’s administration has admitted that the policy gives rise to corruption, as some importers and consumers have been left out of the benefits resulting from these allocated subsidies. This is why the subsidized foreign currency allocation policy is expected to be gradually rescinded,” Lahouti was quoted as saying by Fars News Agency.
“Within only four months of implementing this faulty policy, orders for imports worth more than $80 billion were registered. The figure was unprecedented in the country’s import history. On the other hand, the government was not able to provide and allocate this volume,” he added.
Unfortunately, Lahouti explained, the policy remained intact due to the insistence of the government and parliament members.
“Despite all the hardship faced by the government in procuring the subsidized forex, the benefits never reached the public, causing their expenditure basket to shrink by the day. The truth is that the subsidized forex turned into an opportunity for a few select individuals and businesses who never delivered on their commitments to import essential goods,” he said.
The official, who is also a member of the board of representatives at Tehran Chamber of Commerce, Industries, Mines and Agriculture, noted that when the policy was ratified, dollar rates in the market were hovering around 57,000 rials, but within a short period of time the figure soared to 300,000 rials, providing the opportunity for more rent-seekers to exploit the situation.
“The former government realized how erroneous it was to subsidize foreign currency for importing essential goods at lower prices for domestic consumers, albeit too late. Now, with a new administration in office, we are hopeful that the policy will be repealed and replaced by regulations that directly support low-income households. The incumbent Cabinet has to remove subsidies on foreign currencies and increase the universal basic income allocated to the underprivileged by the profits made through selling forex at the open market rates,” he added.
To bring this about, Lahouti concluded, the new government needs to begin collecting data from low-income households and allot each with their due portion of cash subsidies.
$15b Supplied for Essential Imports in 4 Months
The Central Bank of Iran has provided $15 billion for the import of essential goods in the first four months of the current Iranian year (March 21-July 22), 27% more than the corresponding period of last year.
Also known as necessity goods, essential goods are products consumers will buy, regardless of changes in income levels.
The provision of subsidized foreign currency at the rate of 42,000 rials per US dollar increased by 70% to reach $4.6 billion during the same period, the central bank reported on its website.
The latest statistics by CBI show it has supplied $1,546 million for the import of corn, barley and wheat; $1,124 million for oilseeds and raw oil; $1,171 million for pharmaceuticals and medical equipment and $348 million for soybean meal.
A total of $10.4 billion have been provided for the import of other commodities, which indicate a 15% growth year-on-year. For example, $3,564 million have been provided for importing machinery during the period.
According to Mehdi Mirashrafi, the head of the Islamic Republic of Iran Customs Administration, Iran imported 9.4 million tons of essential goods from March 21 to July 22, of which 8.4 million tons pertained to six subsidized items.
Cellphones, feed corn, sunflower oil, barley, soymeal, wheat, soybeans, sugar and rice were the main import commodities during the period.
Fiscal 2020-21 in Review
A total of 23 million tons of essential goods worth $12 billion were imported during the last Iranian year (March 2020-21), according to the spokesperson of IRICA.
“The lion’s share of this sum amounting to 13.44 million tons worth $3.74 billion pertained to livestock and poultry feed. This volume accounted for 58% and 31% of the weight and value of last year’s total essential goods imports respectively,” Latifi was also quoted as saying by IRNA.
The official noted that corn reached 9.78 million tons worth $2.5 billion, soymeal reached 1.82 million tons worth $793.94 million and barley reached 1.83 million tons worth $457.32 million.
“Some 2.34 million tons of oilseeds worth $1.25 billion, in addition to 1.14 million tons of refined edible, semi-solid, liquid and unprocessed oils worth $1.06 billion, were imported during the period under review,” he added.
The imports also included around 14,798 tons of human medicine as well as medical equipment worth $1.64 billion and a total of 451,000 tons of livestock and poultry medicines worth $64.16 million.
“Our food imports also included 936,809 tons of rice worth $868.53 million, 3.02 million tons of wheat worth nearly $841.23 million, more than 1.01 million tons of unrefined sugar worth $370.66 million, 64,822 tons of dried tea leaves worth $329.12 million, 175,260 tons of different kinds of pulses worth $144.04 million, 30,487 tons of frozen or cold heavy livestock meat worth $133.27 million, 9,801 tons of butter worth $51.46 million and 4,422 tons of warm light livestock meat worth $29.17 million,” the IRICA spokesman said.
Imports of essential goods for industrial purposes and production, Latifi added, mainly consisted of 51,415 tons of industrial machinery worth $510.8 million, 207,583 tons of different types of paper worth $190.1 million, 231,064 tons of paper pulp worth $181.06 million, 252,204 tons of fertilizers worth $153.08 million, 9,074 tons of pesticides and insecticides worth $86.27 million and 6,019 seeds of different kinds of plants worth $83.63 million.
The IRICA spokesman noted that a total of 76,716 tons of heavy vehicle tires worth $282.84 million were imported during the period under review.
“Iran imported 3.5 million tons of essential goods worth $9.7 billion from China, 5 million tons worth $9.6 billion from the UAE, $4.3 billion from Turkey, 2.2 million tons worth $2.1 billion from India and 1.2 million tons worth $1.8 billion from Germany in the year to March 20, 2021,” he concluded.
