A day after the release of the 2018-19 annual monitoring report by the Supreme Audit Court of Iran, the supervisory arm of the Iranian Parliament, President Hassan Rouhani dismissed some of its findings as “100% wrong”.
“You can observe sheer ignorance about the country’s rules and laws in it [the report]. It is unacceptable for an oversight body to claim something without having the knowledge of the country’s rules and regulations,” he said in the Cabinet meeting on Wednesday.
Every year, the Supreme Audit Court of Iran publishes a monitoring report on the government’s performance. The report provides information on financial flows and the implementation of government programs against the goals and targets set in the budget law.
The report pertaining to the fiscal 2018-19 was submitted to the parliament by SAC Director Adel Azar on Tuesday.
Above all its finding, the report underlines the point that the government has abided by only 32% of the budget law and deviations have occurred in implementing 68% of the budget articles.
Unaccounted Spending
Out of $31.41 billion in subsidized currency (at the rate of 42,000 rials per dollar) provided for imports from March 21 to Dec. 3, 2018, only $26.59 billion worth of goods were imported.
In other words, 15.3% or $4.82 billion of this budgetary allocation are unaccounted, the report says.
The government allocated $23.24 billion at subsidized rate for the import of essential goods, of which more than $2.8 billion or 12.1% were unaccounted.
The report says $8.17 billion were allotted to import nonessential goods, of which $2.01 billion or 24.6% have gone missing.
Thirty-seven real and legal entities were found eligible to receive $100 million each in subsidized currency for imports. Of these, 32 registered no imports, despite receiving more than $1.2 billion in subsidized currency.
Forty-eight real and legal entities were qualified to receive $50-100 million in subsidized currency for imports. Of these, 31 registered no imports despite receiving more than $852 million in subsidized currency.
A total of 385 real and legal entities were found eligible to receive $10-50 million in subsidized currency for imports. Of these, 212 registered no imports, despite receiving more than $1.23 billion in subsidized currency.
SAC has also detected budget deviations in the form of overstatement of the value of imports. Twenty-two companies, which carried out 70 import registration processes worth $2.09 billion, have overstated the value of their imports and received at least $172 million more in subsidized currency.
No imports have been reported for 99 order registrations, for which more than $5 million each were allocated, a total of $1.09 billion.
In spite of the country’s difficulties in providing foreign currency needed for the import of food and pharmaceuticals in the fiscal 2018-19 under sanctions, a total of $2.7 billion in subsidized currency were allocated for the import of items such as dental floss, toys, dolls, mattress, kitchen appliances, bodybuilding equipment, lamp, bottle cap, cat and dog food, ice-cream sticks, soil, fabrics, etc. that usually have locally-produced equivalents.
Following the steep decline in the value of Iran's local currency two years ago, the government introduced import policies, including a ban on the import of non-essential goods with domestic counterparts (Group IV of products) and the allocation of subsidized foreign currency at the rate of 42,000 rials per dollar to 25 categories of products (Group I) to cushion consumers against the increasing prices of products and costs of living on August 7, 2018.
Two other groups of imports were also defined: Group II that mostly includes raw materials, intermediate and capital goods, and Group III that consists of consumer goods.
Importers of products listed in Group II have to meet their forex requirements from the secondary FX market. Imports of products included in Group III may acquire foreign currency from exporters who are not required to offer their forex earnings via the Nima platform.
Rice, wheat, poultry, eggs, fertilizers, seeds, raw sugar, oil, soybean, heavy-vehicle tires, publication paper, tea, pharmaceuticals, medical equipment and industrial machinery used for the production of essential goods were categorized as subsidized import items in the first place.
Targeted Subsidies Law
The budget monitoring report also provides information on the implementation of Clause 14 of the 2018-19 budget law, which pertains to Targeted Subsidies Law.
The Targeted Subsidies Law of 2010 authorized the reduction of food and energy subsidies, and instead allowed the payment of 455,000 rials to each and every Iranian on a monthly basis.
According to SAC, the implementation of the Targeted Subsidies Law generated more than 780 trillion rials ($4.87 billion) for the government in the fiscal 2018-19.
However, the National Iranian Oil Refining and Distribution Company failed to deposit 4,140 billion rials, $1.29 million, €11.55 million and 22.37 million dirhams of its revenues into the Targeted Subsidies Organization account.
As per the budget law, 300 trillion rials ($1.87 billion) of the revenues from the implementation of the Targeted Subsidies Law had to be distributed among Iranian households in cash whereas the government paid more than 430 trillion rials ($2.68 billion) in cash payments in the fiscal 2018-19.
Remuneration and Privatization
Another part of the report talks of pay or other financial compensation provided in exchange for government employees’ performed services.
A total of 241 executive managers of governmental companies, including Civil Servants Pension Organization, Bank Maskan [the state-run agent bank of housing sector], subsidiary companies owned by the Petroleum Ministry, etc., received paychecks worth more than the cap set for government employees that is 230 million rials (1,437).
They received a total of 113.5 billion rials ($709,375) and the highest pay granted to a senior manager was 530 million rials (3,312) per month. About 360 lawsuits involving more than 17 trillion rials ($106.25 million) have been filed in this regard.
The SAC report says 77% of 894 government transfer deals during the fiscal 2001-2 to the fiscal 2018-19 were struck with non-departmental public organizations (semi-governmental organizations) and different pension funds, suggesting that only 23% of the privatization deals of state-owned properties concluded with the real private sector.
CBI Response
On Thursday, the Central Bank of Iran released a statement in response to the SAC report.
“With the approval of Iranian government, from April 10, 2018, to August 7, 2018, all needed goods and services were imported at the single rate of 42,000 rials per dollar. The SAC should have mentioned this point and the fact that two separate policies were taken in the two periods of time in the fiscal 2018-19,” CBI’s statement read.
It added that foreign currency commitment is defined as the commitment made by applicants to import goods or services in accordance with the requirements explained in the import order registration.
“The provision of foreign currency by the Central Bank of Iran in a particular year is not the sufficient basis for creating foreign currency commitment in the same year. This means the bank might provide foreign currency for goods and services that were either imported in previous years or the years to come,’ he said.
“Although the Islamic Republic of Iran Customs Administration data are very important, they don’t include information on imports of services, repayment of debts, etc. Therefore, it is misguided to use IRICA’s information as a base to weigh how the foreign currency commitments were adhered to.”
Earlier, CBI Governor Abdolnasser Hemmati said in a TV interview that the SAC report was put together on Dec. 3, 2018, and about $1.8 billion worth of imports of the $4.8 billion were provided until the end of that Iranian year [March 20, 2019], which makes $3 billion unaccounted for.
“Furthermore, you cannot say that this $3 billion have gone missing: The importer might have failed to meet its commitment [i.e. to import goods] due to sanctions or the goods might be on the way. The CBI allows up to 12 months for imports of goods like industrial machinery,” he said.
“The CBI believes that receivers of $1.5 billion worth of goods have not met their commitments. They have been introduced to the Tazirat organization (a judiciary-affiliated oversight body dealing with trading offenses). More than 2,200 lawsuits have been filed with the judiciary in this regard,” Hemmati said.
