A total of 23.05 million tons of essential goods worth $14.14 billion were imported into Iran during the first nine months of the current fiscal year (March 21-Dec. 21), according to the newly-appointed head of the Islamic Republic of Iran Customs Administration.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
“Seven commodities weighing around 20.17 million tons and valued at $11.14 billion in total were imported using subsidized foreign currency at the rate of 42,000 rials per dollar, registering a respective rise of 36% and 83% compared with the similar period of last year,” Alireza Moqaddasi was quoted as saying by Fars News Agency.
The official said the top three imported commodities in this category included 7.05 million tons of corn worth $2.24 billion (registering a 3% fall in weight and a 35% rise in value YOY), 1.53 million tons of unrefined and edible vegetable oil worth $2.08 billion (up 102% in weight and 231% in value YOY) and 5.02 million tons of wheat worth $1.71 billion (up 101% in volume and 147% in value YOY).
Other essential goods imported during the period were 16,274 tons of pharmaceuticals and medical equipment worth $1.67 billion (up 42% and 36% in weight and value respectively YOY), 1.99 million tons of oilseeds worth $1.39 billion (up 8% in weight and 47% in value), 1.96 million tons of soymeal worth $1.08 billion (up 77% in volume and 134% in value) and 2.61 million tons of barley worth $767.52 million (up 94% in weight and 135% in value).
Moqaddasi noted that 2.87 million tons of the imported essential goods worth $2.99 billion were imported using the currency available at the Secondary Foreign Exchange Market, locally known as Nima.
Nima is an online platform affiliated to the Central Bank of Iran where exporters sell their foreign currency income and companies buy it for importing goods, machinery, equipment and raw materials. Foreign currency rates in Nima are priced slightly lower than free market levels.
The main commodities were around 958,904 tons of rice worth $818.82 million (up 23% in weight and 15% in value), 1.05 tons of unrefined sugar worth $466.9 million (up 6% in weight and 31% in value), 32,402 tons of essential goods for production lines and processing machinery worth $314.3 million (down 4% in both volume and value), 63,849 tons of heavy vehicle tires worth $229.634 million (up 12% in volume and 11% in value), 152,785 tons of fertilizers worth $17.66 million (down 27% in weight and 13% in value), 8,127 tons of pesticides and insecticides worth $71,39 million (up 41% in volume and 22% in value) and 375 tons of veterinarian medicines worth $38.34 million (up 5% in weight and down 18% in value).
Abolition of Cheap Imports
Notably, the lawmakers gave the green light on Sunday to elimination of subsidized imports at the rate of 42,000 per dollar as of the next fiscal year (March 21, 2022).
The move should put a permanent end to the years-long debate on whether or not to end the increasingly costly and corruption-tainted subsidy policy.
The government says it has allocated 1,000 trillion rials ($3.5 billion) to help compensate the elimination of subsidized foreign currency in the 2022-23 budget.
As per the budget bill, the government will pay $3.3 billion “to offset price rises of essential goods, pharmaceuticals, bread and guaranteed-purchase of wheat”, local media reported.
Since mid-2018, the government has subsidized currency for importing essential goods ($1=42,000 rials). The highly subsidized rate is less than a seventh of the real prices in the open market and provides a fertile ground for rent-seeking to some big import companies, vested interests and state cronies.
Subsidized forex is gotten from oil export and used only for importing essential goods, pharmaceuticals and machinery to avoid price hikes in food and raw materials.
While successive Iranian governments have subsidized food imports, cheap currency in its current format was first given after the steep rise in foreign exchange rates in the spring of 2018 soon after the United States abandoned the Iran nuclear deal and imposed tough economic sanctions.
Flaws in the apparently ill-advised subsidy policy emerged in the first few months after inception and the government under pressure was compelled to slash the list of goods eligible for subsidized currency.
In the present fiscal budget, the government was not allowed to pay more than $8 billion in subsidized currency for importing food and medicine. The Central Bank of Iran says what has indeed been paid so far is over and above the ceiling set in the budget.
The $3.4 billion will likely be channeled to the low-income strata in the form of cash subsidy.
Prominent economists, academia and socioeconomic experts hold a strong opinion that the forex subsidy policy never achieved its intended goal of supporting the downtrodden, and greedy middlemen and cronies in the distribution chain benefited the most.
On many occasions, consumers of imported essential goods must buy their needs at prices that equal open market forex rates thanks to the gross mismanagement, inefficient distribution system and absence of viable government oversight.
In short, a significant portion of the cheap forex is pocketed by big importers and the distribution chain instead of end customers, which ostensibly means millions of Iranians remain at the lower end of the economic ladder.
It is often said in Tehran’s politico-economic circles that in the past three years, billions in subsidized currency were given to selected companies to import food and medicine but some of these companies simply did not bring anything into the country.
It later turned out that some of the firms who took the scarce forex resources were shell companies. Few, if any, have paid for the thefts or faced the full force of the law.
Vahid Shaqaqi-Shahri, an economist and university professor, says before the introduction of forex reform policy, certain preconditions must be met.
“First and foremost, the economy must see a period of stability. Secondly, the exchange rate and inflationary expectations should show a downtrend. The third condition is that the government should have adequate resources in local currency to manage this surgery; no shortage of local-source currency should be felt in this regard. The fourth condition is that the government should have adequate foreign exchange resources to control supply and demand in the forex market. The fifth and final condition is that it must be determined whether the country has reached a nuclear agreement with the P4+1 group of countries and the United States. If these five conditions are met, the government can get rid of subsidized forex policy for the remaining seven items. Until these conditions are fulfilled, the government needs to continue the allocation of forex subsidies.”
In an article written for the Persian daily Ta’adol, Shaqaqi-Shahri said, “After meeting these preconditions, the subsidy removal process should be carried out gradually over a specified period of time, meaning that the government should not go cold turkey and suddenly announce that the distribution of subsidized dollar has ended. The cessation of forex subsidy must happen over one to two years and under appropriate conditions.”
