Iran's foreign trade, excluding crude oil exports, stood at 149.4 million tons worth $90 billion during the current Iranian year’s first 11 months (March 21, 2021-Feb. 19), registering a 12% and 38% growth in tonnage and value compared with the corresponding period of last year.
According to Foroud Asgari, the deputy head of the Islamic Republic of Iran Customs Administration, exports stood at 112.65 million tons worth $43.52 billion, registering a 10% and 40% year-on-year growth in weight and value respectively, Fars News agency reported.
Imports stood at 36.77 million tons worth $46.57 billion, registering a 19% an 36% YOY increase in volume and value respectively.
Imports Mainly Consist of Essential Goods
The customs official noted that the imports mainly included essential goods, raw materials, production machinery, pharmaceuticals and medical equipment.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels, such as rice, vegetable oil, sugar, wheat and flour.
Basic imports are entitled to subsidized currency supplied by oil export.
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 in 2018.
Flaws in the apparently ill-advised policy emerged in the first few months after its 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.
Prominent economists, academia and socioeconomic experts hold the 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 the millions of Iranians 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 yet some of these companies simply did not bring anything into the country.
It later turned out that some of the firms that took the scarce forex resources were shell companies. Few, if any, have paid for the thefts or faced the full force of the law.
Efforts have been made to abolish the allocation of subsidized dollar to basic imports at the cheap rate of 42,000 rials per dollar (about one-sixth of the market rate) to no avail.
Vahid Shaqaqi-Shahri, an economist and university professor, says before the introduction of forex reform, 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 an adequate sum of foreign exchange resources to control supply and demand in the forex market at any time,” he said.
“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 Ta’adol newspaper, Shaqaqi-Shahri said, “After meeting these preconditions, the subsidy removal process should be carried out gradually over a specific period, 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.”
