A total of 27.61 million tons of essential goods worth $17.53 billion were imported during the current Iranian year’s first 11 months (March 21, 2021-Feb. 19), registering a 28% and 60% rise in weight and value respectively compared with the similar period of last year, according to the spokesperson 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.
“The import of essential goods accounted for 75% of the tonnage and 38% of the value of total imports during the period under review,” Rouhollah Latifi was also quoted as saying by Mehr News Agency.
According to IRICA, total imports (basic, non-basic) stood at 36.77 million tons worth $46.57 billion during the period, registering a 19% and 36% YOY increase in volume and value respectively.
Latifi noted that 24.03 million tons worth $13.67 billion were imported using subsidized foreign currency at the rate of 42,000 rials per US dollar, registering a 30% and 77% YOY rise in weight and value respectively.
The import of essential goods at the so-called preferential rate (42,000 rials per US dollar) included 8.65 million tons of corn worth $2.99 billion (down 6% in weight and up 29% in value), 1.87 million tons of unrefined and edible vegetable oils worth $2.55 billion (up 81% in weight and 185% in value), 19,889 tons of pharmaceuticals and medical equipment worth $2.35 billion (up 46% in weight and 58% in value), 6.04 million tons of wheat worth $2.08 billion (up 108% in weight and 157% in value), 2.25 million tons of oilseeds worth $1.58 billion (up 10% in weight and 47% in value), 2.26 million tons of soymeal worth $1.23 billion (up 40% in weight and 78% in value) and 2.93 million tons of barley worth $873.76 million (up 72% in weight and 17% in value).
Latifi added that 3.58 million tons of the essential goods imports worth $3.86 billion were purchased using “non-preferential” resources, registering a 20% rise in both volume and value compared with the corresponding period of last year.
“The goods included 1.36 million tons of rice worth $1.15 billion (up 49% YOY in weight and 40% in value), 1.15 million tons of unrefined sugar worth $518.03 million (up 13% in volume and 40% in value), 39,190 tons of machinery used in the production of essential goods worth $366.82 million, 84,015 tons of heavy vehicle tires worth $303.69 million, 166,560 tons of chemical fertilizers worth $124.46 million, 9.789 tons of pesticides and insecticides worth $91.54 million, 482 tons of veterinarian medicines worth $50.47 million and 776.65 tons of other goods, mainly red meat, chicken, eggs, pulses and tea, worth $1.25 million (up 12% and 19% in weight and value respectively.”
Essential Goods Unloaded at Ports of Entry
An total of 24.36 million tons of essential goods were unloaded at Iran’s ports of entry during the same period under review, registering a 27% rise compared with the similar period of last year, new data released by the Ministry of Roads and Urban Development show.
The unloaded goods include 5.92 million tons of wheat, indicating an 82% YOY rise, News.mrud.ir reported.
They also included 2.94 million tons of barley and 4.12 tons of soybeans, registering a 96% and 18% increase respectively; 1.56 million tons of unrefined vegetable oil and 248,864 tons of rice, up 67% and 20%; in addition to 8.57 million tons of corn and 989,276 tons of sugar, registering a 1% and 7% decline respectively.
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 policy emerged in the first few months of 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 has said earlier that it has paid 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 equivalent to 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.
Notably, a recent survey of by the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture indicated that mismanagement in subsidy allocations is one of the main problems facing local businesses.
“There is no supervision over the government’s method of paying subsidies to some goods such as food and pharmaceuticals. The subsidy is either exported via customs or smuggled out,” the survey found, which was part of the Purchasing Managers’ Index report for the current Iranian year’s 10th month (Dec. 22, 2021-Jan. 20).
Inflationary Effect
Nonetheless, many economists and experts have warned about the inflationary effect of the removal of subsidies under the current circumstances.
Vahid Shaqaqi-Shahri, an economist and university professor, said that 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 an adequate sum of foreign exchange resources to control supply and demand in the forex market at any time. 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,” he said.
“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 for Ta’adol newspaper, he said, “In addition, after meeting these preconditions, the subsidy removal process should be carried out gradually over a specific 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.”
MPs Leave It to Government to Decide
The fate of heavy subsidies granted to import essential goods at the cheap rate of 42,000 rials per US dollar remains elusive as members of parliament delegated in a Sunday vote the responsibility for the removal or continuation of the controversial practice to the government.
The market rate of the dollar is about six times as much.
They decided that should the government opt to put an end to the costly allocation as part of the upcoming fiscal year’s budget (March 2022-23), it has to spend the equivalent resources on distributing electronic coupons among consumers to compensate for the losses they may suffer as a result of the removal of subsidies.
The coupon system was first used in Iran in the 1980s during the Iraq-imposed war.
From the Iranian year ending March 1985 to March 1989, the then government instituted a coupon system to ensure that everyone had equal access to essential food items.
