The government’s administrative and economic problems have increased the monetary base, statistics released by the Central Bank of Iran show.
Borrowings from the central bank and banking system have always driven inflation and compounded economic challenges for the people.
These statements were made by economist Hadi Haqshenas in an article for the Persian daily Ta’adol. A translation of the text follows:
There is no direct or indirect supervision over government’s budgetary and economic activities, while its debt to the central bank has grown by the year.
Why has the government increased the debt burden to expand its monetary base? It is possible to provide an accurate analysis regarding the effects of inflation on public expenditure and welfare through three sets of statistics, namely monthly, year-on-year and annual average inflation? Monthly inflation shows the state of inflation compared with the previous month, which was 2-3% in the 30-day period ending Nov. 21 compared to the previous month and shows a downtrend.
Year-on-year inflation was also contractionary that does not mean that inflation was low. It only shows that it was slightly lower than the corresponding figure of the year before, at 48%.
But the 12-month average inflation stood at 44%. The key point is that since the month ending June 21, when the government ended import subsidies and monthly inflation became double-digit, i.e., 12.2%, monthly inflation has been between 2-3%, but average inflation stayed above 40%.
To better understand the immensity of this figure, you’d better know that there are fewer countries than the number of the fingers of one hand whose inflation is 40%. Inflation is higher for low-income deciles than high-income deciles. Why hasn’t inflation decreased? One of the reasons is that Iran continues to create money.
According to the latest CBI figures, money supply growth in Iran is above 35% and monetary base has grown by 8.5% percentage points over the past four months. The reason monetary base has outgrown money supply disproportionately is that the rate of credit facilities has not increased in recent months. Naturally, the government cannot offer facilities.
I should add in parenthesis that one of the reasons government officials talk of failures, say regarding the construction of one million homes, is that the so-called government headquarters did not help grant facilities. In case a new minister takes office and loans are granted, money supply will grow significantly in the future. The growth in money is synonymous with inflation; people will face countless challenges when it comes to meeting their daily needs. Besides the elimination of items such as meat, chicken, fish and egg, we’ll also see people eliminate items such as pasta, cheese and dairy product from their consumption basket.
