Economy, Business And Markets

Demand for Subsidized Forex Down 20%

Demand for Subsidized Forex Down 20%Demand for Subsidized Forex Down 20%

The Trade Promotion Organization of Iran Wednesday said $11.7 billion in subsidized foreign exchange had been used for imports during the first 70 days of the current fiscal year that started March 20 marking a 20% drop year-on-year.

“This is good news for domestic production. We are going to follow through the same policies as it helps boost domestic manufacturing,” said Valiollah Afkhami Rad, head of TPO, the Tehran Chamber of Commerce Industries and Mine news website reported.

Due to stability in the forex market in recent months, “selling goods in domestic markets has become more profitable than exporting them,” Afkhami said.

“Real forex rates might have some impact on the economy, but in the long run it will boost non-oil exports,” he said without elaboration.

 Iran reverted to the dual exchange rate system in 2010 when economic and banking sanctions hammered the volatile markets. The rial lost almost 75% of its value in 2013.

Central Bank of Iran has been trying to unify forex rates. It has plans to finalize a plan of action within the next four months, and stabilize the foreign exchange market to help accelerate the country’s reintegration with the global economy.

Manufactures Still Struggling  

Morteza Lotfi, a member of TCCIM’s board of directors, believes that the drop in the total value of subsidized forex for importing is a result of the decline in the general trade volume.

"The total value of import and export fell by 14% during the first two months of the fiscal year. Reduced demand for using foreign exchange at the official rate does not [necessarily] indicate a surge in domestic production or a boom in industrial performance,” he said. “We see that production units are still struggling with recession.”

Industries still need subsidized foreign exchange as no significant measure has been taken for pulling them out of the recession, he rued.

Lotfi believes that the unification of forex rates would benefit both exporters and producers.  

“The government should allocate subsidized forex only for basic goods like medicine and food,” he said.

A cut in the share of subsidizes for importing medicine might also be a reason for the drop in the demand for official foreign exchange, according to Lotfi. “Medicine at the moment is the largest consumer of subsidized forex.”

Domestic pharmaceutical companies have been complaining about the issue (imports) claiming that they are capable of producing quality medicine inside the country.