Economy Minister Posits Single Currency Rate in 3 Months

The dual forex rate regime will come to an end within "the next two or three months", said the minister of economy in what is seen as the most definitive announcement by a top official about the oft-mentioned plan to adopt floating exchange rates.  

"A multi-rate currency system has many downsides and creates the groundwork for corruption and that (among other things) is why forex rates will be unified within the next two or three months," Ali Tayyebnia was quoted as saying by banker.ir on Wednesday.

Leading economists and business leaders have often complained about the double currency rates. Foreign investors and companies are also of the strong opinion that in the present forex climate working with and in Iran is a gargantuan task if not outright impossible.

Pointing to government measures that have reduced the discrepancy between the official and unofficial (open market) exchange rates, he noted that in the past, the difference between the two rates was too big resulting in corruption and venality.

Iran was forced to revert to the controversial dual exchange rate regime after nuclear-related sanctions unleashed turmoil in the forex market in 2011-12 in which the national currency lost almost 70% of its value within days.

Private businesses and industries are also eagerly awaiting the unification of foreign exchange rates with the head of the Tehran Chamber of Commerce, Industries, Mines and Agriculture saying this week conditions are ripe for the long-awaited unification plan to finally become reality.

Tax Reforms Crucial

A national consensus has emerged to put an end to the dangerous over-dependency on oil income, the economic minister said, adding that officials and businesses alike realize that a healthy and workable tax regime is crucial and must replace the oil export income.

But tax affairs too are under the burden of their own contradictions. To increase tax income, Tayyebnia said "structural reforms must begin, a process that was started by the current government."

The minister acknowledges that tax pressures hit the production sector harder than others. From 2001 onwards, he said, several schemes were launched to gradually ease the tax burden on the production sector and move it toward consumers to help curb production costs. "But the policy was not successful and we still have not managed to totally shift value-added taxes toward the consumer. Therefore we must first remove this dilemma."

The official spoke of the Mechanized Sales System Bill which has been devised in collaboration with the Iran Chamber of Guilds and is being reviewed in the parliament, pending approval.

"Due to the importance of this bill, the Ministry of Economy has agreed to shoulder all the expenses of this system and for five years, everyone entering the system will be able to enjoy tax exemption."

Elaborating on the system, Tayybenia said the tax regime as a whole is focused on organizing data pertaining to the system. "In this scheme, all data, namely information about taxpayers and business-owners, their income and all costs relating to organizations and entities will be gathered and processed."

Censuring Iran's banking system as sick and plagued with "unsuitable interest rates", he said the banking sector is unable to provide credit to businesses and as such, lack of an access to financial resources is one of the most pressing problems of the production sector.

The highest monetary decision-making body – the Money and Credit Council – voted in July to lower lending rates by two percentage points. Earlier private banks had voluntarily lowered their one-year deposit rates from 18% to 15%.

"Iran's banking system is also grappling with other problems," he said referring to the cuts in interest rates by the current government. "Reforming the banking system is the first priority of the banks and the government debt to banks is one of the most serious problems."

The minister recalled that the government owes banks one quadrillion rials ($32.4 billion) while the private sector debt and troubled credit in the banking sector too is very high.