The government has put an end to subsidized currency rates ($1=42,000 rials) in the proposed 2021-22 fiscal budget, the spokeswoman for Plan and Budget Organization said.
The cheap currency has been sourced from oil export revenue and used only for importing basic goods, pharmaceuticals and machinery to avoid unaffordable price hikes in food and raw materials.
"The government hopes to sell crude oil at $40 per barrel with exchange the rate of 115,000 rials per USD. The dollar at 42,000 rials is omitted in the next budget", Mozhgan Khanloo was quoted as saying by IRIB news. The budget bill was submitted to parliament on Wednesday.
While successive governments have routinely subsidized food imports, cheap currency in its current form was offered after the steep rise in forex rates in the spring of 2018 when the government set the dollar at fixed rate of 42,000 rials and cut the list of goods eligible for subsidized currency to a few essential goods like food, raw material and pharmaceuticals.
The policy attracted strong and persistent opposition for its susceptibly to rent-seeking and corruption due to the huge difference between the subsidized currency rates and those in the open market. In the open markets Tuesday across the country 260,000 rials was buying one dollar.
The controversial subsidy policy is often blamed for wasting scarce forex reserves and public money in the interest of avaricious traders, middlemen and the army of rent-seekers.
Economic experts have faulted the subsidy distribution system and the absence of efficient government oversight. They point out that the people buy food and other essential goods at open market rates despite the fact that the goods are imported at highly subsidized rates.
In the past several months the local press have regularly reported from official sources that billions in subsidized currency was given to importers of food and medicine while some fraudulent companies simply did not bring anything into the country.
Commenting on scrapping the unhelpful subsidy policy, Mehdi Toghiani, a member of the Majlis Economic Commission, told ILNA on Wednesday that the parliament had earlier proposed the exclusion of subsidized currency in the new budget.
"Subsidized currency gave birth to rent-seeking for importers while basic goods necessarily were not available at subsidized prices," he was quoted as saying.
The lawmaker said the right thing to do is to give the subsidy (cash) to end consumers instead of importers.
Asked whether the government has a Plan B to support the low-income strata, he said "we have to wait and see what the government will do to help the low-income deciles".
The Central Bank of Iran says it gave $5.2 billion in subsidized currency for the provision of essential goods in the first six months of current fiscal year (March 20- Sept. 21).
Reports say the government plans to increase this to $8 billion at the rate of 42,000 rials to a greenback by end of the current fiscal year.
