As Iran enters deliberations over the draft budget for the Iranian year 1405 (March 2026–March 2027), the long-running debate over preferential foreign exchange has reached a critical juncture.
What had long been discussed as a policy option is now effectively being implemented: subsidized dollars for most essential imports are being phased out and replaced with direct consumer support through food vouchers.
From an economic standpoint, many analysts argue that the removal of preferential FX is overdue. Artificially low exchange rates, they say, distort prices, fuel excess demand and create widespread rent-seeking.
“Pricing foreign currency below its equilibrium level increases demand and reduces supply. In the end, many goods do not reach consumers at subsidized prices at all,” said Mehdi Nosrati, an economist, in remarks to Donya-e-Eqtesad.
Yet consensus ends there. A growing group of economists warn that while eliminating FX rent may be economically sound, the social and inflationary consequences of abrupt reform could be severe. Drawing on the experience of 2022, when the removal of the 42,000-rial rate triggered sharp food inflation, they caution that repeating the process under today’s fragile conditions could threaten food security.
Policy Divide
This concern has fueled a policy divide. Some experts insist that preferential FX should be scrapped entirely, with subsidies transferred directly to final consumers. Others remain skeptical of the government’s ability to fully compensate households and argue that cheap currency for basic goods should continue, coupled with stricter oversight of imports and distribution.
“If the preferential rate is removed and nothing reaches people in return, I personally cannot support such a policy,” Nosrati said.
The government, however, appears to see little room for delay. President Masoud Pezeshkian recently confirmed that imports will no longer receive the preferential rate of 285,000 rials per dollar. “We will no longer give cheap dollars to importers. They should import at the free rate, and we will give the subsidy to consumers,” he said, underscoring the administration’s belief that direct transfers are more efficient than supply-side subsidies.
This shift is already taking shape through a nationwide food voucher program. Under the first phase, a purchasing credit of 10 million rials—about $7—will be allocated to nearly 80 million people, allowing them to buy essential goods without cash payments at more than 260,000 outlets nationwide. Officials say any future price increases will be matched by proportional increases in voucher credit to preserve purchasing power.
The Agriculture Ministry has sought to reassure the public that food security will not be compromised. Agriculture Minister Gholamreza Nouri Ghezeljeh said the government’s reform agenda is “justice-oriented” and aims to ensure that subsidies and public resources reach people “directly and fairly,” while safeguarding stable food supply. “Our goal is not to shift rents from one group to another, but to restore people’s rights and achieve economic justice,” he said, adding that domestic producers are fully prepared to meet demand during upcoming peak consumption periods.
Structural Risks
Still, structural risks remain. Mehdi Darabi, an economic analyst, noted that while the economic case for removing preferential FX is clear, the method of implementation is decisive.
“There are two approaches: an immediate removal combined with direct cash or voucher support, or a gradual reduction,” he said. A phased approach—such as cutting allocations by 30% in successive stages—could reduce social shock, but risks policy inconsistency. “Experience shows that gradual reforms are often abandoned halfway,” Darabi warned.
Underlying the entire debate is a harsher constraint: shrinking foreign exchange resources. With oil revenues under pressure and transfers increasingly difficult, some economists argue that the issue is no longer equity, but scarcity. “The state simply does not have enough foreign currency to continue subsidizing essential imports,” one analyst said, warning that the policy game has become “negative-sum,” with rising dissatisfaction across income groups.
In this context, Iran’s move away from preferential FX reflects not just reform ambition, but fiscal necessity. Whether the new food voucher system can effectively shield vulnerable households from inflation will determine if this transition marks a long-delayed correction—or the start of a new social strain.
