Iran: Electronic Distribution of Subsidized Currency Approved

EghtesadOnline: In a highly anticipated parliamentary decision on Saturday, lawmakers ratified an amendment to the next year’s (March 2019-20) budget bill which obliges government to allocate $14 billion subsidized foreign exchange in the form of "electronic coupon."

News ID: ۷۴۶۸۲۹

03 March 2019

As per the amendment, the government is obliged to allocate $14 billion from its oil export revenue to support the livelihood of people and fund the production sector, the parliamentary news website ICANA reported.

Funds should be allocated for importing essential goods, pharmaceuticals, medical equipment and grains either on the basis of subsidized rates or Nima rates.

In the latter, goods are imported based on rates determined by Nima system and the difference between Nima rate and official subsidized rate will be spent to help promote people’s livelihood and support manufactures, according to Financial Tribune.

Due to volatility in the currency market that sent the rial to unprecedented lows, government set a mandatory rate for all foreign exchange trade to stabilize the market last April.  The e measure didn’t succeed and the government later decided to limit allocation of foreign currency at official rates only to selected essential goods. That created a wide gap between rates in the open market and the prescribed rates fixed by the Central Bank of Iran.

Afterward, the government was forced to cut the list of goods eligible for the subsidized currency and decided to launch Nima or the integrated forex deals system for trading foreign exchange. The currency for non-essential imports will be allocated based on Nima rates. Nima rates are lower than the open market rates but higher than official rates.

In subsidized rates, each USD equals 42,000 rials while the green back is normally sold for 90,000 rials in the Nima system and 135,000 rials in open market rate.

Prior to passage of the proposal, head of the Majlis Economic Commission Mohammad Reza Pourebrahimi said the difference of subsidized currency rate and open market rates should be paid to the people.

“The difference in subsidized rates and the Nima rate is 60 million rials per person ($444) annually. If calculated at open market rates the difference will almost double to 120 million rials,” he said. Therefore, it is expected that a family of five get the equivalent of 10 million rials in subsidized currency every month.

“If the government is able to apply its supervisory mechanism on importing and distributing pharmaceuticals, for example, it is suggested that it continue importing these goods as before” the MP said.

If the government guarantees that it is capable of selling goods, for which subsidized currency has been allocated, to the final consumer at subsidized rates, then it will have parliamentary support…It is up to the government to decide[which method  best serves the people’s interest]”, he said.

He said in cases where overseeing mechanisms cannot be enforced by the government, allocating subsidized currency will not be rational if the end consumer ultimately buys goods at open market rates.

However as evidence of the past month suggests, MPs decided on Saturday to put in place a rationing system in the form of electronic coupon to end the rent-seeking that at times saw the prices of basic goods jump over and above the general inflation rate.