Iran: Subsidy Choices Take Center Stage

EghtesadOnline: Head of the Plan and Budget Organization says the government is weighing three options on allocating $14 billion for importing essential goods in the next fiscal that starts on March 21.

News ID: ۷۴۶۸۵۲

06 March 2019

Mohammad Baqer Nowbakhat told state TV late Monday that there is a consensus among the government and Majlis Joint Commission over the matter. As for the first option, the government could continue the current procedure but under stricter supervision.

Within existing procedures, companies get subsidized currency for importing basic goods. Each subsidized USD=42,000 rials. Subsidized currency is cheaper than rates quoted in Nima (integrated forex deals system) where the greenback now is offered at 90,000 rials. Forex at Nima rates is fore importing non-essential goods.

Delineating the second alternative, Nowbakht said forex at Nima rates can be allocated for all essential goods and the difference between subsidized rate and Nima rate be given to the people via electronic coupon, according to Financial Tribune.

As for the third scenario, the PBO head says the government can pay the difference between the two currency rates to people in cash, adding that all the scenarios have been studied by the JC members in depth.

The head of the Majlis Economic Commission, Mohammad Reza Pourebrahimi, said earlier that if the government guarantees that it is capable of delivering goods (for which subsidized currency has been allocated), to the final consumer at subsidized rates, it will have parliamentary support. It was apparent from his comments that it is up to the government to decide which of the three paths would be best in improving the livelihood the people.

He added that where oversight mechanisms cannot be enforced by the government, allocating subsidized currency will not help but hinder because “the end consumer ultimately buys (essential) goods at open market rates.

The Majlis ratified an amendment to the next year’s budget bill this week obliging the government to allocate $14 billion from oil export revenue for importing essential goods. Funds should go for importing essential goods, pharmaceuticals, medical equipment and grains.

Accordingly, the government is required to allocate currency for importing goods either at subsidized rates or Nima rates. In the case of the latter, the difference in Nima and subsidized rates should be paid either in electronic coupon or directly in cash.

VP’s Stance

Quoting Vice President Eshaq Jahangiri’s earlier that the country will never again return to the time when people bought rationed goods with coupons, the TV presenter asked Nowbakht if this means there is only one scenario left for the government i.e. it will have to reimburse the difference in cash?

“Government is giving the finishing touches to the plan and we have the three choices on the table,” he replied.

He said the aggregate difference between subsidized forex rates and Nima rates would be almost 560 trillion rials ($4.5 billion) which the government forgoes in favor of improving livelihoods of the people.

In response to criticisms that government negligence in implementing market regulation policies is the main reason behind the failure of subsidy policies, the PBO chief tried to shift the blame on the Majlis.

He said parliament had opposed a government proposal to recreate a commerce ministry to monitor distribution of imported goods.

He noted that that the mission defined for the Industries, Mining, and Trade Ministry overlaps and at times is contradictory as the ministry has to support domestic production while at the same facilitate foreign trade. Therefore, establishing a separate ministry to handle commercial transactions and the distribution network is a compulsion not a convenience, the senior told the TV.

Government Wages

Regarding parliamentary decisions on wage rise of government employees and retirees, the PBO boss said the government will have to pay 1,600 trillion rials ($12.8 billion) to 5 million employees and retirees in the next fiscal, adding that each government employee and retiree is on average paid 32 million rials a month.

The government had proposed 320 trillion rials ($25b) in the original budget bill for wages aiming to increase monthly salaries by 20%.

“In that case, government employees and retirees would receive 6.4 million rials monthly on average. This is while parliament approved a fixed 4 million rials hike for all workers.”

Majlis voted for increasing monthly wages of government employees and retirees by 4 million rials (about $30) in the next fiscal. Apart from the fixed annual pay raise, the government can increase wages by up to 10%.

The Majlis decision drew government opposition on the grounds that it would hardly serve social justice and add to the financial burden of the government. Later, Nowbakht change course and said the government will “implement the Najlis decision despite all the infeasibilities.”

He said the parliament’s decision will drain 240 trillion rials of the funds allocated for this purpose and there would be nothing left to add an extra 10% to monthly salaries.

Nowbakhat said with the remaining 80 trillion rials, the government at best will be able to raise salaries by 5% (besides the fixed raise).

Minimum monthly wages for government employees is 12.4 million rials and the maximum is sevenfold as per law amounting to about 84 million rials.

Workers whose monthly income is below 20 million rials are exempt from income tax and the government is planning to offer support packages to those who are paid below 30 million rials a month, he said, adding that the income of 1.1 million government and state employees and retirees is below 20 million rials.

Pointing to the low monthly salaries for the large group of retirees, Nowbakht promised that the government is trying to add another 50 trillion rials ($400 million) to the approved amount by the Majlis. In order to increase the monthly pensions, the Majlis allowed the government to allocate 40 trillion rials for this purpose.