No Need for Rationing Essential Goods

EghtesadOnline: The Industries Ministry has no plan for now to distribute essential goods via electronic coupons, the deputy minister for domestic trade said.

News ID: ۷۴۷۴۷۳

02 June 2019

“As there is no shortage of [essential] goods in the market and Iran is self-reliant with regard to some basic items, rationing is not advisable,” Abbas Ghobadi told reporters Saturday, Tasnim News Agency reported.

However, he said the ministry has not entirely scrapped the plan and is ready to reintroduce coupons within a short period if and when the need arises, according to Financial Tribune.

“Should we reach a point when quotas for some goods are necessary, we can restart the coupon system in one month.”

Basic food items like rice, sugar, meat, chicken, some dairy products plus fuel were rationed during the 1980-88 Iraqi-imposed war. The government would distribute special coupons to households at regular intervals and assign quotas depending on the number of members in each family. The system ended after the war was over.

In recent months there has been widespread criticism of the government’s controversial policy of subsidizing billions in foreign currency paid to merchants for importing food and other basic goods.

The rising volume of imported essential goods using cheap currency, chaos in the distribution of basic goods among the people and the potential for rent-seeking and corruption has often been mentioned by economists and observers as some of the harmful results of the government’s policy to subsidize currency.

Recently the Majlis Economic Commission said of the $14 billion subsidized forex given for importing essential goods last fiscal, the fate of $3.5 billion remains unclear. Lawmakers said they are unaware of the huge amount and whether the money was used to import food or not.

The flawed policy has often been blamed for wasting the scarce foreign currency revenue to the benefit of avaricious traders, middlemen and rent-seekers, particularly at a time when oil export revenues have declined due to the new US economic sanctions.

Budget Amendment

Mounting criticism from many quarters led to a budgetary amendment in parliament in February making it mandatory for the government to revise its subsidized forex policy outlined in the current fiscal budget.

Earlier last month, governor of the Central Bank of Iran Abdolnasser Hemmati said $3 billion in subsidized forex was allocated for importing essential goods and pharmaceuticals in two months to May 21.

During Majlis debates over current budget (March 2019-20), lawmakers approved $14 billion from oil export earnings for importing essential goods, pharmaceuticals and raw material for manufacturers.

The government must 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 to the people.

Subsidized currency (1 USD=42,000 rials) is cheaper than rates quoted on Nima (integrated forex deals system) where the greenback now costs 100,000 rials. Forex via  Nima is provided for importing selected non-essential goods.

Majlis Research Center, the research wing of the parliament, has often questioned the efficacy of the government’s forex subsidy policy.

The policy was initially adopted as a measure to control the rise in prices of basic foods and support vulnerable groups but failed to achieve the desired results.

Instead of the apparently flawed policy, the MRC has proposed a direct cash payment policy, arguing that paying cash is less susceptible to corruption because money is paid directly in the bank accounts of end consumers.