On Currency Repatriation Rules MRC Asks Gov’t to Rethink Policy

EghtesadOnline: The Majlis Research Center holds the view that the government can significantly boost its foreign currency earnings by rewriting the Central Bank of Iran’s controversial policy on repatriating currency earnings from non-oil exports.

News ID: ۷۴۷۵۹۷

18 June 2019

The research arm of the parliament took stock of the complaints of exporters and the hurdles they encounter in relation to currency repatriation rules.

Data has it that of the $44 billion worth of goods exported in the last fiscal (March 2018-19), only $20 billion was repatriated. The MRC says the figure can be doubled.

The main snag in implementing currency repatriation rules is the aversion of exporters to sell their overseas earnings via Nima (Persian acronym for Integrated Forex Deals system), Financial Tribune reported.

Nima is the platform where exporters sell their currency to importers of non-essential goods.

The influential think tank notes that exporters have no objection to the repatriation rules per se. Rather, they object to the manner in which the policy is implemented which has led to hassles for exporters and decision-makers.

Exporters resist the obligations that compel them sell their forex earnings below market rates. The CBI obliges them to sell part of their currency on Nima where rates are much lower than in the open market.

Each US dollar is currently sold for 100,000 rials on Nima while in the open market it is worth 135,000 rials.

Lacking Logic

MRC, like most economists, maintains that this indeed is the main reason behind exporters’ untiring attempts to dodge the forex repatriation commitments.

Exporters complain that it is illogical to force them to import raw materials for their companies at open market rates and sell the foreign currency earnings from exports at much lower rates.

As per the currency repatriation rules, exporters with earnings of more than $1 million are required to offer a portion of their earnings on Nima. This is while there is no such obligation on micro exporters who make less than $1 million earnings. MRC admits this method creates an unfair competitive advantage for retail exporters at the expense of major exporters.

The repatriation mechanism, strong simply on paper, is saddled with cumbersome regulations a bloated bureaucracy. The problem is also attributed to the lack of networking and harmony between the assorted and diverse data bases.

Exporters also complain about disagreements with customs administration about the real value of the exported goods. They claim the customs overestimates the price of goods. This in turn raises their currency repatriation commitments.

Last but not the least is the piling up of bylaws and rules about currency repatriation that often confuse exporters regarding the extent of their commitments and how to fulfill them.

Reward and Punishment

The MRC has offered some advice to ameliorate the currency repatriation mechanism.  Its proposals include both reward and punishment as well as recommendations for decision makers.

It recommends the CBI to annul its Nov. 2018 directive based on which exporters are categorized as per their earnings.

It stipulates that exporters with earnings below $1 million are exempt for forex repatriation while those with higher income should sell their currency in proportion to their export earnings. For example, exporters with earnings over $10 million are obliged to sell 90% of their earnings on Nima.

Instead, it proposes several options for exporters to help meet their currency commitments through methods other than Nima. One such proposal calls for obliging all exporters, regardless their earnings, to return 95% of their earnings.

An alternative proposes using the overseas earnings to import goods either by the exporters or any third party, selling their currency in banknotes or hawala to banks and exchange offices at negotiated prices and not mandatory rates, and depositing their foreign currency in banks for future import needs.

The MRC also recommends the CBI to send the names of non-complying exporters to relevant bodies, such as banks, the Iranian National Tax Administration, and Customs Administration. If malfeasance is proved, these organizations can restrict their services to them.

The penalties include restrictions on trade at Nima, blocking rial or foreign currency accounts, cancelling the commercial cards, restrictions on overseas travel customs clearance.

Addressing the CBI, the think tank asks the regulator to get rid of prescriptive pricing for currency on the Nima system. Instead, it suggests controlling forex rates by striking a balance between supply and demand in the market and gradually reduce the price difference between Nima and open market rates.

MRC proposes that banks open branches in Iraq and Afghanistan to collect the foreign currency of Iranian traders operating in and with the two neighbors and deliver the equivalent in rials in Iran.