Iran Gov’t Reinforces Supervision Over Distribution of Subsidized Goods

EghtesadOnline: The Central Bank of Iran has obliged importers who use subsidized currency to sell their goods via a transparent distribution network, according to a CBI official.

News ID: ۷۴۸۲۱۰

19 August 2019

“Commitment of importers regarding the foreign currency they use for importing essential goods is fulfilled only if and when they supply the goods via a verifiable network designated by the government,” the official told Mehr News Agency on the condition of anonymity.

The government has again intensified supervision over subsidized imports using CBI currency, he said, referring to President Hassan Rouhani’s recent call on the Cabinet to be more alert and responsible toward forex allocation and the cumbersome distribution process of essential goods, namely foodstuff.

The measure comes following mounting criticism leveled by many quarters against the government over the potential for corruption in subsidized forex allocations, Financial Tribune reported.

Subsidized currency was earmarked following the unprecedented hike in currency rates since last spring when the government announced a prescriptive rate for forex rates and curtailed the list of goods eligible for subsidized forex allocation to a few essential goods, including food, raw material and pharmaceuticals.

A subsidized US dollar costs 42,000 rials. This is while the greenback was selling for 117,000 rials in Tehran’s open market at the weekend.

Real Motives

The main motive behind the government’s subsidized currency policy is to keep prices of essential goods in check and support fixed-wage earners and those at the lower end of the economic ladder.

Due to lack of openness and transparency, the flawed policy has often been blamed for wasting the scarce forex reserves and public money and in the interest of avaricious traders, middlemen and rent-seekers.

Opponents say the policy has so far failed to support the low income strata.  They find serious faults with the distribution system of goods and absence of an efficient government oversight, which results in the real consumers of subsidized essential goods to buy goods at open market rates despite the fact that the same goods have been imported at highly subsidized rates.

Critiques eventually convinced parliament in February to suspend the controversial forex policy as was being implemented, obliging the government to rewrite the dysfunctional subsidized currency policy.

The government paid $14 billion in subsidized currency for importing essential goods in the last fiscal year (March 2018-19) and plans to allocate $14 billion in the current year.

Out of $14 billion paid in subsidies for importing essential goods last year, $3 billion went for pharmaceuticals and $8.3 billion for consumer goods, namely food. The balance was given to import raw material for manufactures.

In its latest report, the Majlis Research Center, the influential parliamentary think tank, proposed that the government pay the subsidies either in cash or kind to selected groups and low income deciles.