Iran's CB Catalogs Forex Given for Imports

EghtesadOnline: Soon after a call by President Hassan Rouhani, the Central Bank of Iran has published a report on its website that sheds light on the amount of subsidized currency allocated for importing essential goods and machinery in the first five months (March 21-August 22, 2018) of the last fiscal year.

News ID: ۷۴۸۹۲۸

12 November 2019

The report explains the extent to which companies fulfilled their financial commitments and used the forex for the stated purposes, i.e. importing essential goods, namely food, medicine and medical equipment.

Each subsidized US dollar was given to importers for 42,000 rials. The greenback sells for 114,000 rials in the open market.

According to the CBI, a total of $19.3 billion in subsidized currency was given to agent banks for imports registered by and via the three ministries: agriculture, health and industries, Financial Tribune reported.

Of this amount, $17.3 billion was sourced directly from the CBI currency resources and the remaining $2 billion was procured from repatriated currency earnings by exporters of non-oil goods.

The regulator said of the total allocated currency, $7.3 billion was for importing basic goods, pharmaceuticals and medical equipment.

As per the list released by the CBI, $1.03 was given for importing pharmaceuticals, $889 million for rice, $772 million for corn, $584 for livestock and poultry, $543 million for oil seeds, $463 million for medical equipment, $411 million for beef and lamb, $387 million for raw materials for cooking oil, $313 million for paper and $246 million for pesticide, fertilizers and veterinary pharmaceutical products.

At the bottom of the list were tea and dairy products with $108 and $126 million, respectively.

The government gave $10 billion in subsidized currency to import raw materials, machinery and spare parts for the industrial sector.

Accordingly, $1.63 billion was paid for importing spare parts for auto and road construction firms, $1.52 billion for machinery and mechanical equipment, $1.29 billion for electronics, $805 million for iron, cast iron and steel and $4.89 billion for  “miscellaneous” items.

The CBI said it gave $1.85 for overseas medical treatment and to students studying in other countries. The report came after Rouhani asked the central bank to make public the list for which it earmarked subsidized currency in the first six months of the last calendar year.

Speaking to a public rally in the central city of Yazd on Sunday, the president was responding to allegations by his political opponents that the “government had wasted $18 billion” in the first six months of last year.

The government’s policy to allocate billions in scarce foreign currency for imports has drawn criticism from many quarters on the grounds that that policy failed to support the low income strata (for which it was intended) and indirectly served the avaricious middlemen and brokers.

Absence of Strong Oversight

In addition, due to loopholes in the distribution system and absence of strong government oversight, end users of essential foods are in fact buying goods at open market rates despite the fact that those goods have been imported at highly subsidized forex rates.

The rising volume of imported food items using cheap currency and the potential for rent-seeking and corruption has also been mentioned by economists and market observers as the other harmful outcome of the government’s subsidized currency policy.

Due to lack of accountability and transparency, the flawed policy is often blamed for wasting scarce forex reserves and public money from which rent-seekers have profited with the treasury left to deal with the billions in embezzlement and misappropriation of public funds.

According to the CBI report, companies imported goods worth $17.8 billion out of the total amount allocated. The numbers were released based on data from the Islamic Republic of Iran Customs Administration (IRICA).

Thus, for the remaining $1.2 billion no goods or services were imported. The CBI said the list of companies that misused and embezzled this amount was sent to the 'Tazirat' organization (a judiciary-affiliated ombudsman dealing with trade offenses).

Elaborating on why the report covers a specified period, the CBI said it had created a system for fulfilling “currency commitments” since the second half of the last fiscal year that ended in March.

The system is an online platform and monitors the status of importers’ commitments. If, for example, a company fails to import goods proportionate to the subsidized forex it has taken, it is automatically banned from placing new import orders.

Due to deep volatility in the currency market in the spring of last year, which sent the rial to unprecedented lows and brought chaos to almost all other markets, the government in April 2018 set a mandatory rate for all currency trade in a desperate move to stabilize the forex market.

That measure flopped and later the government decided to strictly limit currency allocations at official rates only for selected foods and medicine.