Iranian Economist Explores Strategies to Limit Coronavirus Damage

EghtesadOnline: Rescue packages introduced in the US and European countries following the coronavirus outbreak are designed to make compliance with social-distancing order possible for people and business-owners instead of providing compensation for those hit by the pandemic, a former senior aide to President Hassan Rouhani says.

News ID: ۷۴۹۸۵۹

14 April 2020

In a lecture to his students of economics at Sharif University of Technology uploaded on his Telegram channel, Masoud Nili added that resources must be committed to sectors that make social distancing more effective, Financial Tribune reported.

The social distancing plan implemented to halt the rise in COVID-19 cases depends on the country’s economy because it wouldn’t work without financial resources. There is neither a purely medical solution nor an economic one for coronavirus.

“As long as the country is grappling with coronavirus, all economic policies must address the improvement of social distancing rather than offering compensation to people and businesses,” Nili said.

Four Requisites

Nili, who is also an economist, said that when it comes to microeconomic management, the supportive policy of granting subsidies must have four features.

“It needs to be conditioned, for example, on people observing social distancing. Once people or businesses flout social distancing, their subsidies should be discontinued and they must be fined. The subsidy policy should target special groups, it must be time–bound and finally it should not be accumulative over time,” he said.

“Let me give the example of cash subsidies program introduced by the government in 2010. The plan had none of the above four features. For instance, it is accumulative because even children who are born now are entitled to receiving the cash.”

It’s almost a decade that Iranian governments are making cash payments directly to people. The Targeted Subsidies Law of 2010 authorized the reduction of subsidies on food and energy, and payment of 455,000 rials (now at about $2.8) to each and every Iranian on a monthly basis.

The plan has been retained so far and nearly 78 million Iranians continue to receive the monthly grant of cash subsidies.

Two Scenarios

Nili noted that to weigh the effect of coronavirus on the economy, Iran needs to put forth two scenarios: Losses resulting from the implementation of social distancing and those that will hit the country if the government fails to carry out social distancing.

“It’s patently clear that failing to carry out social distancing will lead to a catastrophic death toll and the infection of a large number of people. Due to the huge costs of treatment, the country’s health system will undergo a heavy stress that will be directly transferred to the government budget,” he said.

“The human losses will give way to reactions from the society that would ultimately direct the government toward introducing a belated, stricter social distancing with higher costs. My preliminary estimate from this situation [i.e. not carrying out social distancing swiftly] is about 3,000 trillion rials [$18.6 billion] a year.”

Nili noted that the effective implementation of social distancing across the whole country for two months, however, needs an estimated 1,000 trillion rials ($6.2 billion).

“Under the current circumstances, there are no such resources in the government’s budget. These resources will be naturally supplied by the Central Bank of Iran, which has its own ramifications. Costs associated with not carrying out an effective social distancing are by far higher than the plan’s economic fallout. Notably, the implementation of any coronavirus economic policy, whether effective or not, will adversely affect employment in the first place and then production in the fiscal 2020-21. The inflationary impact of these policies would appear in the fiscal 2021-22,” he said.

An Alternative

Nili also put forward an alternative: As Iranian resources are limited, the government can opt for carrying out social distancing at the provincial rather than the national level.

“Data show that Iranian provinces have not been equally affected by coronavirus. Less stringent social distancing measures could be carried out in provinces that have not been seriously affected by the virus,” he said.

The economist noted that Iranian provinces could be divided into three groups with red, orange and yellow classifications, based on the intensity of their infection.

“Strict social distancing can be implemented in red provinces and lenient measures could be taken in yellow provinces. For instance, exit from red provinces must be prohibited whereas entrance into yellow provinces must be banned. Entry to government offices in red provinces must be banned and the government could pay 70-80% of the employees’ salaries to encourage them to stay at home,” he said.

“On the other hand, businesses need to be divided into three groups: Those that must be open, semi-closed and closed. What can help us divide these businesses in an efficient way is to tap into the very useful but neglected database of infected and deceased population.”

Nili explained that by analyzing this database, the most vulnerable activities could be identified, including information about the gender, age group, job and place of residence of affected people and those getting affected mostly, as well as how many of these people are government employees or self-employed in what guilds and what environment.

“The same analysis could be carried out about deceased people. By taking into account the geographic context and type of businesses, the government can be selective in offering its incentives and reduce the fiscal stress on the budget and CBI resources,” he said.

“I also believe that the current fiscal budget needs to undergo a revision, given the unusual conditions we are facing this year. For instance, the government must free up resources it has envisioned to allocate to research and development, as well as cultural affairs and direct them toward the implementation of social distancing.”