Commission Proposes Forex Rate Hike for Essential Goods Import

EghtesadOnline: The Joint Commission of Iranian Parliament has voted in favor of changing the foreign exchange rate for the import of essential goods from 42,000 rials to 175,000 rials per dollar, suggesting that the prices of essential imports should be set in accordance with the exchange rate prevailing in the so-called secondary FX market, known by its Persian name Nima.

News ID: ۷۵۱۷۷۳

04 January 2021

The real market price of the dollar is around 60% higher.

According to Rahim Zare’, the commission’s spokesman, the move is aimed at unifying the exchange rates, preventing the supply of imports at free market rate and fighting rent-seeking and corrupt practices.

“Importers used to sell their products at prices determined by the free market despite the government’s allocation of subsidized forex at the rate of 42,000 rials per US dollar,” he was quoted as saying by IRNA.

The government’s revenues are projected to increase by 400 trillion rials ($1.55 billion), provided the commission’s proposal is approved by the parliament in an open session.

The Joint Commission agreed in principle on Tuesday with the budget bill outline of the upcoming fiscal year (to start March 21) submitted by the government of President Hassan Rouhani earlier in December.

Twenty-three members of the commission voted for, 19 voted against and one abstained from voting, IRNA reported.

Majlis Joint Commission, composed of representatives of all specialized parliamentary commissions, is responsible for reviewing budget bills as well as five-year development plans proposed by the government before they are put to a vote by MPs.

“The parliament speaker [Mohammad Baqer Qalibaf] asserted in this morning’s closed session that the government and Majlis will work together to provide the needed resources [to balance next year’s budget],” Hossein Goodarzvand Chegini, a member of the commission, was quoted as saying.

The parliamentary approval comes after the budget bill came under fire by experts and even the research arm of Majlis for being “too optimistic” on the side of revenues.

As of Jan. 2, specialized committees have been ironing out the details of the budget, Chegini added.

In the fiscal 2021-22 budget, the operating budget (including revenues derived mainly from taxation and exports at the disposal of the government) has been projected to stand at 8,413 trillion rials ($32.35 billion at the market exchange rate of 260,000 rials per dollar).

Add to this, revenues earmarked for ministries and governmental institutions worth 884 trillion rials ($3.4 billion) take the total sum of the general budget to 9,298 trillion rials ($35.76 billion).

The budget of state companies, banks and for-profit organizations has been put at 15,619 trillion rials ($60 billion).

All in all, the ceiling set for the government’s total budget is at 24,357 trillion rials ($93.68 billion).

Essential Goods Import at Subsidized Rates Declines

All essential goods imports, except corn, declined this year compared with last year, Domestic Commerce Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture reported, citing figures released by the Central Bank of Iran.

Also known as necessity goods, essential goods are products consumers will buy, regardless of changes in income levels.

“Over nine months to Dec. 20, the central bank paid less than $4.42 billion at the exchange rate of 42,000 rials per US dollar for the supply of essential goods, registering a 41% decline compared with the corresponding period of last year,” Ashraf Mortezaei, an expert with the commission, said.

“Order registration for essential goods imports stood at $12.24 billion during the nine-month period, posting a 17% year-on-year decline. Since the beginning of the Iranian year (March 20) to Dec. 20, a total of $9.25 billion have been allocated to essential goods, which is $500 million less than last year’s similar period,” she added.

“The value of discharged essential goods stood at $6.23 billion in the nine months to Dec. 20, indicating a 30% drop compared with $8.9 billion of last year’s same period.”

On five essential goods that have the highest impact on households’ livelihoods, namely corn, soybean meal, unprocessed oil, oilseeds and barley, Mortezaei said these items accounted for half the value of subsidized currency allocated for the import of essential goods during the period, which shows a 5% decrease YOY.

“The government planned to allocate $6.4 billion to import these five items during the fiscal 2020-21. By Dec. 20, a total of $4.75 billion were allocated and $4.3 billion were paid, suggesting that the government has to pay the remaining sum of $2.1 billion by March 20, 2021,” Otaghiranonline.ir quoted her as saying.

According to the official, over $3.08 billion were allocated for importing corn, soybean meal and barley in the nine-month period, showing a 14% YOY decline.

“Prices of raw oil and oilseeds and, accordingly, vegetable oils saw a 15-25% growth in the current year. Over the last nine months, 702,000 tons of raw oil worth $559 million were discharged from customs. Imports of oilseeds stood at 1.7 million tons worth $807 million, indicating a 15% rise in weight but a 7% decline in value YOY. Altogether, customs clearance of oilseeds and raw oil imports indicates a decline of 22% in weight and 7% in value YOY,” she said.

According to members of ICCIMA’s Domestic Commerce Commission, challenges facing the provision of essential goods in the next fiscal year (March 2021-22) include government intervention, misguided policies regarding market regulation, hurdles in the way of timely allocation and transfer of foreign exchange, lack of transparency about the country’s strategic reserves, inflation, decline in demand due to the shrinkage in people’s purchasing power and problems regarding production as a result of the burgeoning money supply.

As per the budget bill for the next fiscal year (March 2021-22), the government will provide $8 billion for importing essential goods. But the correlation between the sum of allocated forex and the exchange rate has not been stated and the budget fails to indicate how long the government would retain the cheap imports policy.

On the other hand, there is not enough transparency regarding subsidized forex allocation and pricing. The level of essential goods reserves by March 20, 2021, and the next year has not been specified.

Furthermore, essential goods import and market regulation policies as well as the government’s policies to promote the economic wellbeing of households are ambiguous.

Kaveh Zargaran, the chairman of the commission and secretary of the Federation of Iranian Food Associations, believes that the government is likely to rid itself of subsidized import policy completely by the end of the current fiscal year (March 20), given the Minister of Industries, Mining and Trade Alireza Razm-Hosseini’s approach.

“As such, prices will increase to some extent, demand will decline and a relative recession will emerge. Food and related industries are likely to experience recession by the end of the year and the beginning of the new Iranian year,” he said.

“The flow of imports has been stopped by the importers of raw materials and essential goods, as they are unwilling to take risks, given the pressure of sanctions and the state of the government’s budget and the central bank,” Razm-Hosseini said recently.

“As the representatives of producers and economic operators, the Ministry of Industries, Mining and Trade is looking for a unified foreign currency exchange rate. Today, we expect the parliament to take a revolutionary decision in this regard.”