Gov’t Launches ‘Electronic Coupon’

EghtesadOnline: Those already entitled to monthly cash handouts could use the electronic coupon to buy groceries (10 essential goods) on credit, which sum will then be deducted from their monthly handout at the end of the month.

News ID: ۷۵۲۳۴۵

12 March 2023

The Ministry of Cooperatives, Labor and Social Welfare has officially rolled out the so-called “electronic coupon” system.

“In view of the successful pilot of the project in the four provinces of Hormozgan, Qazvin, Markazi and Gilan, it has now been launched across the country,” the ministry said in a statement.

Those already entitled to monthly cash handouts could use the electronic coupon to buy groceries (10 essential goods) on credit, which sum will then be deducted from their monthly handout at the end of the month, IRNA reported.

A list of chain stores that are using this credit system have also been introduced.

Earlier, Cooperatives Minister Solat Mortazavi explained that the coupon allocates around 3 million rials (less than $6 at the current exchange rate) in credit for each individual to buy groceries, namely milk, cheese, yoghurt, rice, chicken, eggs, macaroni and sugar. But according to a Fars News Agency report, the consumers may opt to buy whatever and as much groceries they wish as the credit holds.

Mortazavi noted that should the consumers wish to refrain from buying, they will receive the cash equivalent by the end of the month.

He noted that “there will be measures to make up for the rise in prices”, without elaborating further.

Until now, the government has been handing out cash subsidies in a bid to shore up the needy households for years. Besides, it used to subsidize the import of essential goods. However, in May 2022, the government of President Ebrahim Raisi decided to overhaul the import subsidy system.

The government move saw the abolition of the controversial practice of allocating cheap dollars at the rate of 42,000 rials per dollar, locally known as the Preferential Foreign Currency, to import essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.

The current exchange rate is now tenfold higher.

“Until now, we have been paying to producers [read importers] but now the subsidies go to consumers. In fact, the Preferential Foreign Currency has not been ceased, rather the allocation method has changed,” President Ebrahim Raisi said in a televised speech on the eve of the introduction of the move in May.

In his speech, Raisi emphasized that the removal of cheap dollar allocation will not lead to a price rise in wheat, flour and medicine. However, the move has led to a dramatic rise in the prices of essential goods.

Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels. In fact, the prices of all commodities and services have also risen suddenly in a ripple effect.

The general inflation in Iran is currently around 45% with food inflation recording higher rates of above 60%.

Systematic Suppression of Inflation

According to economist Morteza Afqah, a coupon undertakes the systematic suppression of inflation in a small space while prices of goods move in an interconnected space. He said practical strategies should be taken to curb the increase in prices of goods and services in all sectors, if we intend to curtail or at least slow down inflation.

“Inflation generally puts more pressure on the low-income deciles; the higher the inflation, the harder it gets for low-income individuals and the wider income gap gets. Coupons seem unable to compensate the income losses of low-income deciles and meet their basic needs. You need to note that today’s inflation is the accumulation of at least 20 years of double-digit inflation, therefore if the government seeks to give goods to the people only in proportion to current year’s inflation, in the best case, only this year’s inflation will be compensated and not the accumulated inflation of the past 20 years,” he wrote for the Persian daily Ta’adol.

“Assume that the weight of food in the overall consumer basket of worker families is 36% [according to official calculations]; in the best-case scenario, coupons can offset this inflation, provided that it covers all the food and beverages; more than 60% of the costs of living still remain inflated. The government needs to take into account the inflation coming from liberalization in such areas as housing, transportation, education and treatment; even the costs of home appliance repairs, tires and car repair, apartment maintenance and hundreds of other services have increased in May and June. Do we have a coupon for maintenance services or rents?”

Afqah concluded that you cannot expect coupons to offset all the inflationary effects of price liberalization of the past couple of months. At their best, coupons will make up for 40% of inflation; workers, pensioners and woman breadwinners as well as low-income households will still be left out in the cold to grapple with inflation and heavy costs of living.

Inflation Hits Record High

Latest data released by the Statistical Center of Iran show the annualized inflation reported by the center on a monthly basis has reached a new high.

The average annualized inflation in the 11th month of the current Iranian year (Jan. 21-Feb. 19) stood at 47.7%, according to SCI.

Only in the fiscal 1995-96 and 1996-97 did the country experience inflation rates above the current level.

Notably, this is the ninth consecutive month the annualized inflation is rising after the government put into effect what it touted as “economic surgery” by abolishing the heavily subsidized import of essential goods.

The general goods and services Consumer Price Index (using the Iranian year to March 2017 as the base year) stood at 608 in the month under review, indicating a month-on-month rise of 3.5% and a year-on-year rise of 53.4%.

Among 12 groups of goods and services reviewed by SCI, the highest and lowest annualized inflation rates were respectively registered for “hotels and restaurants” with 76.4% and “communications” with 9.8%.

The highest and lowest MOM inflation rates were respectively registered for “food and beverages” with 4.8% and “education” with 0.5% month-on-month, respectively.

“Hotels and restaurants” with 78.9% and “communications” with 15.3% saw the highest and lowest YOY inflation respectively.

CPI hit 598.3 for urban households and 662.3 for rural households, indicating a month-on-month increase of 3.4 and 4%, respectively.

SCI put the annualized inflation for urban and rural areas at 46.9% and 51.7%, respectively. The year-on-year inflation stood at 52.7% for urban areas and 56.7% for rural areas in the month.

The rise in prices of goods and services accelerated at an unprecedented pace after the government decided to overhaul the import subsidy system.

Notably, with a coefficient of 26.64%, CPI of “food and beverages” stood at 911.8 in the month ending Feb. 19, indicating a 4.8% increase from the previous month. The index registered a YOY increase of 71.5% and the CPI of the group increased by 68% in the 12-month period to Feb. 19 compared with the corresponding period of last year.

Post-Revolution Experience

The world has tested subsidization programs many times and countries continue to enjoy support policies in different way. These programs were launched in the years after the First World War and continue to this day. The policy of giving subsidies to households has been carried out in Iran for many years now. But instead of resolving public livelihood problems and reducing inequality and improving welfare, subsidization programs in Iran have only benefited certain groups. This comes as support policies in the world are designed to help low-income groups. These were stated by Ali Sa’dvandi, an economist, in an article for the Persian daily Donya-e-Eqtesad.

“Any analysis regarding Iran’s support policies should begin with the understanding of the unsuccessful distribution of coupons in the 1960s during the Iran–Iraq War. Perhaps, the distribution of coupons was inevitable in the midst of the war and other problems of that period. Ultimately, the failure of coupon distribution prompted policymakers to think of an alternative. In 2010-11, government began the payment of monthly cash subsidies. As per the initial plan, heavy subsidies on food and energy were removed and instead all Iranians were individually paid 450,000 rials [about $1 at current exchange rate] on a monthly basis. The cash subsidy policy helped reduce poverty and inequality, and achieved its intended goals but unfortunately, the value of money in Iran decreased with the passage of time and inflation.”

Noting that cash subsidy was not supposed to remain unchanged at 450,000 rials despite the rising inflation, the economist said the cash subsidy lost its value thanks to inflation.

“Post-revolution experiences suggest that distributing cash subsidies is the best solution to livelihood problems; they help reduce poverty and inequality. At present, new subsidies are being introduced in the name of targeted distribution. They, however, are far from being effective; the only purpose the new form of subsidy, the so-called ‘electronic coupon’, serves is the consumption of a specific product, which will definitely be detrimental to the society,” he said.

“At present, the government is paying hidden subsidies in the energy sector, which mainly benefit households falling in the 10th income decile, the 100th percentile [the wealthiest of the wealthy] in particular.” Noted that said subsidies were initially offered with a lofty goal, i.e., to boost production, but this policy gradually derailed from its main goal, and finally ended up favoring the richest.

“These people took the resources they gained from the subsidies out of the country. In short, the payment of subsidies led to capital flight and the aggravation of energy crisis. It is necessary to rethink support policies such as subsidies in a systemic or general way to right the ship,” he said.