Key Economic Figures Debate Iran’s Financial Condition

EghtesadOnline: Ongoing currency issues and the prospect of US reimposition of sanctions took a back seat on Tuesday at the annual Conference on Monetary and Foreign Exchange Policies in Tehran.

News ID: ۷۸۳۰۲۹

23 June 2018

Instead, participating officials with the Central Bank of Iran and the economic team of President Hassan Rouhani’s government chose to mostly focus on internal issues such as surging liquidity and perennial budget deficits, among others.

The two-day conference, subtitled “Structural Reforms for Fiscal Stability”, hosted a series of keynote speeches by well-known economic figures, a short celebration and book unveiling ceremony, and three expert panels.

Ali Divandari, the head of Monetary and Banking Research Institute, the entity holding the event, opened the conference. He was followed by CBI Governor Valiollah Seif who presented yet another review of general achievements and policies of the central regulator under his five-year command, Financial Tribune reported.

He talked about curbing the inflation rate to single digits, the last Iranian year’s (ended in March) GDP growth rate of 3.7% and limiting annual liquidity growth by 1.1% as it grew by 22.1% to reach 15.3 quadrillion rials ($356.6 billion) by the end of last year. He also said CBI is still pursuing its bank reform plan.

But on the sidelines of the event, he answered questions concerning a much more important issue. News have been recently circulating that the government is poised to recognize open market rates of foreign currencies by allowing traders whose currency demands are not deemed too urgent to use a mutually agreed rate that is closer to the open market rate.

This would mean that even as the government unified the country’s foreign exchange rates on April 10 and set the US dollar rate at 42,000 rials, three rates will effectively emerge–the subsidized 38,000-rial rate allocated to essential goods, the 42,000-rial unified rate and the mutually agreed rate that is rumored to stand at 65,000 rials.

Asked whether such rumors are true and that the country will have three foreign exchange rates, Seif said the government and the CBI still only recognize 42,000 rials, adding that “goods have been divided into three categories, all of which will be provided at the 42,000-rial rate”.

The CBI chief also presented awards to Siavash Naqshineh and Mohammad Reza Fatemi, two veterans of the banking system, and unveiled a book called Central Banking, which is slated to be soon released in the market.

Seif was followed by his deputy for economic affairs, Peyman Qorbani, who mostly dissected previously disclosed data on liquidity and monetary base growth in Iran and discussed GDP growth as well.

Masoud Nili, a longstanding economist and current chief economic advisor to the president, focused his discussion on Iran’s annual budgets and their significant shortcomings.

“The phrase ‘fiscal policy’ has had no real meaning in Iran in the past decades, as the government budget has only meant money for executive bodies rather than an instrument for policymaking,” he said.

Nili said the ratio of GDP to government investments in construction projects has been steadily falling from 12.5% in about 40 years ago when oil incomes were aplenty to 5-7% and then to 2.7% in the past six years.

Nili noted that a 5-7% ratio is suitable and said Iran has basically no chance of going beyond 3% in the coming years.

"Therefore, the government is eying and needs public-private partnerships, the guidelines for which are being devised," he said.

The presidential advisor pointed out that Iran has been battling “sustained and systematic” budget deficits for more than half a century. He said considering the fact that the ratio of the government’s current expenses to GDP has been falling, “our governments have not been in a good position in terms of the quality and quantity of offered services”.

"Subtract hefty expenses for pension funds, which will only exacerbate in coming years, and the government will only fare worse," he warned.

Nili called for a set of transparent fiscal policies in government budgets, like those adopted by dozens of other nations, that will include controlling systematic deficits, saving a portion of oil incomes, boosting the ratio of income tax to GDP and putting a lid on debt bonds issued by the administration.

Three panels followed, in which five-member groups of CBI officials, bank chief executives, and economic and academic experts conferred on the fiscal structure of the government, banking reforms and stabilizing low inflation to maintain overall stability.