Expert Highlights Challenges of Eliminating Subsidies

EghtesadOnline: The removal of cheap foreign currency and hidden subsidies and their impact on inflation are really a minor concern; the main worry is lack of information to determine eligibility criteria and identify target population groups for subsidy allocation, Kamran Nadri, an economic expert wrote in an article published in the Persian exconomic daily Arman-e Melli. Translation of the full text follows:

News ID: ۷۸۷۱۳۲

09 October 2021

The effects of removal of subsidies on essential goods are different. For example, changes in pharmaceutical prices were minimal in recent years thanks to the allocation of cheap foreign currency, indicating that subsidies reached the target population.

The same subsidies are being allocated to the import of animal feed but due to lack of supervision and barriers posed by middlemen, the prices of products that have animal feed as their raw material have increased.

There's no escaping the fact that the country will ultimately move toward the removal of energy subsidies in the long run gradually. Besides the rent created by hidden energy subsidies, the prices of fuel and energy have been kept unrealistically lower than those of other goods and this has led to unrestrained consumption and imposition of excess costs on the government.

The rich are usually the ones benefiting the most from energy subsidies. Therefore, it is inevitable to move toward the elimination of hidden subsidies. Having access to information infrastructures, which allow the identification of target population, is key to the implementation of this measure.

Having updated equipment and technical know-how is a prerequisite for having information infrastructures and past experiences show we can’t depend on local know-how in this regard. The country suffers from information and communication poverty; you can’t expect to achieve your goals regarding equitable distribution of subsidies or objectives related to taxation.

Therefore, instead of putting forward plans, the implementation of which would burden the government with additional expenses, we need to avail ourselves of the knowledge and experience of developed countries. If not, the only fruitless strategy would be paying a fixed sum of subsidy to all members of the public.

At present, subsidized foreign currency is being allocated to a handful of goods, so a rise in their prices will be unavoidable once the subsidies are removed but this increase won’t be substantial. More importantly, it will happen once and for all whereas prices of all goods and services keep going up all the time as a result of budget deficit and misguided monetary management.