Forex Subsidy Policy Stays, for Now

EghtesadOnline: The government's plan to eliminate forex subsidies will not be implemented this month despite insistence from several quarters.

News ID: ۷۸۷۲۰۱

26 October 2021

The subsidized foreign currency policy ($1=42,000 rials), which came into force during the second term of former president, Hassan Rouhani, is seen by many economic experts and the Raisi administration as a source of corruption and rent-seeking that lined the pockets of vested interests at the expense of the public.

President Ebrahim Raisi has expressed reservations about the highly controversial and costly policy of subsidizing the increasingly scarce foreign currency following the imposition of the economic blockade in 2018 by the former US president Donald Trump. However, with what exactly his government intends to replace that policy remains unclear.

In recent weeks there has been much talk on social media regarding plans to revoke the subsidy policy giving rise to higher prices of goods and services. Soymeal prices, for example, soared 200% compared to last year, according to the Food Wholesalers’ Association.

However, Tasnim News Agency rejected the claims in a report on Monday. It said ending currency subsidies is not on the government agenda for now. Quoting unnamed official, it added that plans to this effect will not be implemented instantaneously.

The approach by the new administration has been commended by some observers. Mohammad Lahouti, head of the Export Confederation affiliated to the Iran Chamber of Commerce, Industries, Mines and Agriculture, had criticized the former government’s insistence on subsidizing imports of essential goods.

"With the new administration we are hopeful that the [present subsidy] policy will be rescinded and replaced by regulations that will directly support the low-income strata.

“Despite the challenges the former government faced procuring subsidized forex, its benefits hardly reached the public for whom it was intended resulting in ever-rising prices and shrinking purchasing power of the large majority.

“The truth is that the subsidies became an [undeserving] opportunity for a selected few who never delivered on their commitments to import essential goods."

The Central Bank of Iran says it provided $15 billion for the import of essential goods in the first four months of the current fiscal year (March 21-July 22), up 27% on the corresponding period last year.