Iran: Ending Forex Subsidy Policy Is Put on Hold

EghtesadOnline: The government has delayed the plan to eliminate forex subsidies for basic goods, the Economy Minister Ehsan Khandouzi said.

News ID: ۷۸۷۳۵۲

27 November 2021

"The government initially decided to move towards ending the allocation of subsidized forex due to its negative impact on domestic production. However, the plan has been postponed after the parliament voted against it," Khandouzi was quoted as saying by Tasnim News Agency.

Subsidized currency is highly influential in the type of goods imported into the country and those produced locally, he added.

Contrary to expectations, the parliament earlier this month opposed the double-urgency motion of a bill on ending use of subsidized currency for importing essential goods.

Lawmakers who oppose the socially sensitive move say that with inflation galloping at full speed (45% and above) and prices of pharmaceuticals going through the roof, the move would inflict another shock on the sanctions-plagued economy.

The forex subsidy policy ($1=42,000 rials) of the former government under Hassan Rouhani is seen by some economists and the Raisi administration as oxygen for corruption and rent-seeking that lined the pockets of vested interests at the expense of the public. In fact the case for and against subsidies in its entirety has appeared, disappeared and reappeared over the past three decades.

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.

Cheap currency is sourced from oil export revenue that has diminished to unprecedented levels due to the US economic sanctions and is used only for importing essential goods, pharmaceuticals and machinery.

The scheme was intended to avoid price hikes in food and raw materials and protect consumers against runaway inflation arising from high and rising currency rates in the market.

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.

The Central Bank of Iran says it gave $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.