Concern Growing In Iran Over Plan To Eliminate Subsidy For Food Imports

Experts and media are warning Iran's government of serious consequnces if it stops allocating cheap dollars for essential imports in next year's budget.

President Ebrahim Raisi (Raeesi) recently submitted a budget bill to parliament that included eliminating the below-market exchange rate of 42,000 rial to the dollar for essential imports while increasing cash payments to citizens to compensate for any price rises.

Hamid Pourmohammadi, a senior economic policy official, told state television Monday that ending a special exchange rate for essential imports would increase inflation by just 7 percent.

Pourmohammadi, deputy head of the Planning and Budget Organization, told IRIB that higher prices for some daily purchases like bread would be compensated by increased government cash payments to citizens.But the amount of the additional payments mentioned by officials is only around $4 of cash handouts per month.

Inflation reports in recent month by the Statistical Center of Iran, a government organization has put the annual inflation rate at 45 percent.

Pourmohammadi argued that continuing to allocate dollars at a lower rate for essential imports would lead to a 28 percent jump in inflation, by forcing the government to print money to offset the fiscal losses caused by continuing high demand on foreign exchange.

The World Bank wrote last year that Covid-19 spending and “plummeting” oil revenue, due to the United States ‘maximum pressure’ sanctions that began in 2018, were taking Iran’s fiscal deficit to over 6 percent of GDP.

The subsidized rate − currently 42,000 rials to the dollar − has been in use since April 2018 - to hold down costs of imported food, medicine, and animal feed. The street rate stands at around 300,000.

There was only a single forex rate before 2018, when the government of President Hassan Rouhani introduced a subsidized rate of 42,000 after the rial fell to nearly 60,000 against the dollar in April 2018 as US president Donald Trump prepared to withdraw from the 2015 nuclear deal, the JCPOA (Joint Comprehensive Plan of Action).

Critics say forex reform, although necessary, will push up the already high rate of inflation to a level above the tolerance of vast groups of Iranians and cause a major upheaval.

"People's patience with economic [hardships] is running out,” a commentary in the conservative Asr-e Iran website Tuesday said. “The Iranian people are under 'maximum pressure’ on their subsistence. The burden imposed on them over the years has gradually grown so heavy that increasing a feather on top will break their backs."

The commentary argued there should be no price increases: "Stop…weighing people down with new economic burdens. Otherwise, the number of people who have nothing to lose will increase next year and you are better than anyone aware of the catastrophic security consequences of such circumstances."

Hassan Sadeghi a labor activist said at a union meeting on Monday said, "In fact, the government wants to offset its budget deficit by increasing the forex rate [for importing essential commodities] to the level of the rate in the open market. The pressure of this move will fall on the lower income classes and workers.”