February 18, 2022
The Majlis has rejected President Raisi’s proposal to eliminate the subsidized dollars used to import essential goods, mainly medicine and food.
Many economists say the decision, taken with others by the legislature, is bound to add to the huge budget deficit and further feed inflation.
The Budget Committee’s spokesman, Rahim Zare, told reporters January 29 that the committee did not approve the proposal because it was ambiguous, and the government had not provided a written proposal to explain how it would make up for the end of the subsidized dollar.
The subsidized rate was introduced by the administration of President Hassan Rohani in early 2018 as the value of the rial began to plummet. The dollars are sold to importers at 42,000 rials per dollar, instead of the free market rate, which is now around 270,000 rials to the dollar.
In other words, the free market value of the dollar is now 6.4 times that of the subsidized rials. While this theoretically makes imported pharmaceuticals and foodstuffs much cheaper for the poor, the main concern is that many of the cheap dollars have been diverted to import other goods that aren’t supposed to be subsidized. Furthermore, the public complains that the imported items are not cheap and many believe the importers are just selling the goods for the unsub-sidized price and pocketing the difference.
Zare said the Budget Committee decided to allocate $9 billion at the 42,000-rial rate for importing medicine, medical equipment and other essential goods, excluding wheat. Regarding wheat, the committee has decided to allocate funds to increase the price of the government pays domestic farmers for wheat. That wheat is then supplied to bakers for less than what the government pays the farmers.
In the current year, according to Zare, the government will spend around $15 billion for importing essential goods much more than the $9 billion allotted.
A few years ago, there were two dozen items that could be imported legally with subsidized dollars. But that has been reduced over time until now only seven items can be imported.
Here are the figures the Customs Administration says have been imported with subsidized currency in the first nine months of the current Persian Year:
$2.24 billion—Maize (for fodder)
$2.08 billion—Vegetable oil
$1.67 billion—Medicine and medical equipment
$1.39 billion—Oilseeds
$1.21 billion—Wheat
$1.08 billion—Soymeal
$0.77 billion—Barley
Items that have been dropped from the subsidy program include rice, red meat, poultry, tea and sugar.
In November, the Majlis sat on a bill that would have replaced the subsidized dollars with monthly cash handouts of 1.1 million rials (less than $4) to each of 60 million low-income Iranians.
The committee has also rejected the government’s request to be allowed to halve the amount of oil revenues it is required to pay into a sovereign wealth fund. Current law says 40 percent of oil revenues should be paid into the fund for investment in productive economic activities that would provide for the welfare of future generations.
Zare said the committee rejected the proposal to halve the amount because the government did not have the Supreme Leader’s authorization to do so, but the proposal could be reconsidered if the government acquired such permission. It had not done so before the full Majlis voted to kill the subsidized dollars.
President Raisi told the Majlis the plan to kill the subsidized currency was a pivotal element of the budget bill.
