The government has allocated 1,000 trillion rials ($3.4b) to help compensate the elimination of subsidized foreign currency in the 2022-23 budget.
Scrapping the controversial forex subsidies is one of the critical issues in the next budget submitted to the parliament by President Ebrahim Raisi on Sunday.
As per the bill, the government will give this amount “to offset price rises of basic goods, pharmaceuticals, bread and guaranteed-purchase of wheat”, local media reported.
The much talked-about move should put a permanent end to the yearslong debate on whether or not to end the increasingly costly and corruption-tainted subsidy policy.
Since mid-2018, the government has subsidized currency for importing basic goods ( $1=42,000 rials). The highly subsidized rate is less than a seventh of the real prices in the open market and has been fertile ground for rent-seeking by some big import companies, vested interests and state cronies.
Subsidized forex is gotten from oil export and used only for importing essential goods, pharmaceuticals and machinery to avoid price hikes in food and raw materials.
While successive governments as a matter of policy subsidized food imports, cheap currency in its current format was given after the steep rise in forex rates in the spring of 2018 soon after the United States under Donald Trump abandoned the Iran nuclear deal and imposed tough economic sanctions.
Flaws in the apparently ill-advised policy emerged in the first few months after inception and the government under pressure was compelled to slash the list of goods eligible for subsidized currency.
In the present fiscal budget, the government was not allowed give more than $8 billion in subsidized currency for importing food and medicine. The Central Bank of Iran says what has indeed been paid so far is over and above the ceiling set in the budget.
According to customs data, 14.37 million tons of essential goods worth $8.8 billion were imported in the first seven months of the current calendar year (March-Oct), 25% and 95% higher, respectively, on the same period of last year.
So far nothing is known about how the government wants to compensate for a likely increase in prices after the forex subsidies become a thing of the past if the budget is approved by the Majlis.
Observers say the $3.4b will be channeled to the low-income strata in the form of cash subsidy.