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EghtesadOnline: Head of the Tehran Chamber of Commerce, Industries, Mines and Agriculture on Tuesday reviewed economic developments in the outgoing fiscal year (ends March 20).

Addressing TCCIM members Masoud Khansari said opportunities had been missed largely due to mismanagement that in turn had “undermined public trust in policymakers." 

He pointed to the pattern of decline in non-oil exports and the inability to boost export market share as result of the unprecedented rise in foreign exchange rates.

"The forex rate upsurge could drive non-oil export growth but it was regrettable that it targeted the price of imports and raw material," he was quoted as saying by the TCCIM website.  

"The main reason exporters did not benefit from higher forex rates was the confusion [and overlapping of] of government regulations that undermined exports.” 

The US dollar surged more than 60% against the rial since the beginning of March 2020 -- it soared from 152,000 rials then to 245,000 rials now. In the October of last year 320,000 rials was buying one dollar. 

In the 11 months since the beginning of the current fiscal year (March 20, 2020-Feb. 18, 2021), 103 million tons goods worth $31.2 billion were exported. Imports constituted 30.8 million tons worth $34.3 billion. 

Compared to the corresponding period last year, exports registered 18% and 19% year-on-year decline in volume and value, respectively. Imports fell 6% and 15% in weight and value year-on-year, respectively, according to data released by the Islamic Republic of Iran Customs Administration. 

Khansari singled out steep volatility in the financial markets as another major economic setback. He particularly referred to turmoil in the stock market that inflicted heavy losses on investors and undermined public trust in policymakers. 

In his view, the capital market was another lost opportunity for  the economy that has seen more than its fair share of distress in recent years and is afflicted with bureaucracy, lack of planning and mismanagement. 

 

Subsidized Forex  

Khansari expressed concern about the controversial policy of using scarce foreign currency to import basic goods. Citing  customs data, he said basic goods worth $11 billion was imported in the first 11 months of this year. 

Allocating cheap currency for importing basic goods was essentially aimed at supporting the low income strata and avoid steep rise in consumer prices, mainly food.

However, data indicates that the policy failed to deliver as seen  in the steep increase in prices, hoarding and price gouging. Referring to figures released by the Statistical Center of Iran, Khansari said food inflation experienced a year-on-year increase of 67.2% by the calendar month ending Feb.18. 

In the past two and a half years the government subsidized imports by disbursing one US dollar at 42,000 rials -- almost a fifth of the value in the open market. The cheap currency is allowed only for importing essential goods, pharmaceuticals and raw material. 

The policy has attracted unusually strong opposition from independent economic think tanks for its susceptibility to rent-seeking and corruption, due to the huge difference between the subsidized and open market rates. Time and again there have been disturbing reports in the local media about billions of dollars of government funds lost to fraud, corruption and nepotism in relation to imports plus the shocking lack of stringent state oversight.

Noting that the failed policy did not help vulnerable and the targeted households, he said the government would do better if it paid the difference in the price of subsidized currency with the real rate in cash subsidy to those in need. 

He complained that the government remains oblivious to the private sector's warnings about the risks of continuing with failed policies and expressed disappointment with the parliament for letting the subsidy policies enter the 2021-22 budget.  

The Majlis has allowed the government to earmark up to $8 billion in cheap currency for importing basic goods next year. 

 

Perennial Inflation 

The senior private sector official described galloping inflation as one of the biggest predicaments of the economy and predicted more not less inflation in the coming year. 

Challenging the CBI's inflation target of 22% for the outgoing year, he forecast inflation at or near 36% "which is far away from the target". 

Taking stock of inflationary potential of next year’s budget, he said it is more likely that the economy would come under sustained price pressures.  

Khansari recalled the ingrained economic challenges, adding that challenges exacerbated this year as the economy faced three main challenges, namely the US economic blockade, steep decline in oil revenue and Covid-19.

 

Tehran TCCIM Economic