Friday, 25 May 2012

Iran: Subsidy reforms phase 2

The Majles approved government use of IRR660 trillion (about $53 billion) for the implementation of the second phase of subsidy reforms in the current Iranian year (started 20 March 2012). Tables 3 and 4 summarise the key data.

The Majles altered the government plan by increasing handouts to households and reducing the amount to the industrial sector. Although new price hikes were planned to kick in on 21 May 2012, that move has been postponed.

There is still major criticism from economists over its potential inflationary impact. Experts agree that so far the socio-economic impact of the reforms has been a disaster. The Iranian middle class and industries have suffered and the reforms have contributed to economic uncertainty and low business confidence, though they have also had positive outcomes such as major energy savings.

In its deliberations, the Majles voted to raise cash handouts by 60 per cent. Some 65 million Iranians will each receive IRR730,000 ($59.50 at the official exchange rate) of direct monthly aid from the government, up from IRR455,000 ($37.10). The total paid to families during the previous Iranian calendar year was IRR400 trillion ($32.6 billion), and in the current year the figure is IRR480 trillion ($39.2 billion).

The raise is designed to offset runaway inflation, which has caused growing discontent in recent months. Official estimates put inflation at 21.8 per cent since last May, but unofficial statistics show that it is closer to 30 per cent.

For more news and expert analysis about the Caspian region, please see Caspian Focus.

© 2012 Menas Associates

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