With Record Inflation, Iran Plans to Reduce Subsidies by 30%

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According to Iran’s Central Bank, inflation exceeded 40% on many goods in the month of Shahrivar (Aug. 23–Sept. 22) in comparison to prices of the previous year, the biggest price increase since 1995. While international sanctions on Iran have caused severe economic problems, domestic economic policies have also contributed greatly to inflation and other difficulties.

Item Rate of Inflation
1 Food and Beverages 51%
2 Tobacco 79.1%
3 Shoes and Footwear 60.1%
4 Housing, Water, Electricity, Gas and other fuels 20.9%
5 Home furnishings 73.9%
6 Health 43.1%
7 Transportation 44.9%
8 Communications 10.2%
9 Recreation 45.1%
10 Education 12.4%
11 Restaurants and Hotels 41.4%
12 Miscellaneous Goods 64.6%

Under former President Mahmoud Ahmadinejad, subsidies on fuel and basic goods were eliminated in favor of cash payments to families according to their income and number of family members. This plan was approved by parliament and seemed to have the backing of all state institutions.

According to Shargh newspaper, while President Hassan Rouhani has said that the cash subsidy payments would remain intact until the end of the Iranian calendar year (March 2014), a parliamentary budget committee is reviewing plans to eliminate the top three economic brackets from receiving any more subsidies due to a deficit of 14 billion toman (approximately $4.5 billion) in this program. This would affect 22.5 million people, about 30% of the total population currently receiving subsidy payments, according to Shargh.

Jaffar Ghaderi, a member of parliament’s Planning and Budget Commission, said that there is currently “not a balance between resources and expenditures” when it comes to the subsidies and it is best that “the administration decrease these payments.”

Ghassem Azizi, also a member of the commission, added, “When the administration encounters difficulties in securing resources, the effect of the deficit in resources will be seen in minimizing or shutting down development projects. Suspending development projects would end the creation of jobs and would lead to broken election promises and lead to disapproval in the country.”

Conservative parliament member Ahmad Tavakoli, also a member of the committee, believes that parliament will approve of the plan to eliminate the top three economic brackets from receiving cash subsidies. Otherwise, according to him, the Central Bank would be forced to print more cash, which would cause more inflation and more economic troubles.