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Iran Regime Spends over Two Times Its Budget on Subsidies

Iran Regime Spends over Two Times Its Budget on Subsidies

By Mahmoud Hakamian

The Iranian Plan and Budget Organization (PBO) has said that the Regime will spend more than two times the government’s budget on hidden and direct subsidies in this financial year.

The PBO said that Iran is estimated to spend 8,900 trillion rials (or $63.7 billion, based on the current USD exchange rate on the open market) on total subsidies, which is 2.2 times the government’s budget, during the current fiscal year of March 21, 2019, to March 20, 2020.

If we based the exchange on Iran’s artificial exchange rate, which was fixed in April 2018, the amount in dollars would be at least three times higher.

The subsidiaries

Roughly a third of the subsidies are paid directly from the government budget and state-run financial entities. These are cash subsidies and include things like financial aid to the agricultural and industrial sectors.

Two-thirds of the subsidiaries, which equates to about 6,490 trillion rials ($46.35 billion), are hidden. This mainly means subsidizing products, including food, medicines, and energy sources, to make them cheaper.

However, if the Regime sells these products abroad or charges the Iranian people for the true value of imported goods, then it would make roughly $46.35 billion at the expense of the Iranian people.

If we look at gasoline as an example, one litre of gasoline costs 10,000 rials (7 cents), which is six to ten times lower than the regional average. The daily gasoline consumption in Iran during 2019 is estimated at 85-93 million litres, means that Iran will spend at least $40 million per day to subsidise gasoline.

PBO estimates that the gasoline subsidy will reach 1,235 trillion rials ($8.8 billion) in this financial year, while the total diesel subsidy is higher still.

Here is a list of the PBO’s estimates for hidden subsidies in Iran during 2019 (USD amounts worked out at open market exchange rate:

• Food: 399 trillion rial ($2.85 billion)

• Medicine: 102.6 trillion rial ($0.73 billion)

• Gasoline: 1,235 trillion rial ($8.82 billion)

• Kerosene: 104.5 trillion rial ($0.75 billion)

• Diesel: 1297 trillion rial ($9.26 billion)

• Fuel Oil: 142.5 trillion rial ($1 billion)

• LPG: 124.2 trillion rial ($0.89 billion)

• Jet Fuel: 86.1 trillion rial ($0.61 billion)

• Natural Gas: 2,791 trillion rial ($19.94 billion)

• Electricity: 100 trillion rial ($0.71 billion)

The International Energy Agency said that the fossil-fuel subsidies in Iran during 2017 were the highest in the world at $45.1 billion. Since then, the Iranian rial has lost 70% of its value.

The most troubling part of all of this is crucial growth sectors are going woefully underfunded, with industrial and agriculture sectors only receiving 3.4% of total subsidies and education only 1.6%.