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Subsidies Will Cost Iran $63.7 Billion In 12 Months

Food Distribution for Destitute – Kerman Province – Iran

Iran’s Plan and Budget Organization (PBO) says that during the current year, the country’s hidden and direct subsidies is estimated to reach 8,900 trillion rials, or $63.7 billion, based on the current USD rate in open market which stands at around 140,000 rials.

If the subsidy is calculated based on the official government exchange rate, the amount will be at least three times higher in dollars.

The current Iranian fiscal year is from March 21, 2019 – March 20, 2020.

Nevertheless, total subsidies constitute 2.2 times of government’s budget.

About one third of subsidies is directly paid from the government budget and state-run financial entities. These are cash subsidies, financial aid to farmers and the industrial sector, etc. But the “hidden subsidies” stand at around 6,490 trillion rials ($46.35 billion).

Hidden subsidies mainly mean subsidized cheap products, from food to drugs and energy carriers (gasoline, gas, etc.). If the Iranian government sold these products abroad or if it charged people for the true value of imported goods, then there would be no “hidden” or indirect subsidies. In other words, Iranian government would earn or save $46.35 billion if it charges the consumers for the real value of many goods and services.

For instance, a liter of gasoline in Iran is 10,000 rials or about 7 cents, while the regional prices are 6-10 times higher. The daily gasoline consumption in Iran is expected to reach 85-93 million liters in 2019. Therefore, subsidized gasoline alone costs the government at least $40 million daily.

PBO says the gasoline subsidy is estimated to reach 1,235 trillion rials, or $8.8 billion in the current year, which might be an underestimation. The total diesel subsidy is even higher.

Hidden subsidies for selected products in Iran during 2019

Fossil fuelsTrillion rialBn US dollar**Share of whole subsidies***
Food products*3992.854.5%
Fuel oil142.511.57%
Jet fuel86.10.610.95%
Natural gas2,79119.9431.3%

* Iranian government allocates cheap dollars for fuel, essential food products and drug imports at 42,000/USD rate

* converted based on 140,000 rials/USD

** Whole subsidies would stand at 8,900 trillion rial or $63.7 billion.

According to the International Energy Agency, the fossil-fuels subsidies in Iran during 2017 stood at $45.1 billion, the highest in the world. Since 2017, Iranian rial has lost 70% of its value.

The most worrying issue is that crucial growth sectors share a tiny share of the subsidies. Industrial and agriculture sectors share only 3.4% of total subsidies and education shares only 1.6%.