As a country between globalization and isolation, between tradition and modernity, Iran occupies a vital position on the international stage. Television, newspapers, magazines, columnists, journalists, and journalists almost all media tried to understand, supervise and explain developments since the 1979 Islamic Revolution. Recently, this growing concern has focused almost on Iran's nuclear program, UN sanctions, diplomatic efforts, and President Ahmadinejad on the Iranian nuclear issue. Despite this, Iran's cautious economic performance towards globalization has attracted little attention from the international media. In this performance, the Iranian government's long-term subsidies for energy, food and some services play an important role in its impact on the state budget, monetary policy, development plans and social welfare.
Iran's economic realization is largely dominated by its energy reserves. Iran has 73.6 million people, 828 billion US dollars of gross domestic product [PPP], 1.6% of real GDP growth, $154 billion in trade, and $66.2 billion in oil and gas exports [75.6 percent of total exports]. %] is the country's 18th largest economy. The world of 2009.
As a member of OPEC, Iran has the world's third largest proven oil reserves and the second largest natural gas reserves. It is also OPEC's second largest oil producer and the world's fourth largest crude oil exporter. According to the International Energy Agency's [IEA] World Energy Outlook, Iran has huge potential, spending $66 billion in 2009 on fossil fuel subsidies, which ranks first in the world. Such subsidies have always been a huge burden on the economic backbone, leading to inefficiencies in the energy sector. It is estimated that subsidies, including food and various services, are considered to cost Iran up to $100 billion annually. Considering Iran's gross domestic product [currently at $331 billion in 2009], one can imagine that the savings will reach 30% of GDP, which has a major impact on Iran's GDP.
The history of subsidies in Iran dates back to the 1970s, when high inflation and price instability, especially the price instability of fossil fuel products, led the government to establish consumer support funds to control prices and allocate subsidies. In 1977 it was replaced by consumer and producer protection organizations. The government believes that subsidies are the best way to distribute national wealth. During the 1979 Islamic Revolution, the government had to increase subsidies due to falling oil production, continued high inflation and a growing black market. In fact, although Iran was one of the most energy-efficient countries in the 1980s, it is now one of the wasted countries. However, with regard to food and drug subsidies, the opposite is true. These have played an important role in increasing child nutrition and reducing child mortality. During the first and second presidents of Muhammad Khatami from 1997 to 2005, although the government was assigned to prepare the necessary subsidy reforms through economic development plans, the economy, society and politics brought about by the sudden rise in prices Risk, attempt failed.
Even the Iranian issue recognized by President Ahmadinejad is an imbalance between high-income and low-income people caused by public subsidies. Although Iran's richest 20% pay only one-tenth of the total income tax, they receive a 70% public subsidy. The poor who use less energy have very little subsidies compared to the rich. The motivation for disarming is to manage consumption, increase productivity, establish justice, eliminate social disparities and increase national production. The country's energy consumption is much higher than international standards.
Finally, in December 2008, the government submitted a "law on additional subsidies" to the parliament, mainly to reduce subsidies for fuel, electricity and certain commodities within five years. So far, the so-called "major economic surgery" has begun in Iran. For the law, the government pays cash subsidies to compensate low-income families from the possible adverse effects of inflation. In short, the plan is to shift from subsidy policy to market-based energy pricing within five years and to provide assistance to low-income groups. The government intends to allocate 50% of the fiscal savings from subsidies through direct cash or non-cash compensation.
In the end, the parliament spent a year to pass the law, which was passed by the Parliament in December 2009 and then approved by the Guardian Council. Since the beginning of 2010, the government has been committed to the implementation strategy of the law. As of December 18, 2010, the law has entered into force. As stated by the law, the government must adjust the internal prices of gasoline, gasoline and liquid oil at the end of the fifth economic development plan [2010-2015] so that the prices of these products are not lower than 90% of the international price [FoB Persian Gulf]. ]. For electricity, all subsidies will be raised to the end of the fifth plan and the price should be consistent with the final production price of 100%. The law, in addition to energy products, includes water, wheat, rice, cooking oil, sugar, milk, postal services, aviation services, railway services, flowers, and bread.
In fact, in Iran, the habit of artificially lowering prices 30 years ago made it more difficult for the government to implement the basic reforms to date. Due to the intensive debt of 15 years, this time a consensus was reached on the necessity of public opinion reform. It is widely believed that this reform plan will bring the following results:
- Additional income from infrastructure investments.
- Producers must prioritize energy efficiency in the production process.
- Cash transfers enable people to allocate resources more efficiently.
- Due to high prices, demand for fossil fuels will decline, so domestic prices will be adjusted according to world prices and smuggling of these products from Iran is discouraged.
- Declining demand will leave more energy resources for exports.
- The Iranian domestic automotive industry produces 1.5 million vehicles a year and must be modernized to increase energy efficiency and be more competitive in the export market.
- Reducing demand will also make people more flexible about UN sanctions. The government has also accelerated the implementation of reforms because of UN sanctions on refined petroleum products to reduce domestic demand.
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However, there is concern about the transparency and adequacy of measures to avoid or mitigate the negative impact of the program on low- and middle-income people. Therefore, the method of increasing the speed of subsidies and compensating different population groups is a common concern, that is, the following items can be added:
- There are questions about the level and frequency of annual price adjustments.
- The definition of eligibility and the amount and duration of these payments are vague. This may again lead to unfair income distribution.
- The plan is most likely to trigger inflation depending on the rate of price increases.
- Strategies to reduce inflation are not enough.
- Uncertainty in saving revenue.
In accordance with the law, an independent organization was established to manage cash transfers that require parliamentary approval. The organization has already begun work and collects statistics from households to verify their cash transfer income and record their bank accounts. According to the prescribed law, 50% of the extra income earned by the reduction of subsidies will be used for cash payments, housing investment, medical services, social security, and employment. In addition, 30% of the revenue will be allocated to businesses so they can invest in energy-efficient technologies, improve public transport and support agricultural and industrial projects.
Now everyone is paying attention to the first results of the implementation and trying to estimate its direct impact on the economy. As the law envisages, the government has sent thousands of inspectors to check prices to avoid a sudden increase in producers, and people are beginning to withdraw cash transfers. Although the first impressions show that people have no unusual reactions, the changes have been absorbed calmly, and the business is on the usual track. It is reported that some producers have begun to slow down the speed at which products enter the market because of expected price increases. Obviously, it is still too early to draw conclusions on this major economic transformation.
Last but not least, Iran is on the verge of one of the "major economic operations" in its long history. Most people are concerned about the grim results of the implementation process, possible protests, poor management of extra income, corruption, and adverse social consequences. However, due to transparency and good cooperation between the government and the parliament, some concerns can be eliminated. It is clear that the Iranian people face enormous political, social and economic risks, especially under the threat of sanctions caused by stubborn and uncompromising foreign policy. Although the aim is to end the energy price at one-tenth of the world level and to stop large-scale energy waste, inflation, sanctions, corruption and, most likely, serious social impacts may be the inevitable future of Iran..... . . .from
Orignal From: Iran's "major economic surgery" is now a reality
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