News ID: 118215
Published: 0259 GMT May 17, 2015

Eliminating cash subsidies essential

Eliminating cash subsidies essential

By Asadollah Asgaroladi


Iran's subsidy reform plan has been among the most controversial socioeconomic initiatives since it was implemented. When the administration of former president Mahmoud Ahmadinejad decided to initiate the project, economic pundits voiced concerns about its harmful impacts while others insisted that it come into effect at the earliest.

Ultimately, the Ahmadinejad administration introduced the first phase of the plan in December 2010. This was considered necessary to ease the government's financial burden and to help achieve a better distribution of wealth.

Based on the plan, the government hiked the prices of energy carriers and consumer goods. However, it granted monthly cash subsidies to people from all walks of life irrespective of their financial needs to cushion the blow of rising prices. Each individual has been receiving about $15 per month since then.

Even though the monthly allowances were intended for only 10 percent of the populace, they were granted to almost the entire population. The cash subsidies have struck a serious blow to the national economy. They led to huge job losses while adversely impacting the production sector. This is because in rural regions, for instance, the handouts discouraged residents from working. The huge money also brought about a rise in liquidity which had been expected to be channeled to the production sector. The government of President Hassan Rouhani should put the motion into reverse gear and dole out the stipends to the 15 million Iranians who live below subsistence levels. Any procrastination will entail adverse consequences.

Undoubtedly, the government is bound to support the low-income strata financially. However, it should not neglect the production sector.

Official figures show that the poor implementation of subsidy reform plan has pushed up inflation. The inflationary impact of the plan was so strong that the Iranian parliament had to suspend the second phase. The Rouhani government has called on the people to voluntarily forgo the handouts. This shows the extent to which the cash subsidies have negatively impacted the national economy.

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