The New Currency Unit Is an Amusement

TEHRAN (Iran News) For better understanding, the table below shows the main components of the government’s general budget:

General government budget

General resources: 5,220 billion new rials

Dedicated revenues of ministries: 734 billion new rials. Of course, the above figures pertain only to the general government budget and do not include the budgets of state-owned companies or the collective expenditure section.

Key and analytical points about the budget

Drafting the budget on the basis of the new currency unit is accompanied by significant policy changes:

Contractionary policy: Analyses show that this budget has a contractionary nature, such that the growth of its expenditures relative to high inflation is estimated to be very low (around 5 percent).

Impact on livelihoods: It is predicted that the 20 percent increase in the salaries of employees and retirees will not be in line with current and forecast inflation (above 50 percent) and will undoubtedly lead to a reduction in their purchasing power.

Tax changes: A significant increase in tax revenues (around 63 percent) and an increase in the value-added tax rate to 12 percent could have an inflationary effect on the prices of goods and services.

Removal of the preferential exchange rate: In the new budget, the preferential exchange rate of 28,500 tomans has been removed, and the exchange rate used for customs calculations has been increased (for example, each euro has been calculated as equivalent to 103 new rials).

Public reaction and security concerns: Many people and experts consider the removal of zeros from the currency, without fundamentally controlling inflation, to be a superficial measure and a kind of amusement meant to occupy people’s minds, and they are concerned that without essential economic reforms, this action will be repeated again and again in the future.

Now, with the government’s decision, it is expected that next year monetary and financial markets will enter a new space, and newly printed banknotes will gradually be introduced into the market so that, over a five-year process, the new currency unit becomes dominant in the country’s economy.

People’s engagement with inflation, contractionary policy, zero percent growth, and the appearance of the new currency can, to some extent, cause the core issue—namely, the direction in which the economy is moving—to be reviewed in hidden and unspoken layers of the public mind. Woe to behavior in which there is no reflection.