Chapter

Appendix 4: Subsidies

Author(s):
International Monetary Fund
Published Date:
March 2007
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Explicit subsidies include budgetary subsidies to households for essential commodities, such as wheat, rice, oil, sugar, milk, and cheese; imports of medical equipment and pharmaceuticals; fertilizers; and some debt service payments on publicly guaranteed debt. Most of these subsidies were provided implicitly through the official exchange rate until the 2002 exchange rate unification, when the subsidies started being explicitly estimated in the budget. Subsidies are also provided to farmers by a specialized government-owned agency to guarantee minimum purchase prices of agricultural products. Food subsidies are rationed through coupons, which are given to all households regardless of income level. In recent years, the government has gradually reduced explicit subsidies for food, although they still constituted about 4 percent of GDP in 2003/04. Subsidies to cover exchange rate losses on debt service are declining rapidly as debt contracted before the 1993 and 2002 exchange rate unifications comes to maturity.

Implicit energy subsidies have given rise to misallocation of resources, waste, and overconsumption of energy products. As a result, Iran has become one of the most energy-intensive countries in the world. Total oil consumption amounted to 1.5 million barrels per day in 2002/03—a rate similar to that of Spain, which has a GDP six times higher than Iran. Also, air pollution is emerging as one of the main environmental and health problems, especially in Tehran.

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