Reuters report on Iranian people becoming "poorer day by day"

In a field report published on Tuesday, July 8, on the living conditions of people in Iran, Reuters examined the effects of the crisis of the collapse of the national currency on the economic situation of Iranians. We read the report below:

"In her last-ditch effort to pay for her daughter's college tuition abroad, Maryam Hosseini, an elderly retired Iranian teacher, withdrew all her savings from the bank and used them to buy dollars.

But that wasn't enough. Her daughter, who had three years left of her university studies, was forced to abandon her future plans and return to Iran.

The story of the Hosseini family becoming penniless is an everyday story of many Iranian families who use their savings to provide for their children and send them dollars.

Ms. Hosseini says, "My daughter is forced to give up her dream of studying abroad and return. I can no longer afford the expenses."

The reason Ms. Hosseini became penniless is the sharp fall in the value of the Iranian rial to its lowest rate against the US dollar.

"This fall in value has not only made life in Iran much more expensive, but has also made it very difficult to keep the country's economy afloat in the face of crippling US sanctions and the novel coronavirus."

How long will it take to withdraw from reserves?

Reuters reports that the value of each dollar in Iran has reached a historic record of 20,000 tomans and has been increasing at a crawling rate since then.

The news agency continues:

"The collapse in the value of the Iranian rial in recent weeks has forced the Central Bank to inject hundreds of millions of dollars into the market to stabilize the rial."

Abdolnaser Hemmati, the governor of the Central Bank of Iran, has described the intervention as 'reasonable and targeted'.

Mr. Hemmati says that the Central Bank has sufficient foreign reserves, but he did not mention the amount of these reserves.

Economists also say that to deal with the budget deficit caused by the economic crisis, Iran will be forced to draw on those reserves, but this in turn will weaken Iran's ability to control inflation.

Garbis Iradian, senior economist at the Institute of International Finance, says that Iran's foreign reserves are limited to inject into the market and even doing so will not be able to curb the depreciation of the country's currency, especially with US sanctions and Iran's isolation in the international community.

Reuters continues that “since the United States withdrew from the nuclear deal with Iran, the Iranian currency has lost 70 percent of its value.

To compensate for this situation, the Iranian government has set several different exchange rates, especially to reduce financial pressure on importers.

But in the open market, even after the latest interventions by the Central Bank, the rial has continued to fall.

"One of the reasons for the recent decline in the value of the toman is the tension between the Islamic Republic and the International Atomic Energy Agency over the issue of permission to inspect two suspected Iranian nuclear sites. Another reason is the economic damage caused by the coronavirus."

A profound transformation?

Reuters writes that these successive falls in the value of the currency could indicate a deeper transformation.

The news agency continues:

“A more fundamental factor in Iran’s economy is the shift from a traditional surplus to a budget deficit in 2020, driven by a sharp decline in oil revenues,” says Niels Dehoch, an economist at Atradius, a trade credit insurer.

He says that the Central Bank of Iran is estimated to still have sufficient reserves to support the rial, but as they continue to help address budget deficits, these reserves are also running low.

Iran, which was still exporting more than two and a half million barrels of oil per day in April 2018, is now estimated to be unable to export more than 100,000 to 200,000 barrels due to US sanctions.

The International Monetary Fund estimates that Iran will withdraw about $20 billion from its financial reserves this year and another $16 billion next year.

Poorer day by day

Reuters writes: “It is estimated that the Iranian government’s budget deficit will reach $10 billion by March 2021. This is the estimate that Masoud Khansari, head of the Tehran Chamber of Commerce, announced in a conversation with the media.

He added that increasing the budget deficit and money supply will increase inflation, lower the value of the rial, and reduce people's purchasing power.

According to a businessman in Tehran named Soroush, who did not want his last name to be revealed, the Iranian government has asked people not to flee from the toman and not to buy foreign currency, and most exchange offices in the city center are also refusing to sell dollars to customers.

He explained that when the dollar rose against the toman, people rushed to exchange offices to buy dollars, but now the situation has calmed down.

Reuters adds that “there are now fewer people in Iran who are immune to economic hardship. From the business elite to ordinary workers, everyone is now feeling the impact of the currency’s collapse.”

With increased taxes, reduced subsidies, limited access to foreign markets due to sanctions, and difficulty obtaining the foreign currency needed for trade, more and more businesses are reporting facing numerous problems every day.

The owner of a furniture factory in the city of Rasht, in northern Iran, says that the currency crisis and trade sanctions have paralyzed us. We are already facing a shortage of raw materials.

The prices of basic goods such as bread, meat and rice are increasing day by day. Meat, at $10 per kilo, is now unaffordable for many. The media regularly reports on the dismissal of workers or strikes by workers who have not been paid for months, including in factories owned by the government.

Reza Mahmoudzadeh, a government employee, says: "Life has become very expensive and salaries are no longer enough. We are getting poorer every day."

With the International Monetary Fund's estimate of inflation in Iran at 34.2 percent this year, most Iranians should prepare themselves for even higher prices.

Meanwhile, Iran’s religious rulers are intent on preventing a resurgence of unrest in the form of the November 2019 uprising, which began over economic hardship but took on a political form, with protesters demanding the removal of senior government officials.

Source: Radio Farda