Rial devaluates and the economy shrinks further

Rial devaluates

The past few weeks were witnessing very hard work to get our website back; and now that it is here we have to report only a bunch of worrying news.

This is of course not a very enthusiastic resume, but since the USA has pulled out from the Nuclear Deal with Iran in May 2018, the situation is only getting worse. And if we were supposed to skip the worrying news, we had to give up the newsletter altogether, as some others have done, but not us!

So, here is the worst news of the week: Rial has reached its lowest value ever. Currently one USD is worth more than 200,000 rials and one Euro is about 220,000 rials.

More than a decade ago, when I was a student in Italy, one USD was 10,000 rials. However, we still have some living Iranians who remember when one USD was only 70 rials, although that figure might sound like a Sci-fi statement!

When Mr Trump withdrew from the nuclear accord with Iran, he just helped the devaluation of Rial to get to a higher pace.

At the time, if anyone suggested that the exchange rate for one-USD might go beyond 100,000 rials, was considered too pessimist or unrealistic!

However, now nothing is neither pessimistic nor unrealistic. The only question is, how further could Rial fall down?

On the other hand, since there has not been much of external events to affect the fall of Rial this week, some economists believe that the fluctuations in exchange rate is the result of the broken economy and that the government is basically running out of resources.

Although this week, the UN Security Council passed a resolution on Iran’s atomic activities, it was nothing quite new or unexpected to cause 30% drop in Rila’s value.

Actually, these explanations do not help much either.

As a result, people are getting poorer. For the past Iranian year, 1398, i.e. March 2019 to 2020, the Statistical Center of Iran has provided a report on income and expenses of Iranian households.

As it puts it, an Iranian urban household in 1398, earned 541 million rials annually (according to the current exchange rate 2705 USD), while its expense was on average 473 million rials ($2365). A typical Iranian rural household has earned and spent half of that figure.

Housing, fuel and electricity make 75% and 60% of the non-edible expenses for urban and rural families respectively.

From consumption for food, meat is the most expensive and takes up nearly 40% of the household budget on edibles.

However, these figures all belong to when the exchange rate was around 100,000 rials for one USD. Now the price for one kilogram of poultry meat is between 190 to 200 thousand rials, while this figure only two months ago was 110 thousand rials.

The government has also officially permitted the diary producers to increase prices by 28%. These are all because Iran is dependent on the import of the animal feed and the import has partially been hit by Coronavirus outbreak and partially was subsidized by a lower exchange rate. However, the government which has difficulty in selling its petroleum is eliminating subsidies in various sectors.

On the other hand, the Head of Iran Veterinary Organisation, Ali-Safar Makanali, says that in 1398, 2.7 million tons of poultry meat has been produced in Iran. Assuming that most of the production has been consumed in the country, Mr Makanali says that the poultry meat consumption per capita in Iran is 32kg which is twice the global average.

One reason for high demand for poultry meat in is that the red meat is extremely expensive compare to it. One kilogram of lamb meat costs 1.3 million rials.

This is while the US Agriculture Secretary estimated Iran’s red meat consumption per capita is around 5 kg per year in 2016, which puts the country between Guatemala and Libya.

The report by the Statistical Centre of Iran indicates that for urban households, the most expensive city is the capital and the most economical one is Kerman.

While rural households in Alborz Province have both the highest income and expense figures over the country, the poorest rural families are in Sistan and Baluchistan Province.

While in other provinces households’ income is higher than their expenses, the situation in Sistan and Baluchistan Province is the contrary.

For Sistan and Baluchistan rural families, the average expense exceeds their income by 20 million rials. Sistan and Baluchistan Province borders Afghanistan and Pakistan and counts as the poorest province in Iran.

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