x Abu Dhabi, UAE Friday 21 July 2017

Iran's brief flirtation with luxury

Iranians may have to rein in their new taste for luxury goods as falling oil prices compel the government to consider curbing expensive imports.

A woman admires a Rolex watch at a shopping centre in Tehran.
A woman admires a Rolex watch at a shopping centre in Tehran.

TEHRAN // Iranians may have to rein in their new taste for such luxury goods as imported cars and brand name watches as falling oil prices compel the government to consider curbing expensive imports. Mahmoud Bahmani, Iran's new Central Bank governor, warned on Sunday about an expected $54bn (Dh198bn) drop in oil revenues in the current Iranian fiscal year and said the option of cutting down imports is now on the table. Crude oil prices have dropped by 55 per cent since July and the country's trade balance may turn negative if the growing trend to import is not checked or even reversed.

"The market is flooded with imported luxury goods of all sorts like expensive cars, shoes and clothes, fruit and furniture. Only a few years ago Mercedes and brand name clothes were a rare sight but at least in big cities it is not the case anymore," said Amir Tayyebi, 56, a dentist. "But people should learn to do without these luxuries if their taste for luxury is going to lead to economic trouble for the country. "It won't hurt anyone if such commodities are not imported. A government budget deficit, on the other hand, will hurt so many. What if oil prices drop even more and the government is not able to afford to pay its employees?" he said.

The value of luxury imported cars alone is expected to amount to $2bn this year, up 95 per cent on the previous year despite very high car import tax and tariffs that increase the cost of imported cars by 100 per cent. The value of Iran's exports in the current Iranian year, from March 21 2008 to March 22 2009 is estimated to amount to a total of $75bn, up from an estimated $56bn in the previous year and more than eight times the amount of 10 years ago. The tendency to open the domestic market to imported goods increased since 2005 when Mahmoud Ahmadinejad, the president, was elected. Critics said the policy has helped the government to control inflation but by keeping the national currency artificially strong the government has been subsidising and encouraging imports at the cost of damaging domestic production and wasting oil revenues. Analysts believe taking measures to curb imports is inevitable to counter the economic impact of falling oil prices, but taking the measure could itself deprive the government of some of its revenues. "The extravagance in imports has to stop or the budget deficiency that has set in since the beginning of October following the drastic fall in crude oil prices may grow to a critical level," said Saeed Laylaz, economic analyst and editor of the Sarmayeh economic daily. Heidar Pourian, editor of the Eghtesad Iran economic monthly journal, said certain imports essential to the Iranian economy could not be curbed. "There are commodities that need to be imported, like raw material, because production will suffer if they are not. The government will therefore have to curb only consumer good imports. This makes up only about 20 per cent of all imported goods," he said. "On the other hand, there are high taxes and tariffs for importing luxury goods like cars and if their importation is cut down, the government will be deprived of some of its tax revenues. Demand for domestically produced goods may also increase and give rise to higher inflation," Mr Pourian said. The inflation rate for the past 12 months stands at 22.3 per cent but in the calendar month ending on Sept 22, monthly inflation was up 29.3 per cent on the same period in the previous year. Mohammad Ali Khatibi, Iran's ambassador to Opec, has expressed concern over the plummeting oil prices and called for an output cut of up to three million barrels a day to help push up the prices. The special ministerial meeting of Opec in Vienna on Friday will decide by how much to slash the 12-member cartel's output. The oil cartel is expected to cut down its crude oil production by between one million and 1.5 million barrels per day. msinaiee@thenational.ae