Tyranny of numbers

Iran has used cash transfers effectively to reach vulnerable households and stave off hunger during some of its most difficult years in recent memory. The practice of depositing monthly cash transfers into household accounts originated with the Subsidy Reform Law of 2010, which authorized the government to use the savings from eliminating energy and bread subsidies to compensate households for the resulting increase in living costs.

The IMF had advised the government that cash transfers could prevent household welfare from declining following the removal of subsidies, but it did not recommend a specific transfer amount. In the event, the amount actually paid—455,000 rials per person per month—proved too high to be financed by the savings generated by the program, resulting in a substantial deficit that was financed by printing money. (For an informative history of cash transfers, see Elham Hassanzedeh, Recent Developments in Iran’s Energy Subsidy Reforms.)

The shock of higher energy prices, combined with the printing of money to finance the program’s deficit, proved too much for the Iranian public to tolerate. Inflation, which had been running at about 10 percent annually before the energy price increase, accelerated several-fold in 2011 and 2012. Despite the popularity of the cash transfers, public support for further increases in energy prices—which would have preserved the transfers’ real value—evaporated. As energy prices were frozen, so was the nominal value of the cash transfers, effectively undermining the program. By 2025, the consumer price index published by the Statistical Center of Iran had increased nearly 28-fold relative to 2010, reducing the real value of the original transfer to only a small fraction of its initial purchasing power. Today, the original transfer of 455,000 rials can buy only a few loaves of bread.

Beginning in 2025, as the threat of war loomed over Iran and then the 12-day war broke out in June, new funds were injected into the cash transfer program, though this time without a corresponding increase in energy prices to finance them. The program has also become better targeted. It now excludes the top income decile and pays 3,000,000 rials per month to households in the fifth through eighth deciles and 4,000,000 rials to those in the bottom four deciles.

Mocking Iran’s effort, The New York Times ran a story under the headline, “Iran Offers Citizens $7 a Month in a Bid to Cool Protests.” But $7 reflects the value of the new cash transfer only when converted at the market exchange rate and spent in London, Milan, or Paris—not in Iran. Within Iran, a monthly transfer of 4,000,000 rials can buy more than three loaves of bread per person per day.

In addition to these cash transfers, the government introduced the kala barg program, which provides electronic vouchers worth 10,000,000 rials per month that recipients can use to purchase specified food items, similar to the U.S. Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program. To assess the value of these vouchers, it is more appropriate to use the purchasing power parity (PPP) conversion factor than the market exchange rate. The IMF estimates the 2025 PPP conversion factor at about 289,000 rials per U.S. dollar, compared with a free-market exchange rate 4-5 times as much. It is also worth noting that, because food prices continue to rise rapidly, the purchasing power of the vouchers declines from month to month unless their nominal value is periodically adjusted.