News ID : 178886
Publish Date : 6/20/2024 8:54:51 AM
What is the main economic problem in Iran?

What is the main economic problem in Iran?

Over the past three years, the rate of economic growth has been at 4 percent, mainly relying on oil income growth. Due to the political nature of oil income and its reliance on factors beyond control, this growth has not been stable.


NOURNEWS: The economic growth rate, which improved during the 1370s (1990), slowed down in the 1380s (2000). Concurrent with the initiation of sanctions in the late 1380s, it started to decline. During the 1390s (after 2011), the economic growth rate was almost zero, while the inflation rate showed a significant increase.

The weak economic structure, continuation of sanctions, and economic policymakers preoccupied with daily issues have made Iran's economy more vulnerable than ever before. A look at the complete failure of the 20-year vision plan and upstream documents in the field of the economy speaks volumes.

Economic growth has been at 4 percent over the past three years. This growth mainly relies on oil income. Due to the political nature of oil exports and reliance on factors beyond the country's control, this type of growth is not stable. Additionally, due to the weak connection between the upstream and downstream sectors and the raw nature of sales, this growth is of low quality.

On the other hand, due to the political-economic nature of oil income and its effects on the continuation of a rentier government, growth that relies on oil income will lead to the perpetuation of the status quo. A look at the economic growth in the year 1402 (2023) confirms these notions. The economic growth rate was 5.7 percent in 1402, which increased by only 0.6 percent compared to the same period the previous year. This indicates that the economic growth stemmed from oil sales rather than the productive economic sector.

Combining economic growth with expenditure data can help better understand the nature of this growth. Government expenses increased from 5.8 percent in 1401 (2022)  to 16.7 percent in 1402 (2023), which is considered a high growth rate. Concurrently, the decline in the growth of private and investment expenses indicates a change in the composition of economic growth. This could be a source of concern as it suggests that the welfare of the community and investment levels have not improved.

The composition of economic sectors can be alarming from other perspectives as well. According to the Iran Statistics Center, the growth of industries and mines was -0.7 percent, and the agriculture sector had a very slow growth rate of 0.6 percent. The highest rate of growth was attributed to the oil industry, which stood at 14.7 percent.

The growth rate of the service sector also remained at 1.5 percent. Therefore, two important and productive sectors of the economy, namely industry, mining, and agriculture, showed low or negative growth rates, while growth was primarily driven by oil (raw sales).

Continued control policies, the absence of a promising future due to sanctions, fluctuating foreign currencies, and other instabilities, along the business environment, can increase concerns. On the other hand, the point-to-point inflation rate reached 31 percent by the second month of the Iranian calendar, with the average inflation rate reaching 37 percent. The Central Bank, through the implementation of balance sheet control policies for banks last year, has contributed to reducing this trend.

However, this policy has caused financial hardship for economic enterprises in the private sector. According to Central Bank statistics, the average economic growth of remaining facilities in the non-governmental sector has declined from 52.7 percent at the end of 1400 to 35.6 percent in February 1402. In contrast, the average growth rate of governmental facilities increased from 25.7 percent in the same period to 71.1 percent.

This means restrictions for the private sector and encroachment by the government and state-owned companies on these resources. Regardless of this matter, the question remains: how is a leap in production possible with this policy? It is important to note that the focal point of inflation has been the fluctuation of currencies in the short term, which has led to liquidity growth through increased expenditures related to production. The key to managing currency prices is increasing the country's export capability, which is impossible under sanctions.

Many components are considered when monitoring the business environment. Although all of them are of high importance, two are particularly noteworthy given the current electoral context: first, the “instability of policies, laws, and regulations and the executional processes related to business,” and second, the “fulfillment of national authorities' promises.”

It is vital that candidates pay attention to undeniable realities such as destructive sanctions, the unprecedented expansion of corruption in the country, and economic instabilities. They should speak based on precise statistical analysis and avoid making empty promises and unrealistic claims.

[This item has been published by Shargh Newspaper in Persian]


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