1394: A Year Full of Contradictions for Iran's Economy

The Iranian economy in 1394 experienced one of the most contradictory years in its contemporary history. On one hand, hopeful events painted new prospects for the country's industry and commerce; on the other hand, existing realities continued to deepen the severe recession of economic activities, making life and livelihood for the people more bitter. It can even be said that 1394 holds an exceptional place in the contemporary history of Iran's economy due to the contradictions related to a series of hopes and disappointments: 1) The most significant event that somewhat cleared the dark clouds from the sky of Iran's economy over the past year was the nuclear agreement known as the Joint Comprehensive Plan of Action (JCPOA), which was signed on July 14 between Iran and the group known as the 'P5+1' in Vienna and quickly reached the implementation stage regarding the lifting of economic sanctions against the country. Given what sanctions did to Iran's economy and the other horrific losses that could have been inflicted (in case of failure in nuclear negotiations) on the lives of current and future generations of the country, the Vienna nuclear agreement can be considered a very important achievement for President Hassan Rouhani's government. With this event, new prospects for Iran's economy emerged, the most hopeful of which was the creation of positive grounds for the country's return to the international economic community. The visit of dozens of foreign economic delegations to Tehran, President Hassan Rouhani's successful trip to Italy and France accompanied by signing contracts with the most important companies of these two countries, the provision of necessary conditions for the return of the country's frozen foreign assets abroad, the lifting of oil and banking sanctions, and, most importantly, the relative change in Iran's image in international economic circles, after years of being engulfed in a stifling isolation, indicates the emergence of favorable conditions for marking a new chapter in the country's economy. Nevertheless, future developments depend on how these favorable conditions are utilized. No one, neither inside nor outside Iran, can say with certainty whether these potential opportunities will turn into real achievements for the country's future. 2) The other side of the coin, however, was the suffocating recession that did not let go of Iran's economy in 1394 either. In the past year, the severe pressure of economic sanctions practically continued. The JCPOA was signed in July, but the process of lifting sanctions began in the final season of the year, and its impact on the overall economic situation of the country was not tangible. In addition to the problems caused by sanctions, the continued decline in oil prices also dealt a severe blow to the country's treasury. The 1394 budget was based on oil priced at $53 per barrel, but the price of Iranian oil fell below $25 in the third quarter of the year. A country whose annual foreign revenue from oil increased to $120 billion in the early 1390s likely had to manage with revenues of around $20 billion or even less in 1394. In this regard, Ali Tayebnia, the Minister of Economic Affairs and Finance, stated in an interview with the latest issue of the weekly 'Tejarat-e-Farda' (on March 8) that 'such a financial and credit squeeze may be unprecedented in the entire history of the country.' A quick look at the inflation rate and the growth rate of Iran's economy helps us better understand the economic performance of Iran in 1394: a) Hassan Rouhani considers the reduction of the inflation rate the most significant economic achievement of his government. The fact that, based on official statistics, the inflation rate dropped from over 40% at the end of Mahmoud Ahmadinejad's presidency to below 13% is certainly worthy of a good score for the eleventh government in terms of prices. However, a closer look at this inflation index raises the relativity of this achievement. If we focus on the change in the inflation rate in 1394, we see that this index decreased from around 15% to around 12%. There is no doubt that financial discipline during Hassan Rouhani's term is applied at a much higher level than during his predecessor's era. However, it should not be forgotten that the average inflation rate in the world is rapidly decreasing and is nearly stagnant below 2% in almost all industrial regions. The global decrease in inflation is transmitted to Iran's economy through imported goods, and this is one of the reasons for the relative decline in prices in Iran. On the other hand, Iran's 12 to 13% inflation rate still ranks among the highest inflation rates in the world and, in other words, remains high in relation to the changes in this index globally; and finally, the reduction in the inflation rate in Iran is accompanied by the very bitter taste of an all-encompassing recession in the country's economy, which is not very noticeable for a large segment of the population grappling with severe unemployment. b) As for the GDP growth rate, all evidence indicates the continuation of a very tough recession. The important point is that the Central Bank of the Islamic Republic, contrary to the commitments of Hassan Rouhani's government, which were respected at first, has refrained from publishing the growth rate statistics every three months and has not published this index even for the first quarter of the year. For a large part of the country's expert circles, the silence of the Central Bank regarding the most important macroeconomic index of the country recalls the methods of Mahmoud Ahmadinejad's government. The Statistical Center of Iran announced the growth rate for the first nine months of 1394 as 0.7%. The same source adds that the growth rate during the specified period was negative for both industry and services, but since the agricultural sector experienced a growth of over 3%, the average economic growth of the country during the first three quarters of 1394 reached 0.7%. Some business circles and economic media in the country have questioned the rate announced by the Statistical Center for various reasons; however, even if we accept the rate announced by the Statistical Center, we still see that the country is struggling in recession, simply because a growth rate of 0.7% for a developing country with a young population indicates the wheels of economic activity in the country are slowing down. Business circles in Iran have a much more pessimistic view of the actual state of the economy in 1394. According to Masoud Khansari, the head of the Tehran Chamber of Commerce, 'Today, statistics confirm that the Iranian economy has entered the third phase of negative (industrial) growth and deep recession. The industrial production index in autumn 94 compared to the same period last year was negative 24.8%. Also, the industrial production index in the first nine months of this year was calculated to be negative eleven percent compared to the same period last year. The growth of all industrial sectors, except for pharmaceutical, food, and beverage industries, has been negative. Given that the import of intermediate goods has been decreasing since last autumn, it is expected that industrial growth in the fourth quarter of this year will also be negative. These conditions indicate the continuation and deepening of the recession in the industrial sector.' (Donyaye Eghtesad, February 13, 2016). The severe economic recession in the past year was not solely a consequence of sanctions or the fall in oil revenue. It can be said that the economic policymaking apparatus of Hassan Rouhani's government, which initially entered the scene with an experienced and somewhat innovative team, gradually lost its dynamism and fell into a state of passivity. In 1394, the eleventh government also refrained from addressing reforms in various economic areas of the country. The severely flawed cash subsidy payment system continues to consume a significant portion of the country's capital as before. Price controls on goods and services continue. Privatization has practically come to a halt. The country's banks are deeply mired in problems, and many of them are effectively bankrupt, yet no initiative has been seen from the government to address this danger. The pension system is also increasingly sinking into immense difficulties, with no action taken by the government... and this list can go on. In justifying this inaction, Hassan Rouhani can rely on two main reasons: first, that the time and energy of his government should primarily focus on resolving the nuclear issue and extricating the economy from the plight of sanctions, and therefore there was no opportunity to address reforms. The second reason is that the ninth parliament was bent on opposing the government and neutralizing any initiative aimed at structural reforms by dragging it into lengthy theoretical, legal, and regulatory discussions. The policy packages of Hassan Rouhani's government were neutralized by the same parliament, and the sixth five-year plan bill was also effectively discarded by that parliament. Regardless of whether these reasons are justified or not, it can now be said that given the resolution of the nuclear issue and the implications of the tenth elections, which resulted in a parliament more aligned with the government, the obstacles to implementing fundamental reforms in Iran's economy have significantly decreased; and without these reforms, there will be no news of a better future.