Iran's Economy in 1396; Macroeconomic Environment

A significant gap between 'opinion' and 'action' is the source of the astonishing contradictions seen in the economic policymaking of the Islamic Republic. In theory, development knowledge in Iran has made remarkable progress. A new wave of economists, including many young academics and experts, has made considerable efforts in understanding political economy and localizing it over the past few decades, achieving brilliant results. However, their efforts face insurmountable obstacles created by the core of power in the Islamic Republic that hinder the country's economic development. The 'firefighter' government, in other words, the major economic challenges of the country are well recognized, but there is no will to confront them. In an environment dominated by a committed theocratic system intent on implementing religious apartheid, investment and creativity do not thrive. Furthermore, as Iran struggles in the vortex of constant tensions with the most dynamic, powerful, and wealthy nations in the world, betting on the country's advancement requires a great deal of optimism. In summary, economic development is not a priority for the Islamic Republic. In the past year, various conferences continued to be held to identify Iran's 'challenges' and 'super challenges' in the economy. The increasing shortage of water, low growth rate, poverty, social inequalities, corruption, the crushing dominance of state bureaucracy, an opaque budget, and its significant deficit, a severely unfavorable business environment, a collapsing banking system, and the bankruptcy of pension funds... all of these issues were reviewed once again. A very important point is that top figures in the executive branch, including members of the government's economic team, sometimes criticize the country's economic situation with unprecedented sharpness. One minister describes the privatization policy in the country as a 'joke', another provides a description of Iran's banking system that resembles a terrifying fish machine, and a third cries out that his ministry is paralyzed under the weight of excessive employees... and this list can go on. The repetition of the country's difficulties in scientific conferences and roundtables composed of economic activists, when it continues for years without reaching a conclusion, inevitably creates boredom, disappointment, and despair. In the past year, this boredom, disappointment, and despair were more apparent than in previous years, simply because President Hassan Rouhani's government, the last hope for ending the contradiction between 'opinion' and 'action', despite the enthusiasm it initially generated, became almost completely paralyzed in confronting the core of the system. In 1396, the first year of Hassan Rouhani's second term, the executive branch's role diminished to extinguishing the flames in various economic sectors without a clear goal or coherent plan to exit the terrifying economic deadlocks. Here are two examples of the 'firefighter government's' struggles: 1) In the past year, banks and financial institutions reliant on 'toxic assets', which survived through fraud and presenting fake balance sheets, siphoned off the deposits of millions of Iranian savers. Some sources estimate the number of victims to be over five million, some of whom participated in the protests last December. To extinguish this fire, the government allocated 11 trillion tomans (or according to some reports, 20 trillion tomans) from the central bank's resources to compensate the victims. In other words, the crimes of such financial institutions were compensated from the pockets of the entire Iranian nation. 2) The second case is the widespread protests of workers whose wages have been delayed for several months. In this regard, problems of several large companies stirred more noise, including two companies, 'Hepco' and 'Azar Ab', which due to 'heavy debts to the banking system, imports of similar foreign products, market stagnation, and low production capacity', could not pay their workers' wages for several months. In this case as well, Hassan Rouhani's government entered the fray as a 'firefighter' and seemingly contained the crisis by injecting liquidity into these two firms and paying the workers' dues. Given these two cases, the question arises: how long can the government continue to extinguish the fires that keep flaring up here and there? Where will the necessary resources for continuing policies based on quelling scattered fires come from? Alarm bells are ringing. Despite his significant failures in confronting Iran's fundamental economic difficulties, Hassan Rouhani presented a list of his government's achievements during his last cabinet meeting in 1396, held on the 28th of Esfand. This list included job creation trends, inflation rates, growth rates, increases in agricultural production, investment growth, development of oil fields, and more... Given what is happening in the real economy of the country, it is unlikely that the president and his audience took the picture he painted seriously. In all areas, alarm bells are ringing louder, and red lights are flashing faster: - The share of construction costs in the country's public budget has decreased from 24% in 1385 to 15% in 1395, and according to predictions from the Research Center of the Parliament, it may drop to zero in the new solar year. In other words, the government spends all its resources on operational costs and will have almost nothing left for construction expenses. - The government's budget deficit is soaring, reaching the threshold of 80 trillion tomans in 1396, a significant portion of which is financed through the central bank (which means printing money, increasing liquidity, and fueling inflation). - The growth rate of Iran's GDP, which in 1395 was artificially raised above 12% due to the implementation of the 'JCPOA' and the return of Iran's production and export capacity, is unlikely to exceed around 4% in 1396. The Central Bank of the Islamic Republic has preliminarily estimated Iran's GDP growth at 3.4% for the first nine months of the past year. This means Iran is returning to the 'snail's pace growth trap' (or low growth trap) that allows the country to keep its head above water but does not significantly impact people's lives and especially does not bring about a remarkable change in the disordered job market. To meet the demands of Iran's job market, the country needs a growth rate of around 8% per year, and this high rate must continue for a long period (at least ten to fifteen years). - The low growth rate and lack of a favorable business environment are the sources of the disarray in Iran's job market. Official sources of the Islamic Republic report the unemployment rate in the country at 11.7%, with the number of unemployed at three million two hundred thousand. This statistic does not align with the realities of Iran's job market. If we add to this official statistic those who have withdrawn from the job market due to despair, or have been forced to extend their education in higher education institutions, or have taken on part-time jobs, the actual number of unemployed in the country will reach nearly seven million, and the unemployment rate will be double that reported by official statistical sources in the Islamic Republic. The main victims of the unemployment plague are young people, higher education graduates, and women. - The Central Bank of the Islamic Republic reported Iran's inflation rate at 9.9% last month, and it is likely that this index will remain officially within the range of 10% for the entire year of 1396. Despite a significant decrease in Iran's inflation rate compared to the beginning of Hassan Rouhani's presidency, this index remains high compared to the global average, and its sustainability at this level is highly questionable given the overall state of Iran's economy (budget deficit, low productivity, high production costs, currency shocks, etc.). - In the second half of 1396, Iran's economy once again experienced a severe currency shock, with the exchange rate of the US dollar reaching nearly five thousand tomans. Amid the currency storm, the Central Bank of the Islamic Republic's promise to unify the exchange rate also went up in smoke, and as queues in front of exchange offices lengthened, the number of exchange rates increased at an alarming rate. This collection of pressures, along with other constraints that cannot be addressed here, has placed Iran on the brink of a very sensitive and critical year for the country's economy.