World Bank and Iran's Economy: Hopes and Doubts

The latest World Bank report on global economic prospects, published on January 10, does not seem very encouraging. According to this organization, the year 2017 faces numerous doubts and ambiguities in both political and economic arenas. Slow growth for the worldFrom the perspective of World Bank experts, the policies of Donald Trump, the elected president of the United States, who will take office on January 20 in the White House, are still not clearly defined. However, markets have generally welcomed his plans for tax cuts and massive infrastructure investments, but the main lines of economic policy in the world's leading economic power cannot yet be accurately predicted. On the other hand, the real consequences of Brexit, which serious negotiations will begin in the next two to three months, are a source of concern for both Europe and the world. Additionally, we should not forget that Germany and France, two key countries in the European Union, have very important elections in 2017, and their results could affect the future configuration and balance of power in the largest economic integration region in the world. The combination of these factors, which have noticeably increased the degree of risk, along with other risks, especially the increase in regional tensions and the continuation of terrorist attacks, naturally does not create an optimistic atmosphere. Under the influence of these risks, and also the slowdown in economic activity in a significant part of the world, international trade and foreign investments are declining. In such a situation, one cannot expect miracles. The average global economic growth in 2017, according to the World Bank, will be 2.7 percent, which is only a few tenths of a percent higher than in 2016. Moreover, this growth rate is mainly due to the increase in oil prices and the emergence of growth in some emerging economic powers, including Russia and Brazil, which are moving from negative to positive growth, albeit at a very low level.Contrary to the average global economic growth rate, which does not inspire enthusiasm according to World Bank experts, Iran's growth rate will be relatively good. In fact, the experts predict Iran's GDP growth at 5.2 percent this year, one of the highest growth rates in the Middle East and North Africa, and about twice the global average of the same index. In other words, if we take the World Bank's assessments as a benchmark, Iran surpasses its regional competitors in terms of growth rate. In the years 2018 and 2019, Iran's growth rate is expected to be 4.8 and 4.5 percent, respectively, according to the same institution. If we only consider these figures, Iran's economic growth compared to the global average appears significantly favorable. This raises the question of why the actual economic situation in Iran does not reflect such a positive outlook for those who are closely involved. Iranian production units continue to operate at a level far below their capacity, and there are no positive movements in the country's labor market. In summary, there is still no sign of hope in Iran's business environment, and unemployment, especially among the country's graduates, has become one of the biggest problems in the contemporary social and economic history of the country. On the other hand, the question arises as to where the 5.2 percent growth rate for Iran comes from. While no changes have occurred in Iran's economic structures and the country's economic policymaking remains in a deadlock, why has the very weak past growth achieved such an increase? Iranian production units continue to operate at a level far below their capacity, and there are no positive movements in the country's labor market. In summary, there is still no sign of hope in Iran's business environment, and unemployment, especially among the country's graduates, has become one of the biggest problems in the contemporary social and economic history of the country. The answers to these questions can be found in a separate report recently published by the World Bank under the title "Monitoring Iran's Economy" regarding the opportunities and risks of the country's economy in 2017. From the content of this report, we conclude that the increase in Iran's growth rate is mainly the result of the return of Iran's oil production and exports to the state before sanctions, and for this reason, it has not yet had a positive impact on other sectors of the country's economy. In the World Bank report titled "Monitoring Iran's Economy," two points attract attention: 1) The positive developments that Iran expected from the implementation of the "JCPOA" have only materialized in the oil sector, which has facilitated the increase in production and exports of this commodity in 2016. The increase in oil production and exports to a level somewhat close to the pre-sanction period was able to compensate for the reduction in investment and consumption by the government and raise economic growth. 2) Despite this positive development, Iran's economy remains embroiled in many risks, including complexities arising from non-nuclear sanctions and the potential return of sanctions. Major European and Asian banks do not cooperate with Iran, and foreign investors are reluctant to accept extensive and long-term commitments in Iran. The assessments of international expert circles, especially in the International Monetary Fund and the World Bank, are generally similar to the assessments of a large part of Iranian expert circles. Both confirm that the "JCPOA," despite all the difficulties it has faced and continues to face, at least allowed Iran to return its oil industry to the pre-sanction era and to experience a period of weak growth. However, what matters is the sustainability of this growth rate. The current growth rate, due to its heavy dependence on oil production and exports, does not seem sustainable. With the new leadership in the United States, fears of a revision of the "JCPOA" heavily weigh on the future of Iran's relations with the world, and this poses a very serious obstacle to the entry of foreign investors into the country. What could sustain the growth rate at levels above five percent is the activation of endogenous growth engines alongside a reduction in tensions in Iran's international relations.