Does the World Bank Understand Iran's Economic Realities?

The latest report from the World Bank titled "Global Economic Outlook," published on Thursday, January 7, expresses pessimism about the average economic growth for both the world and developing countries in 2016, while predicting an economic leap for Iran over the next three years. This optimism from the international financial institution starkly contrasts with the often pessimistic assessments provided by business circles in Tehran and academic experts regarding the current situation and prospects of the country. Even the International Monetary Fund (IMF), compared to the World Bank, has a much more cautious evaluation of Iran's economic status. According to the World Bank, the average global economic growth in 2016 will not exceed 2.9 percent, and in the following two years, it will barely surpass three percent. For all developing countries, this indicator will not rise above 4.8 percent this year and will fluctuate around 5.3 percent in 2017 and 2018. However, from the perspective of World Bank experts, Iran's growth rate will reach 5.8 percent in 2016 and approach seven percent in 2017. This economic leap in Iran is attributed to the signing of the Joint Comprehensive Plan of Action (JCPOA) in July 2015 and the beginning of the process of lifting sanctions against the Islamic Republic in the first couple of months of 2016. The same source emphasizes an increase of 500,000 to 700,000 barrels in Iran's current oil production and the release of the country's blocked foreign currency assets, adding that Iran's integration into the global economy, as a result of the implementation of the JCPOA, will create the necessary conditions for the revival of the oil, gas, and automotive sectors. In recent years, this is the most optimistic assessment by a powerful international financial organization, at the level of the World Bank, regarding Iran's economic outlook. Interestingly, this optimism may surprise Tehran's expert circles, who understand the country's economic difficulties and deadlocks much better than the World Bank and know that achieving a real leap for Iran requires much more complex prerequisites than those relied upon by the experts of this institution. However, what is more striking is that the World Bank, in its assessments, not only fails to consider Iran's deep political and economic difficulties but also relies on statistics regarding the country's economic growth that are unclear in origin. It is true that the Gregorian year and the Iranian year do not align, but this misalignment alone does not seem sufficient to understand the differences between the World Bank's statistics and those of Iran's official statistical sources. 1) In the World Bank's statistics, Iran's growth rate in 2013 (roughly equivalent to 1392) is reported as minus 1.9 percent, which completely aligns with the assessment of the Central Bank of the Islamic Republic. In contrast, the World Bank reports the growth rate for 2014 (roughly equivalent to 1393) as 4.3 percent, whereas the Central Bank of Iran states that the growth rate for 1393 was only three percent. Even this three percent rate faced severe criticism from a significant part of Iran's expert circles. In a report titled "Analysis of Iran's Real Economy: Economic Growth Performance in 1393 and Outlook for 1394," published in November 2015, the Research Center of the Parliament states that "existing evidence by sector (agriculture, industry, trade, restaurants and hotels, and services of monetary and statistical institutions) indicates that the three percent growth rate reported by the Central Bank for 1393 is an overestimation." It is not only the Research Centers of the Parliament that consider the three percent reported by the Central Bank for 1393 to be "overestimated." In this situation, how does the World Bank arrive at a growth rate of 4.3 percent for Iran in 2014 (roughly equivalent to 1393)? 2) Furthermore, the growth rate for Iran in 2015 (roughly equivalent to 1394) is assessed by the World Bank at 1.9 percent. This also does not align with what is observed in Iran's actual economy and the evaluations of Tehran's expert circles. It should be noted that the Statistical Center of Iran, in a very brief report, humorously known as "three lines and a table," assessed Iran's economic growth rate in the first half of 1394 at one percent. However, given the weakness of this assessment and its inconsistency with the severe recession observable in various economic sectors in Iran, no one took it seriously. Meanwhile, the Central Bank of the Islamic Republic has remained completely silent regarding the latest developments in Iran's growth rate, and as we approach the end of January, it has yet to even announce the growth rate for spring 1394. The lack of information regarding this key macroeconomic indicator is itself questionable. Is there an intention to conceal information? Some senior officials of the Central Bank, in their personal comments, do not rule out the possibility of a negative growth rate for the current solar year. The International Monetary Fund also predicts, based on the conclusions of its experts who visited Tehran last September, that the expected growth rate for 1394 will be between minus half a percent and plus half a percent (essentially around zero percent). Given all these figures, it seems astonishing that the World Bank, despite the heavy recession prevailing in Iran's economy, stands out and, without providing credible statistics and reasons, predicts Iran's economic growth rate at 1.9 percent for 2015 (roughly equivalent to 1394). Considering the not-so-reliable statistics from the World Bank regarding Iran's growth rates in 2014 and 2015, can we trust this institution's prediction of an economic leap for Iran in 2016 to 2018? The misleading message is that there is no doubt that with the release of Iran's blocked foreign currency assets abroad, the lifting of sanctions in the financial and monetary exchanges, increased oil exports, and other factors, one can hope that the country will emerge from the current heavy recession. However, the notion that Iran's economic growth will suddenly reach six percent in 2016 and approach seven percent in 2017, as predicted by the World Bank, raises many questions. The automatic and mechanical connection made by the World Bank between the lifting of sanctions and Iran's economic growth conveys a misleading message to the economic officials of the Islamic Republic and even creates false hope. The International Monetary Fund, despite its past mistakes in analyzing Iran's issues, has taken into account the economic realities of the country better than the World Bank in its recent assessments. IMF representatives visited Tehran last September under Article IV of the organization's statute to review Iran's economic situation, and they published their findings in a detailed report at the end of last year. Of course, the IMF's forecasts regarding Iran's outlook are also optimistic, but this optimism is both relative and conditional. The IMF report is optimistic because it states that Iran's economy will emerge from the current recession (with a growth rate around plus or minus half a percent) and will achieve a growth rate of around four percent from 1395 to 1399. However, the IMF's optimism is relative because, although Iran's growth rate is higher than the current year and previous years, it is not high enough to solve the country's problems. Tehran's expert circles largely agree that Iran needs a growth rate of around eight percent over several consecutive years to overcome its current economic difficulties. On the other hand, the IMF's optimism is conditional because it emphasizes the obvious point that Iran's economy's exit from the current recession and achieving sustainable growth depends on implementing a series of fundamental reforms, from reforming the country's banking system to improving the business environment to ensure private sector development, increasing productivity, and abandoning price controls, among others. Overall, it seems that the writings and statements of Iran's business circles and even senior officials of the Islamic Republic regarding the analysis of the country's economic situation and its future developments are often noticeably more pessimistic than the reports published by international organizations. A very important issue that is often overlooked in the analysis of many international organizations is the impact of domestic and international political factors on the economic status of countries. After the signing of the JCPOA, neither the internal political climate of the country has opened the way to utilize the capacities of this agreement, nor has the international environment.