Iran’s Economy: An Outlook

Iran is ranked as the second largest economy behind Saudi Arabia. In the whole of Middle East and North African region, Iran commands economic respect since it has a gross domestic product of over $400 billion.

In addition to being an economic powerhouse in the region, the country also ranks second in terms of population, coming behind Egypt with a population of over 78 million people. The economy of Iran is mainly characterized by various sectors such as agriculture, hydrocarbon, and the service industry. Other notable sectors are the financial and manufacturing services. Iran comes in second in reserves of natural gas and is ranked fourth in the known reserves of crude oil. The volatility of the country’s economy is affirmed by the government’s heavy reliance on oil revenues.

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The Reform Agenda and The Government’s Vision

The Iranian government has taken in a broad strategy that encompasses reforms in the markets in accordance with the government’s vision for the period 2016-2021. The plan has three main pillars which are promotion of cultural advancement, progress in technology and science, and the making of a resilient economy. The economy of the country is expected to grow by 8 percent while the state-owned companies will be reenergized. The banking and financial sectors will also be given special focus by the government while the proceeds realized from the sale of oil shall be well managed to improve the economic well-being of the citizens. {NOTE TO DEVELOPER: Kindly link “An Uplift in Iran’s Economy: Nuclear Deal” to the article “Iran’s Economy: An Outlook”}

The government has committed itself to implementing drastic measures on the key staples which include water, petroleum products, and bread. This has brought about stability in government expenditure as well as economic activities.

Iran had estimated overall subsidies which were equivalent to 28 percent of the gross domestic product of 2007/2008.

This was estimated to be $78 billion US dollars.

The government replaced the entire subsidies with a cash transfer program that is focused on making the lives of Iranian households better. The prices of fuel have risen tremendously in the local market, hence bringing down the shortfall of the so-called Targeted Subsidies Organizations (TSO). The government is further considering a reform strategy that would involve a better adjustment of the fuel prices. This adjustment is anticipated to be better than what was previously forecast, and low-income households will certainly benefit more.

The Iranian economy underwent a major recovery in 2014. As a result of the said recovery, the economy grew by a meagre 0.5 percent during the 2015 calendar year of Iran (from 21st March 2015 to 20th March 2016). The performance came despite of there being a Joint Comprehensive Plan of Action (JCPOA)  and the immeasurable economic advantages that it presented. The agreement was to be monitored by the International Atomic Energy Agency (IAEA) which would be allowed to have undisturbed access to all the nuclear facilities of Iran. In return, Iran was to receive an attractive relief package from the United Nations Security Council, the European Union, and the United States of America. The three were to partner and erase every economic sanction that had been imposed on Iran.

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This development led to an improved consumer price index falling to 12.5 percent per year from an all-time high of 45% in 2012.

In spite of the said positive economic development, the fiscal balance of the government recorded low readings as a result of the dismal performance of oil in the global market. The government therefore aims to give the private sector more focus so as to ensure that they create more jobs to cater for the looming unemployment if the same economic status remains. Youth unemployment is a continuous pressing issue since the population continues to grow where a majority of the population are under 30 years.

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Poverty Conditions

In spite of the unemployment in the country, the poverty rate has declined by 6 percent for a period of 4 years. The decline was mainly attributed to the introduction of the cash transfer program. The program came after the government had also subsidized the prices of bread and energy. It is said that the cash transfer program was a major boost for low-income households since they spend less on energy, hence saving money for more pressing needs.