Iran’s economy will face eight main challenges in the new Iranian year that started on March 20, according to the Ministry of Economic Affairs and Finance.
As reported by Fars News Agency, the most biting of these challenges is the escalation of US sanctions and depletion of Iran’s foreign exchange reserves, combined with economic losses resulting from coronavirus outbreak and disruptions caused to businesses that would lead to leaner tax revenues.
The Iranian New Year holidays ended on April 3, but many businesses remain shut as virus infections are on the rise. The outbreak is overshadowing almost all aspects of Iran's economy, from production to trade.
Low-risk businesses are scheduled to resume activities starting April 11 in all provinces, except Tehran that can follow suit on April 18, President.ir reported on Sunday.
High-risk workplaces, including swimming pools, sports centers or any place of gathering, will remain closed until further notice.
“The opening of businesses does not mean we are ignoring the stay-home principle. Those whose outdoor presence is unnecessary should preferably continue to stay at home,” President Hassan Rouhani said during the coronavirus taskforce’s session on Sunday.
Call for Removal of Iran Sanctions
Friction between Tehran and Washington has increased since 2018, when US President Donald Trump pulled the United States out of Tehran’s 2015 nuclear deal with six nations and reimposed sanctions, crippling Iran’s economy.
On March 24, the United Nations called on the world to lift sanctions on countries, such as Iran, with a coronavirus crisis.
“At this crucial time, both for global public health reasons, and to support the rights and lives of millions of people in these countries, sectoral sanctions should be eased or suspended. In the context of global pandemic, impeding medical efforts in one country heightens the risk for all of us,” said Michelle Bachelet, UN High Commissioner for Human Rights.
She emphasized the need for “prompt, flexible authorization for essential medical equipment and supplies”. At least four countries have also urged the United States to ease sanctions on Iran.
In November 2018, US President Donald Trump reimposed sanctions that had been lifted in 2016, as part of the nuclear deal struck in 2015. By the end of 2018, Washington had also imposed 20 other types of sanctions as part of its "maximum pressure" campaign on Iran.
Humanitarian goods, such as medical, educational and humanitarian supplies, have always been exempt from US sanctions. But foreign banks have been hesitant to finance business with Iran, in turn limiting Iran’s ability to buy and ship goods not limited by sanctions.
Iranian leaders have called US sanctions “economic terrorism” that impedes their response to COVID-19.
“US sanctions against Iran-followed by other nations-are not only illegal and contrary to UN Security Council resolution, but also unethical and inhumane,” President Hassan Rouhani said in a letter to world leaders on March 14.
“Its inhumane dimension today concerns not only the Iranian people but also the people of the region, and it encompasses other countries as well. This is not a collective punishment of the Iranian people, but a collective punishment of all humanity.”
China, Iran’s most important trading partner, was the first country to call for the easing of sanctions.
"Continued sanction on Iran was against humanitarianism and hampers Iran's epidemic response & delivery of humanitarian aid by the UN and other organizations," China’s Ministry of Foreign Affairs tweeted on March 16.
Decline in Oil Prices
The continuation of the decline in oil, petroleum products and petrochemical prices due to global recession is another challenge facing the Iranian economy.
The price of oil, which has long been a major source of revenue for the Iranian government, have fallen due to depressed demand and tensions between major producers Russia and Saudi Arabia.
Nonetheless, Saeed Leylaz, university professor and economic analyst, says the decline in oil prices won’t hurt Iran as much as it affects other petroleum exporting countries.
“Iran is not a consequential exporter of crude oil; we are strong on exports of gas condensates and petrochemicals rather than crude oil,” he said.
“The decline in oil prices would cause between $10-12 million in losses for Iran compared with between $200-250 million for Saudi Arabia, which is almost 20 times greater. Iraq will suffer losses eight to 10 times bigger than Iran as well.”
Recession in Services Sector
Another challenge referred to by the Economy Ministry is the "deepening recession in services sector" due to the coronavirus pandemic.
Latest data show the services sector shrank by 0.7 in the third quarter of the current Iranian year (March 21-Dec. 21, 2019), according to the head of the Statistical Center of Iran, Javad Hosseinzadeh.
As the coronavirus hit the country in the fourth quarter of last year, it is expected that the services sector has plunged even deeper into recession.
The sector employs nearly half of the Iranian employed population. The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services; as well as community, social, education, health and personal services.
The sector employed 9.95 million men and 2.26 million women in the Q3 of last Iranian year; over 6.67 million men and 1.35 million women were working in the industrial sector and 3.35 million men and 839,773 women worked in the agriculture sector in Q3.
Services sector accounted for 59.4% or 10.65 million of all jobs in urban areas and 24.1% or 1.57 million of the jobs in rural areas.
Other Challenges
Another challenge facing the economy according to the Economy Ministry include: Withering global demand for minerals and decrease in the prices of metals; decline in consumption due to the shrinkage of people’s purchasing power; government’s rising expenses due to the impacts of coronavirus spread; and widening budget deficit in the fiscal 2020-21.
The budget for the fiscal 2020-21, which started on March 20, was presented to the parliament back in November but fell victim to the devastating coronavirus crisis and the election of the new, conservative parliament.
The deliberations of the parliament were cut short on the order of the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, and a slightly modified budget was submitted to the Guardians Council that approved it on March 18.
