One should not anticipate the country to register a dramatic economic growth next year (starting March 21) even if US sanctions against Iran are lifted, says Feryal Mostofi, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, in an article for the Persian economic daily Donya-e-Eqtesad.
A translation of the text follows:
Economic conditions, as we all saw, were unfavorable over the past year. Economic growth was negative in the fiscal 2021-22. Of course, sanctions have rendered economic growth in Iran negative for the past several years. Oil exports have been far less than budgetary expectations.
Misguided economic policies of the government, including its market interventions, tariffs and preferential exchange rate policies, abrupt bylaws and sudden changes in laws, non-compliance with rules and regulations and lack of supervision and transparency in the government have all created an unfavorable business environment.
Frustration and despair are endemic among traders and businesspersons because of the unpredictability of business environment, recession, bankruptcy and shutdown of many enterprises. Therefore, the government itself is responsible for the poor economic situation in the fiscal 2021-22, just as the Covid-19 pandemic has also contributed to the economy’s deterioration.
All these factors and international restrictions on Iran have decimated investment and production. Non-oil exports have also taken a beating from sanctions and coronavirus. The depreciation of local currency has also reduced imports since raw materials and capital goods are mostly imported. The decline in imports has led to the shortage of raw materials and consequently a decline in production. In addition, the country is facing a surge in money supply and inflation mostly because of economic mismanagement; sanctions are not the only cause of Iran’s dismal economic conditions.
The upshot of government mismanagement has been the widespread public distrust and discontent throughout the country. We could have avoided this situation if the government had tried to raise public awareness instead of encouraging them to invest in domestic markets.
As long as banks fail to cooperate, international trade will remain a cul-de-sac for Iran, as new projects can’t be defined to attract investment. Therefore, the agreement’s provisions will impact the economy’s fate
If the government had planned correctly, it would have tried to direct investments to the productive markets to improve the economy. Sadly, what happened was just the opposite, i.e. investments were mainly made in unproductive markets such as gold.
Over the past two years, the government faced a major budget deficit; it did not have enough money to improve the infrastructures to support productive industries.
Under the circumstances, it was of utmost importance to employ economic policies to manage resources correctly but unfortunately, the government opted for uncalled-for interventions such as mandatory pricing and allocation of subsidized foreign currency. These policies not only did not help the economy but also prepared the ground for corruption and rent-seeking practices.
Statistics show that the decline in capital accumulation last year was so great that it did not offset investment depreciation.
Two options should be considered when it comes to the Iranian economy next year:
1. The Joint Comprehensive Plan of Action is revived and sanctions are removed, or 2. nuclear talks fail and sanctions remain.
If the sanctions are removed, Iran’s foreign currency resources will be released and the government will be able to tackle the deficit to some extent. But if the government chooses to employ the erroneous policy of injecting money into the market, it would create the same unwelcome situation. We need to wait and see what will happen once the JCPOA is revived.
Will Iran’s oil exports resume? How much oil will OPEC (the Organization of Petroleum Exporting Countries) allow us to sell?
Sanctions regarding Iran’s banking system are another key topic that needs serious consideration. I believe it must be one of the main articles of the agreement.
As long as banks fail to cooperate, international trade will remain a cul-de-sac for Iran, as new projects can’t be defined to attract investment. Therefore, the agreement’s provisions will impact the economy’s fate.
We hope that the nuclear negotiations will end well this time, but it is essential to know that even if the sanctions are lifted and the articles of the agreement prove favorable for Iran, economic developments will not happen overnight.
One should not expect the country to register dramatic economic growth next year, because it will take more than half of the year for the country to adapt to the new situation and the provisions of the agreement. Therefore, the government should work wisely and based on an expert plan.
It must refrain from giving false hopes to the people. It must be able to improve the business environment in peace.
What we can expect next year would be the tangible psychological effects of sanctions removal. What is certain is that achieving a fundamental change requires patience and time.
