The Statistical Center of Iran has put the country’s economic growth for the nine months to Dec. 21, 2021 [Q1-3 fiscal 2021-22] at 3.8%, excluding the oil sector, and 5.1%, including oil.
This is while the Central Bank of Iran has put the growth at 4.1% and 3.4% with and without oil respectively. But what percentage of this positive economic growth is really plausible?
Reports on inflation and monetary indicators show that the economy worsened in Q3 (Sept. 23-Dec. 21, 2021) and the trend continued into February. Inflation reached 41.4% in the month ending Feb. 19 and money supply and monetary base were, respectively, 45,000 trillion rials and 5,680 trillion rials in the month ending Jan. 20.
Iran is an oil-driven economy; when more oil is sold, economic growth increases, but as soon as oil sales drop as a result of sanctions or pandemic, economic problems crop up. Therefore, positive economic growth is not being felt by the people at large.
Indeed, the CBI reported that oil saw the biggest growth of 11.7% during the Q1-3 period among main economic sectors surveyed by the bank. The CBI data further show “services” expanded by 6.5%, “industries and mines” registered zero growth and “agriculture” contracted by 2.1%.
According to SCI, “agriculture” contracted by 3.9%, “industries and mines” grew by 7.1% and “services” expanded by 5.1%. The subsectors of “industries and mines”, namely “crude oil and natural gas extraction”, “other mines”, “industry”, “energy” and “construction” saw 13.4%, -2.5%, 3.4%, 5.1% and 6.3% growth.
Economic growth has been driven by two external factors: The global prices of oil increased from $35 to more than $100, thanks to post-Covid era, higher demand and the war between Russia and Ukraine, and businesses resumed activities
Looking at reports on positive economic growth makes one wonder whether the economic growth is synonymous with an increase in the production of goods and services, and improvement of markets and people’s livelihoods. What factors contribute to economic growth? How can the country achieve sustainable growth?
Economist Vahid Shaqaqi-Shahri, who serves as advisor to Economy Minister Ehsan Khandouzi, believes that the reported growth is not the result of investment and has nothing to do with government performance.
“It [the growth] stems from two external factors. Firstly, the global prices of oil have increased from $35 to more than $100, thanks to the post-Covid era, higher demand and the war between Russia and Ukraine as well as US expansionary policies. As a result, the prices of our oil-driven products have increased. Secondly, the resumption of activities of businesses, particularly those in the services and manufacturing sectors, which were not active during the pandemic, has contributed to the economic growth,” he was quoted as saying by the Persian daily Etemad.
Noting that these developments were similar to those of fiscal 2016-17 when economic growth suddenly hit 12.5%, of which 9.5% were attributed to the oil sector, he said, “Such growth is nothing to be happy about; it is not worthy of analysis either because it does not reflect sustainable growth and employment. You cannot rely on such figures. This type of growth is not the outcome of investment or structural economic reforms. The economy could probably register high positive growth next year as well, once the nuclear agreement with world powers is reached. But it will mostly result from external developments and oil and energy sector.”
Referring to the 12.5% economic growth of the fiscal 2016-17, Shaqaqi-Shahri said, “Iran’s economy registered a real economic growth of 3% in the following year [fiscal 2017-18]. I believe the economic growth of fiscal 2023-24 will be real. You can only be content about the country’s economic growth when investments increase, structural reforms are carried out, problems regarding production are resolved definitively, economic predictability is enhanced, investment security and competitiveness improve and the private sector expands.”
