Almost all economists, private sector players and the government believe stability in the Iranian economy can improve the economic situation.
Despite their common belief regarding the importance of economic stability, they don’t see eye-to-eye over the true meaning of stability and strategies needed to achieve it. This was stated by Majid Salimi-Boroujeni, an economic analyst, in an article for the Persian daily Jahan-e Sanat. A translation of the text follows:
According to economists, stability is defined as the lack of uncertainty, or the predictability of economic conditions, which is necessary for investment and growth. To officials, stability is maintaining the status quo, but the problem is that the status quo is not synonymous with an increase in investment and economic growth.
In our country, the accumulation of problems has led to financial and human capital flight. In other words, even if new problems are not added, this outflow of capital would hit the economy and its growth potential.
Budget has become one of the buzzwords of Iran’s economy in the last few years. In fact, budget deficit has postponed the treatment of our sick economy and turned it into a chronic ailment. The current year’s [fiscal 2022-23] budget is the first litmus test of the new government. It has set unattainable goals.
Given the lack of transparency in the government’s economic policies, the upcoming year’s economic growth will be tied to resolving crises such as sanctions.
Adapting the current roadmap of the country’s economy and drawing a clear picture of it can help assess the budget. The current year’s budget has four objectives: improving productivity, facilitating the business environment, creating jobs and promoting exports. These four objectives need prior economic groundwork that is incompatible with Iran’s state-own economy.
Problems and Prerequisites
Efforts to control the market via mandatory pricing and weakness of some sectors like agriculture, thanks to the water crisis and drought, are challenging the possibility of reaching these goals.
Structural change in the budget is vital but improving business environment, creating economic stability and promoting justice by fighting corruption are among the goals of the budget but a shift in the philosophy of economic decision-making is necessary.
An economy reliant on the government’s financial support, loans and imposition of customs tariffs on competition is far from the path to productivity. Undoubtedly, inflation and macroeconomic instability are the most pressing issues of recent years. Economists regard budget deficit as one of the key causes of hyperinflation in recent years.
Although inflation is a recurring disease of Iran’s economy, it reached unprecedented highs in 2021-22.
If it was not for the growth of oil revenues and the increase in global prices of energy, Iran’s economy would have been in far worse conditions now.
Experts have time and again warned about the do’s and don’ts of the budget. The persistence of inflation rates of above 30-40% for the fifth consecutive year, they say, will be to the detriment of people. Therefore, the fiscal 2022-23 budget will only be praiseworthy if it manages to control the deficit and inflation.
Besides the role that government budgets play in creating inflation, its contribution to easing economic growth has always been important to economists.
Since the submission of the budget bill to the parliament, the government officials have billed it as the basis for fulfilling the promise of achieving 8% economic growth. However, a look at the share of capital expenditure budget, which reflects the share of government investment in the economy, suggests that you should not expect anything special.
The government should try to bring oil revenues into the country to tackle a fraction of its budget deficit. Otherwise, the adverse effects of budget deficit will manifest themselves in the form of borrowing from the central bank and inflation. There’s no clear future in sight for Iran’s economy; with the current budget, it seems unlikely that anything positive will happen in the Iranian economy.
