President Ebrahim Raisi submitted the seventh five-year development plan to the parliament on Sunday in the form of a bill.
A roadmap enumerating economic objectives and targets for the next five years, the 7th FYDP pertains to the fiscal 2023-28.
The seventh plan was long overdue, as it usually comes out before the start of the five-year period.
Among the main targets set in the new FYDP, as the government announced earlier, are 8% GDP growth by the end of the period, 3.9% rise in annual employment (creating 1 million jobs per year), average inflation rate of 19.7% during the five years of planning (9.5% by the end of the period), 12.4% rise in oil exports, 22.6% jump in non-oil exports and 16.2% surge in imports.
“We needed a serious evaluation, as to why the six previous FYDPs were not implemented as expected. The most optimistic estimates say up to 35% of the plans were realized, which is far from acceptable,” the president was quoted as saying by the news portal of Majlis.
Noting that the incumbent government has put the completion of projects abandoned due to lack of funding and other reasons on its agenda, he said projects have remained on the ground for more than 20 years.
According to Raisi, the development of value chain in mining and petrochemical industries is considered an economic propeller in the 7th FYDP.
“Transit and marine economy have taken center-stage in the 7th FYDP in line with the goal of reviving Iran’s share in regional trade, in addition to boosting and diversifying national income,” he said.
The development bill will now be reviewed by the parliament for possible changes and amendments before it is passed into law with the blessing of the powerful Guardians Council.
Food Security
Raisi recalled that food security is another pivot of the new FYDP and said plans are underway to move toward self-sufficiency in agricultural and livestock feed production, which constitute a major volume of Iran’s imports.
Data released by the Agriculture Ministry show 25.21 million tons of agricultural and food products worth $18.39 billion were imported to Iran in the last Iranian year (March 2022-23), indicating a 17.47% fall in weight but a 7.45% increase in value.
Feed corn for livestock worth $3.26 billion had the biggest share of imports in terms of value, followed by different kinds of vegetable oil worth $2.53 billion, rice worth $21.33 billion, wheat worth $2.01 billion and GM soybeans worth $1.97 billion.
In terms of tonnage, corn topped imports with 8.08 million tons, followed by wheat with 4.45 million tons, followed by GM soybeans with 2.54 million tons, barley with 2.37 million tons and rice with 1.77 million tons.
With exports standing at 7.77 million tons worth $5.21 billion during the period, indicating a fall of 8.93% in tonnage and 2.29% in value compared with the year before, Iran registered a trade deficit of more than 17 million tons worth $13 billion in the agricultural and food sector in the last Iranian year that ended on March 20, 2023.
Among other pivots of the new development plan, Raisi referred to the housing crisis, management of water resources, and population growth.
‘Controlling Inflation and Boosting Production’
The president said the seventh development plan has been drafted based on the current Iranian year’s motto, “Controlling Inflation and Boosting Production.”
Noting that controlling inflation requires keeping in check the increasing trend of liquidity in the economy, he said the elimination of unhealthy lenders from the banking system is a major step pursued by the government to realize the year’s motto.
He described budget deficit as “the mother of all ills” in Iran’s economy.
The Statistical Center of Iran’s latest data show the average annualized inflation in the second month of the current Iranian year (April 21-May 21) stood at 49.1%, up from 47.6% reported in the previous month and 45.8% in the month before.
The general goods and services Consumer Price Index (using the Iranian year to March 2022 as the base year) stood at 185.5 in the month under review, indicating a month-on-month rise of 2.8% and a year-on-year rise of 54.6%.
The rise in prices of goods and services accelerated at an unprecedented pace after the government decided to overhaul the import subsidy system.
The government move saw the abolition of the controversial practice of allocating cheap dollars at the rate of 42,000 rials per dollar, locally known as the Preferential Foreign Currency, to import essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
The market value of the dollar is currently just below 500,000 rials.
“Until now, we have been paying to producers [read importers] but now the subsidies go to consumers. In fact, the Preferential Foreign Currency has not been ceased, rather the allocation method has changed,” President Ebrahim Raisi said in a televised speech on the eve of the introduction of the move in May.
In his speech, Raisi had emphasized that the removal of cheap dollar allocation will not increase the prices of wheat, flour and medicine. However, the move led to a dramatic rise in the prices of essential goods. In fact, the prices of all commodities and services have also risen suddenly in a ripple effect.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
With a coefficient of 28.82%, the CPI of “food and beverages” stood at 224.4 in the month ending May 21, indicating a 2.6% increase from the previous month. The index registered a YOY increase of 76.1% and the CPI of the group increased by 75.7% in the 12-month period to May 21 compared with the corresponding period of last year.
79-Year Inflation Record Broken
The inflation rate broke all previous records and reached the highest rate with the point-to-point rate now at the highest level in the last 79 years.
When it is said that point-to-point inflation is at its highest point, it means that a wide range of problems, shortages and ill effects converge on deprived families and the middle class, which also impact state affairs. Basically, this type of inflation acts as a driver of annualized inflation, economist Mohammad Reza Monjazab wrote for the Persian newspaper Ta’adol.
“Point-to-point inflation rate reached 68.6% in the first month of the fiscal 2022-23, which marks the peak of inflation in Iran's economy, as no government has ever experienced such a point-to-point inflation rate. Unfortunately, this increasing trend is continuing despite all the denials of the government, in such a way that according to the research center of the parliament, the people of Iran are experiencing an inflationary perception of over 86% and even 100%. Moving towards lifting sanctions and establishing principled interactions with the world and world economies are one of the primary ways of limiting inflation: Of course, if the statesmen know and try to realize it.”
Missed Targets
Experts and analysts have cast serous doubt on the effectiveness of the targeting in the new FYDP, citing the failure of previous such documents to meet the set goals.
Mohammad Qasemi, the head of Iran Chamber of Commerce Research Center, had said the targets in the new FYDP bill need to be moderated by experts before submission to parliament.
Describing fiscal budgets in Iran as a document that “buries realities” in the country, he said that for years, figures and statistics in budget are sought to hide economic realities on the ground.
Touching on the same issue of FYDP’s failure to achieve the set targets, Ali Sarzaeem, an economist, told Donya-e-Eqtesad the government needs to adhere to the provisions of the document, which in part needs to reflect the ground realities in the first place.
“Five-year development plans have been written and approved for years. A large part of the country’s bureaucracy is tasked with writing them. Hours of the parliament’s commissions are spent evaluating and approving them. From time to time, correspondence discuss the degree of realizing the goals envisioned in the plan. All these processes and the time can be meaningful, if the behavior of the government is compatible with the plan but when it’s not, spending this huge amount of time and energy is questionable,” he said.
“The authors of development plans are free to cite 8% or 6% economic growth but, in practice, the economy registers zero percent growth. Different numbers and figures can be cited for the performance of the departments but when the government does not have the money, it is clear that these goals and figures are pointless.”
Yaqoub Andayesh, the head of Iran Economic Association, says the government should seek to reform the economy instead of setting far-fetched goals and targets.
“Iran’s Five-year development plans in their current form are ineffective; in unpredictable circumstances, it is impossible to make any plan for the next five years. The new development plan will not be materialized in practice, just like the previous ones. There are many signals that indicate that the government and the parliament do not adhere to the approved development plans and this course of action will compound in economic, political and social arenas,” he said.
“The economic, political and social conditions in the years of the seventh plan are more unfavorable than in the past, so the plan’s outcome will not be better than the previous ones. Therefore, instead of the past tradition of drafting development plans, it is better to present a roadmap for reforming structures and policies. We need to probe the reasons for not achieving the objectives of the development plans.”
