Iran’s economic growth has improved and GDP growth rate is positive, but this has no analytical value because it was not the result of investment, and for this reason, the impact of this growth is not evident on public livelihood, employment and improvement in economic conditions, Vahid Shaqaqi-Shahri, an economic expert, told ILNA.
According to the Central Bank of Iran, Iran’s economy grew by 4% in the last fiscal year (ended March 20, 2023).
Excluding crude oil production, GDP growth stood at 3.5% in the fiscal 2022-23, CBI added.
Q1-4 rates were put at 1.9%, 3.9%, 4.9% and 5.3% respectively.
The sectoral breakdown of GDP shows the main groups of agriculture, oil, industries and mines, and services expanded by 1.1%, 10%, 6.5% and 2.7%.
The CBI report came after the Statistical Center of Iran said the domestic economy grew by 4.8% in the fiscal 2022-23, unchanged compared to the previous year.
SCI said the economy grew 4.5% without taking crude oil into account.
Q1-4 rates were put by the center at 6.4%, 3.2%, 4% and 5.6% respectively.
The main groups of agriculture, industries and mines, and services registered a growth of 4.4%, 6.4%, and 4.4%, respectively, SCI added.
Asked why the effects of the 4% growth rate on the improvement of the business environment and the government's claim of improving economic indicators are not perceptible, Shaqaqi-Shahri said that in terms of macroeconomics, the announced economic growth rate has no analytical value.
Maximum Contraction Prior to Growth
The economic expert said there were three reasons for this economic growth.
“The first reason is that Iran's economy in the decade ranging from the fiscal 2011-12 to the fiscal 2021-22 shrank due to the intensification of sanctions and lack of investment, and the average growth during the period was practically 1%. An economy of 85 million people was shrunk up to the maximum and I believe that Iran's economy could not shrink any further than this,” he said.
According to the expert, Iran’s gross domestic product at current prices declined from about $500 billion to under $300 billion during the period.
Noting that the positive economic growth they are announcing today are not the result of investment, he said what has caused positive economic growth is that Iran's economy could not decline any further prior to the growth.
Rise in Oil Exports, Prices
The second reason, he said, is that Iran's oil exports lately assumed an uptrend, following the easing of sanctions.
“Unlike Trump's presidency when severe pressure was imposed on our country and Iran's oil exports decreased to less than 300,000 barrels per day, during Biden's presidency and the reduction of sanctions, our oil exports have increased and reached 1.5 million barrels per day. Although we know that with the increase in oil exports, Iran will not receive its money in US dollars, we can receive goods in return,” he said.
The third reason, Shaqaqi-Shahri explained, was the rise in oil prices during the period under review.
“Along with the rise in oil exports, global prices also increased and the dollar value of non-oil exports rose,” he added.
The economic expert concluded that three factors worked hand in hand to make Iran's economic growth positive last year and in this year.
Misleading
When investment is made, the macroeconomic environment improves and investment growth occurs, as production increases and we achieve real productive economic growth, but this economic growth is neither productive nor job creating, he explained.
“We achieved this growth only because of the three above-mentioned factors and for these reasons, I tell my colleagues and economic experts that this growth has no economic value and it can be misleading and give the wrong signal to the managers of the country,” he said.
Referring to the Economy Ministry's announcement that the increase in gross fixed capital formation by 6.7% last year was the cause of economic growth, the expert said, "They do not have a correct analysis of the economy; Iran's economy was severely shrunk, and the downsizing of the economy will eventually stop. About the claim that capital accumulation has increased and caused economic growth, I must say that capital accumulation must be the result of investment, while there is no sign of capital attraction either in the foreign investment sector, or in the domestic investment sector.”
Shaqaqi-Shahri said observing the final economic indicators without analyzing the chain of economic indices, one cannot have a correct analysis.
Structural Reforms
Economic growth should be the result of structural reforms, in the sense that the business environment should improve because of government reforms, he said.
According to the economic expert, when economic reforms take place, economic stability is achieved, economic security is boosted, foreign investment is attracted, or corruption is controlled, but when we review the indices and current conditions, we see that none of these developments have occurred.
Shaqaqi-Shahri said the lack of economic structural reforms is that the business environment remains unfavorable, no change is seen in terms of economic stability, and as a result, the fundamental indicators of the macroeconomics have not changed.
“It is as if a student has obtained good grades without making any effort. Macroeconomic indicators can be analyzed when they are the result of a number of economic structural reforms,” he said.
“Therefore, the announced economic growth is not an achievement; it is not worth economic analysis, as it is distorted and deceptive, because it was the result of exogenous factors.”
The World Bank Forecasts
The newly-released June edition of Global Economic Prospects report has put last year’s growth rate in Iran at 2.9%.
“Growth is expected to slow in the Islamic Republic of Iran to 2.2% in FY 2023-24, from 2.9% in the previous fiscal year, as oil exports and government consumption growth slows,” the report reads.
It goes on to forecast real GDP growth in 2024 and 2025 at 2.1% and 1.9%, respectively.
The data show projection for 2024 has been revised up by 0.1% while it remains the same in 2023 compared to the January edition of the report.
According to World Bank, Iran’s economy grew by 1.9% and 4.7% in 2020 and 2021 respectively.
The quarterly estimates read 6.7%, 5%, 2.5%, 3.4% and 4.7% in Q4 2021, Q1 2022, Q2 2022, Q3 2022 and Q4 2022.
The January report said: “In the Islamic Republic of Iran, growth in FY 2023-24 has been revised down by 0.5 percentage point, to 2.2%, on account of slower growth in key trading partners and new export competition from discounted Russian oil. Domestic demand is also likely to be curbed by the effects of high inflation on real incomes, which is expected to average 44% in FY 2023-24. Growth is projected to slow further, to 1.9%, in FY 2024-25.”
