Domestic Economy

Gini Index Expected to Improve

Gini Index Expected  to ImproveGini Index Expected  to Improve

The Gini index or Gini coefficient is expected to show signs of improvement by the end of the current year as a result of the anti-inflationary policies adopted by the government; IRNA quoted a recent CBI report on Saturday.

“Monetary policies can curb the inflation rate, but they can also improve the distribution pattern of the country’s wealth,” The CBI report indicates.

The Gini Coefficient or index is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents, and is the most commonly used measure of inequality among the different social strata. This number, which ranges between 0 and 1 and is based on residents’ net income, helps define the gap between the rich and the poor, with 0 representing perfect equality and 1 representing perfect inequality.

“The Gini Coefficient significantly increased in 2011 and 2012 as a result of monetary policies adopted during those years,” the report added.

The increase in the Gini Coefficient in 2013 was the predictable outcome of the deep recession, high rate of inflation and currency fluctuation that resulted from economic mismanagement and economic sanctions imposed on the country’s economy by the West.

Statistics shows that the Gini Index has been on a descending order up until 2008, and it began to increase from 2009.

Since 2010 the Gini index sharply dropped as a result of the distribution of cash payment through the implementation of the so-called Subsidy Reform Plan – a plan implemented by the former administration in an effort to cut the subsidies on energy carries and major commodities. The move aimed to curb wasteful consumption and save about billions of dollars off the government annual budget.

In 2010, following the implementation of the Subsidy Reform plan, the Gini Index dropped to 0.3813, and reached 0.3750 in 2011, registering a two-decade record low in that year.

However, as it was anticipated by many economists, the money injected into the economy through the cash payment mechanism led the inflation rate to increase with an unprecedented pace, reaching nearly 40% in October 2013. What resulted from such galloping inflation was a widening rift between the social classes, making the poor vulnerable to the rising commodity prices to the extent where they significantly lost their purchasing power.

According to the plan’s initial outline, the amount saved by the government through the subsidies cut was supposed to be distributed as follows: 50% was to go to the poorest strata of Iranian society; 20% to the government to compensate for increased costs or as safety net; and the remaining 30% was earmarked for improving the efficiency of public and industrial sections.

However, the previous administration widened the payment scheme to include almost all Iranians in a move that was interpreted by the Iranian economists and political elites as a mere “game of politics” aimed at attracting potential voters. As a result of such mishandling, domestic industries suffered the most with a steep rise in energy costs that crippled their ability to compete with cheap imports.

Concurrently, the value of the cash payment also plummeted from $45 to nearly $18 as the rial, Iran’s national currency, lost almost two thirds of its value against the world’s major currencies as a consequence of unprecedented sanctions imposed by the Wets on Iran’s oil industry and banking system.

However, the monetary policies adopted by the Rouhani administration  during the past one year and half have brought the inflation rate down to nearly 17%, creating a sense of optimism among economists that the Gini Index is on the mend after two years of economic mayhem.

The CBI has published several reports over the past months, which were contested by some economists. One report indicated that the Inflation rate was reduced to 17.2% in the month of Azar (ending December 21). Another report showed the economy grew by 4.6 percent in spring and by 3.7 percent in summer. The GDP growth in the first half of the fiscal year (ending Mach 20) reached 4 percent, ending two years of negative growth.