Economy, Domestic Economy

Economists Discuss Feasibility of WB Growth Forecasts

Economists Discuss Feasibility of WB Growth ForecastsEconomists Discuss Feasibility of WB Growth Forecasts

In response to the World Bank’s prediction that economic growth in Iran can top 8% over two years once sanctions are lifted, two Iranian economists have discussed the feasibility of the figure in talks with Eghtesad News.

In its latest quarterly economic brief of the Middle East and North Africa Region, the World Bank has predicted that in a scenario of complete lifting of sanctions, economic growth in Iran would reach 3.3% in the Iranian year 2015/16 and 5.1% in 2015/2016, an uptick from its June forecast of 1 and 2% GDP growth in 2015 and 2016 respectively.

The expansion of oil sales would constitute the bulk of this growth, compounded by diversification and growth in international trade.

Iranian economists believe that increased oil exports in particular would provide a boost to the economy, while warning that much of this growth would not be sustainable in the long-term.

Pouya Jabal Ameli, senior economist at the Financial Tribune, points out that “achieving a cumulative growth of 8% over the next two years is possible.”

For Jabal Ameli, strong growth rates should not be a surprise in the short-run. “It should not be difficult [to achieve] because the economy has experienced negative growth, which has prepared the ground for a return to higher growth. The negative growth in the past couple of years has created unused capacities in domestic industries, making possible higher rates of growth in the short-run.”

“Economic growth over the next two years should largely be a result of higher oil exports. For precisely that reason, it is possible that these growth rates will not be sustained,” he added.

Mohammad Qoli Yousefi, economics professor at Allameh Tabatabai University, argues that 8% growth should be relatively easy to reach, cautioning that this growth might not necessarily be  accompanied by high productivity or industrial and agricultural production.

Yousefi warns against this type of growth, stating that it fails to create employment and boost production and only threatens to deplete the natural resources and expand an already bloated bureaucracy.

Jabal Ameli suggests bureaucratic reforms as the most important step in creating sustainable growth. He adds that a change in the government’s mindset is another essential factor. While noting that there has been some improvement in the government’s approach to the economy in the past two years [since the administration led by President Hassan Rouhani came to office], Jabal Ameli believes that this change in approach should penetrate other government branches as well. In particular, “the judiciary should go in the direction of actively defending foreign investment and private ownership.”

Alongside these structural changes, shifts in economic policy could also make growth more sustainable. Jabal Ameli points to the bank interest rates and foreign currency rates as an area in which the government could do better to achieve sustainable growth.

Yousefi adds that sustainable growth is not possible through the sale of oil alone. Instead, the government needs to attract foreign direct investment.

The World Bank estimates that foreign direct investment inflows could range between about $3 - 3.2 billion in 2016 and 2017 respectively, after sanctions are lifted and economic growth rebounds to 5.5% in 2017. This is twice as much FDI inflows as in 2015 but one-third of the peak in 2003.

Yousefi believes that the government must prepare long-term, comprehensive economic plans in order to secure a steady flow of foreign direct investments rather than attracting temporary and short-lived investments.