The income classification threshold in the world changes with the growth and regression in economies, or the improvement or worsening of the society’s living standards.
According to the World Bank’s classification in 2022, in a list containing 217 countries and territories, there are 28 countries in low income class, 54 countries in lower-middle income class, 54 in upper-middle income class and 81 in the high income class, the Economic Studies Department of Tehran Chamber of Commerce, Industries, Mines and Agriculture wrote in a draft report citing World Bank data. Below are the findings of the report:
Iran’s position worsened as of 2020 for the country to join the lower-middle income class after it belonged to the upper-middle class for nearly 15 years.
Studies indicate that the trend of change in Iran’s gross national income (GNI) per capita has been accompanied by fluctuations in the past and its position has worsened. A comparison of Iran with countries that were in a similar situation in 2000, especially Romania, indicates that their economies were able to join the high income class in 2021, while Iran was not even successful to keep its previous standing.
Four countries from the Middle East and Iran’s neighbors, namely Qatar, the UAE, Saudi Arabia and Kuwait, have far better conditions than Iran in terms of GNI per capita and all these four economies belong to the high income class.
Income Level Classification
The World Bank releases a new list of classifications of world economies based on their income level on July 1 each year.
In this list, countries are classified into four income classes, namely low, lower-middle, upper-middle and high income, based on their GNI per capita using the World Bank Atlas method.
In this method, the countries’ GNI per capita is converted to USD from local currency using the Atlas method (to smooth exchange rate fluctuations by using a three-year moving average, price-adjusted conversion factor) and is adjusted based on the difference between the country’s inflation rates (using gross domestic product deflator) and several developed countries (using the weighted average of the GDP deflators in special drawing rights [SDR] terms); it is then decided by the population to get the per capita figure.
Two factors are considered in GNI classification:
The countries’ GNI changes with economic, inflation, currency rate and population growth. The preparation method of national accounts and the used data also affect the mentioned per capita.
The classification threshold, which actually defines the limits for each income class, is adjusted based on inflation using the SDR coefficient.
The new data on countries’ GNI for 2021 is extracted and specified by the World Bank, which is updated and released based on changes in currency rates, inflation rates and population, and was used to determine the income level of each country in 2022.
It is noteworthy that the World Bank’s financial year ends by June end each year and according to the announcement of this bank, this classification is for analytical purposes only and does not affect the credits and financing of the World Bank to countries.
Classification Threshold
The classification threshold is determined at the beginning of the World Bank’s new financial year (July 1) and is valid for 12 months.
In 2022 classifications, figures have increased due to the SDR inflation in a way that improving the income level of the countries requires higher values than the GNI per capita.
In 2021, if an economy’s per capita was $1,046, it was classified as lower-middle income, but with the changes in thresholds, in order to be classified in this income class in 2022, a minimum GNI per capita of $1,086 ($40 more) is required.
The minimum GNI per capita to be classified as upper-middle and high income classes in 2022 is 160 and 510 more than in 2021 respectively. Due to the changes in income level classifications, maintaining economies’ positions in the current classes or ascending to higher classes requires more effort and perhaps lack of economic development and growth would also result in degradation of position and a drop in economies’ income class.
According to the World Bank’s classification in 2022, in a list containing 217 countries or territories, there are 28 countries in low income class, 54 countries in lower-middle income class, 54 in upper-middle income class and 81 in the high income class. In terms of the number of countries, 37% of countries belong to high income class, 50% to middle income class and 13% to low income class.
2022 Changes
The income class for several economies has changed in 2022 due to their degree of growth and regression, and also the change in the income classification threshold.
The income class of three countries, namely Belize, Panama and Romania, has improved while the income class of Lebanon, Palau and Zambia has worsened.
Although some economies fare well in terms of GNI, the per capita of their GNI is more important as one of the proofs of the society’s level of living standards.
Some rich small economies or developed industrial economies usually have higher GNI per capita, but the increasing trend of this variable for some developing economies indicates their process of development and progress. The world economies are constantly trying to identify new growth potentials in accordance with technological developments and new business needs while maintaining a positive annual trend so that the results of all these activities improve their position and credibility in the global economic arena.
The experience of world economies’ development indicates that the rise of economies from the low-income class to the middle-income class is far less difficult than the rise from the middle class to the upper class due to the nature and structure of the transformation and leap required for promotion.
Many economies may remain in the middle class for more years due to the lack of significant progress, which is called the "middle income trap". It is worth noting that the economies of Romania and Panama were freed from this trap in 2022 and joined the economies with high income.
When the economies’ GNI is calculated using the Atlas method or by Purchasing Power Parity, some economies will be at the top.
Based on the Atlas method, Bermuda, Switzerland and Norway, and based on PPP, Singapore, Qatar and Bermuda are among the countries or territories with the highest GNI.
Some neighboring countries also appear on top of the list, including Qatar with a GNI of $57,000, the UAE with a GNI of $39,000 and Kuwait with a GNI of $36,000. On PPP basis, Qatar, the UAE, Kuwait and Saudi Arabia are top tiers.
Iran’s GNI Per Capita
Recession, especially stagflation, is one of the negative-impact factors on the economies and Iran’s economy did not have any achievement in improving the society’s level of living standards due to the failure to achieve the desired result in economic growth to produce development and progress, and there are no signs of its GNI per capita improvement or reduction in its gap with the rest of the world economies.
The weakening of national growth, along with the decline in economic growth, is among factors that have resulted in the drop in the USD equivalent of Iran’s GDP and consequently the weakening of its GNI per capita.
From 1987 to 2021, Iran belonged to the lower-middle income class for 21 years and joined the upper-middle income class for 14 years. From 1987 to 1989, Iran belonged to the upper-middle income class and from 1990 belonged to the low-middle income class for 19 years and then from 2009 to 2019 joined the upper-middle income class. The country fell to the lower-middle income class once again in 2022 due to the low increase in GDP and the decline in rial value and still remains in this class.
According to the World Bank’s data, Iran, with 85 million people, ranked 18th in the world in terms of population in 2021, while according to GNI calculated by Atlas method, the country ranked 133rd with a GNI of $3,370 and 89th with $15,760 when the GNI is calculated by the PPP method.
Comparison
Studies indicate that the trend of change in Iran’s GNI per capita has been accompanied by fluctuations during the past years.
In a comparison between Iran and countries with similar populations, Turkey belongs to the upper-middle income class and Germany’s economy belongs to high income class. In 2021, the GNI per capita of Turkey and Germany was 1.9 times and 4 times higher than Iran respectively.
One of the interesting cases comparable to Iran pertains to Romania. This country, with a population of 19 million people, is located in the Balkans region of Europe. It is considered one of the developing economies of Eastern Europe. The country’s economy has had good progress in its GNI over the past years.
In 2000, the GNI per capita of Romania was $1,710 ($50 less than Iran’s in the corresponding period) and belonged to the lower-middle income class like Iran. In 2005, Romania’s economy joined the upper-middle income class and in 2019 with another improvement, improved its position and joined the high income class.
Although most countries’ positions remained unchanged or decreased in terms of GNI per capita classification during the Covid-19 pandemic, some economies such as Romania managed to enter the high income class once again in 2022. During the same period, Iran was in the middle income class with some fluctuations in its position and joined the lower-middle income with a decrease in ranking as of 2020.
Some economies such as Iraq, Georgia, Indonesia and Vietnam had a far lower GNI per capita compared to Iran in 2000 and had better relative positions compared with Iran in 2021.
From a global perspective, the share of economies with low income decreased from 1987 to 2021 and the lost share was added to the economies with middle and high incomes.
In terms of coverage, most coverage levels belonged to low income countries in 1987 and most coverage levels belonged to middle income class (lower or upper) in 2021.
In terms of geographical location, best improvements and progress in GNI per capita were in East Asian and Latin American countries.
Iran belonged to the upper-middle income class in 1987 and with a decrease in its position joined the lower-middle income class in 2021.
