Despite high economic and industrial growth of the country, the forex balance has been negative and the country needs international financial resources, especially FDI.

In this section, important macroeconomic and industrial variables of the country have been projected for a 10-year period (2002- 2011). This variable stresses persistence of the current structure and policies. This study makes elucidation of challenges discussed in the previous section possible through quantitative estimates because delineation of various aspects of economic reforms necessary for changing unfavorable trends would greatly contribute to an economic growth based on the industrial development.

The econometric model discussed consists of 112 equations comprising more than 80 short-term and long-term behavioral equations, which include production, consumption and investment sectors as well as employment and unemployment, government’s budget, commerce, money and inflation on a large scale. Variables pertaining to the industrial sector have been mentioned as including added value, investment and employment separated into short-lived, long-lasting, capital and intermediate industries.

Domestic oil consumption, in view of consumption trend, has been taken to be equal to 1.64 million and 2.2 million barrels per day by 2006 and 2011, respectively. Therefore, in this variant, persistence of domestic consumption growth will reduce exports and forex oil revenues due to limited production capacities. Also, in this variant it has been assumed that in view of the regional developments and possible reduction of global oil prices, the oil price will decline to $15 by 2006, at the fixed price of 2001, and it will remain constant until 2011. In view of the above assumptions, in this variant, forex revenues from oil exports will reach $18,857 million and $15,063 million by 2006 and 2011, respectively, at the fixed price of 2001.

The important point about this variant is the emphasis on projecting the trends of macroeconomic and industrial variables in the coming years and attention to forthcoming structural problems and challenges. Naturally, when the above assumptions change, the predicted yearly figures will also change. The goal is to show that if the current structures persist, due to the lack of endogenous growth mechanisms, the Iranian economy will gradually lose its sensitivity to forex oil revenues and abundance of natural resources will not help economic growth. The second group of assumptions pertains to policymaking. Here, it has been assumed that the current performance of macroeconomic policies such as financial, monetary and forex policies will persist as follows as much as possible.

These comparisons show that Iran’s per capita revenue will increase from $5,910 in 2000 (based on PPP) to $7,759 in 2010 while per capita revenue of such countries as South Korea and Malaysia will increase from $17,300 and $8,330 to $29,589 and $14,247, respectively, in 2010. In other words, the ratio of Iran’s per capita revenue to per capita revenues of Malaysia and South Korea, which was respectively 71% and 34% in 2000, will decrease to 54% and 26% in 2010, respectively.

Due to the slow economic growth projected in this variant, it will take about 30 years for the per capita revenue of Iran to double. The said trends indicate deepening of the existing gap between the Iranian economy and international economy during 2010s. Projections on growth of actual per capita revenues of various parts of the world show that during that decade, East Asian economies will have the lead with an average annual growth of more than 5%. Growth of Iran’s per capita revenue during the said period would be half the economic growth of the East Asian countries and almost similar to that of the Latin American states.

The reason for Iran’s slow economic growth during forthcoming years would be a downturn in capital aggregation and manpower, on the one hand, and a similar slump in the rate of utilization of capacities, on the other hand, which stems from developments in demand and supply sides of the whole economy.

The forex revenue earned through oil exports, as the ceiling of intermediate and capital imports, has decreased especially since the second half of 2000s, which has also affected production and investment through decreasing utilization of available capacities. On the other hand, the downhill growth of demand at a macroeconomic level will also negatively influence use of capacities. The decreasing trend of the latter variety, which is a sign of existence of surplus capacities, will in turn negatively affect capital aggregation and, as a result, production. Also, due to inattention to development of technology and education, productivity will not be a determining factor in the economic growth, which will grow at an annual 1.8% rate in continuation of its downward trend.

In view of factors that determine investment such as production changes, capital imports and the rate of using capacities, the temporal trend of growth of this variable would be decrescendo too and its annual average rate has been projected at 4.6%. In the composition of future investments, growth of state investment, due to limited government budget, will stand at 3.5% annually to lag behind the 4.7% growth of private investments.

The declining economic growth in the coming years will lead to a corresponding decline in job creation. So that, due to developments of the demand side of the labor market, average growth of workforce demand during 2002-2011 will reach 1.8%. This growth will increase employment from 16.4 million in 2001 to 19.6 million in 2011. However, as said before, the average 2.5% growth in workforce supply, as a main challenge for the Iranian economy which is facing an emerging new composition of male and female workforce supply, will increase the unemployment rate from 14.7% in 2001 (based on Iran Statistics Center data) to 20.8% in 2011. In other words, during the concluding years of this decade, the number of the unemployed will increase from 2.8 million in 2001 to more than five million in 2011.

Projections relating to the government’s budget indicate a progressive lack of government’s financial balance. Considering the assumption of preserving the ratio of the government’s current expenses to gross domestic product at 15.5% and projecting other budgetary items, the government’s budget deficit in 2006 and 2011 will respectively hit 47,230 billion rials and 81,827 billion rials at the fixed price of 2001. So that, the index of ratio of budget deficit to gross domestic product, which indicates financial stability of the government, will increase from about 3% in 2002 to 9.5% in 2011.

With the assumption of supplying financial resources to compensate the government’s budget deficit through borrowing from the Central Bank of Iran and circulation of money, along with developments in other components of money basis, especially net changes in foreign assets of the Central Bank, which have been on the rise during the recent years to preserve stability of the forex rate in the absence of demand for the foreign currency, liquidity will grow from 28.8% in 2001 to 35.2% and 37.7% in 2006 and 2011, respectively.

It is projected that the said liquidity growth along with imbalance between total supply and demand as well as developments in the index of imported goods and inflationary expectations, will lead to a general increase in prices equal to 18.5% and 22% in 2006 and 2011, respectively. This profile shows the return of the Iranian economy to the situation of chronic inflation exceeding 20% of the past years, while inflation projections for various parts of the world in 2010 do not indicate high inflationary figures.

Projections about exports and imports and trade balance in the variant of persistence of the status quo indicates trade surplus during the first half and trade deficit during the second half of 2010s. Due to deterioration of the situation of trade balance during the second half, stabilizing the forex rate would not be possible any longer and this will lead to increase in the nominal forex rate. However, due to resilience of the nominal forex rate and its lack of complete adjustment with the projected high inflation, the real rate of foreign currency will be bolstered and negatively affect the development of the commercial sector.

The composition of industrial products within the framework of consumer, capital and intermediate industries, will continue to show a reduced growth of consumer industries, especially short-lived industries, in comparison to capital and intermediate industries, indicating underdevelopment of the industrial connections and persistent depression of consumer industries.

An average 2.4% growth of per capita revenue, with high inflation and an unemployment rate exceeding 20% during the concluding years of the said period, along with progressive instability of the government’s financial situation and the country’s trade balance will deepen the gap between Iranian economy and other developing states. Although this variant of the prospect is based on the assumption of a dwindling oil price, simulation of the model delineated in this study shows that even considering a high price (for example a fixed $18 in place of a fixed $15) will lead to no major development in large-scale indexes.

This result proves that within the existing structure, due to lack of endogenous determinants of growth, increase in forex revenues from oil exports will lead to surplus forex balance, which would not help the growth of the Iranian economy. Creating a forex balance surplus in the current structure of the country’s economy coincides with a low economic growth. In the variant of the industrial development prospects, which would be discussed in other sections, we will see that despite high economic and industrial growth of the country, the forex balance has been negative and the country needs international financial resources, especially foreign direct investment.

It also shows that during upcoming years, gradual decline in forex oil revenues, on the one hand, and more importantly, continued inadequacy of domestic and foreign demand for domestically made industrial products, on the other hand, along with increased production costs and reduced purchasing power of families, will decrease growth of added value of the industrial sector with an incongruent composition of capital, intermediate and consumer industries. It is expected that during the studied period, average per capita growth of the industrial added value, which is projected at 4.3%, will outstrip average growth of per capita revenue.