The Forum for Partners in Iran's Marketplace

July 2013, No. 67


Below Zero Economic Growth

A Heritage for the New President

Problems such as unemployment and absence of proper jobs for the young working force in the country are among reasons for bringing the economic growth rate down below zero.

Ahmadinejad is handing over the economy to the next government with negative growth rate something that had never been experienced in the last years of the past five governments. According to statistics of the Central Bank of Iran, the economic growth rate reached 6.1% in the Iranian calendar year 1375 (1996-97) and eight years later in the last year of the 8th government it increased 6.4%. But, according to forecasts of the Majlis Research Center (MRC), the Ahmadinejad administration would experience an economic growth rate of -0.7 to -4 percent this year. On this basis, experts believe foreign exchange revenues of the 9th and 10th governments not only did not result in economic growth in the country but prompted intensified inflation, corruption and imbalance in the economy. This is while the production sector has sustained the highest damage.

Generally, statistics show the average economic growth rate in the 5th and 6th governments (1989-1997) was 5.5%, in the 7th and 8th governments (1997-2005) 9.4% and in the 9th and 10th governments (2005-2013) 2.8%. In fact, the economic growth rate experienced great fluctuations in the Reconstruction Era (1989-1997). First, following an upward trend until the end of 1369 (March 1991), the economic growth rate reached about 15 percent but in the year 1371 (1992-1993) it suffered a severe drop and by the end of 1373 (March 1995) fell to around zero% or even some negative figures. After that, it again increased to about 8% in 1375 (1996-1997). The economic growth rate in the eight years of Reconstruction Era stood at an average rate of 5.5%. Also, in the first term of the Reform Era (1997-2001) the economic growth rate was less than 5% and in the second term was above 5% and altogether in the eight years of the Reform Era (1997-2005) the average economic growth rate touched the ceiling of 9.4%. In the post-Reform Era, first, economic growth rate increased up to 9% in the year 1385 (2006-2007), however, since then it took a downward trend. In the year 1389 (2010-2011), the rate once again increased and reached 5% but the economic growth rate in this period was 1.5% up to the end of 1388 (2009) on average.

Statistics of International Institutes: Then, in the year 1390 (2011-2012) with the implementation of the Economic Reform Plan, the growth rate dropped to zero; and in the year 1391 (2012-2013) according to a report by the World Bank it reached -3 and according to a report of the International Monetary Fund to -1.9%. These two international agencies have jointly predicted Iran's economic growth rate to be -1.3% in the current year and a report by the Majlis Research Center forecasts the economic growth rate to probably -0.7 to -4 percent. 

A review of Iran's economic situation in 1370s (1991-2001) indicates that implementation of the plan for economic balance has caused severe fluctuations in the rate of foreign exchanges and inflation in the country. In these years, foreign exchange rate increased from 1300 rials to 6000 rials ((foe one US dollar) and inflation soared to 49%. Despite all these fluctuations in prices and increase in production costs, economic growth took an upward trend and the money spent on development projects resulted in economic development.

Commenting on the difference between the 6th government (Rafsanjani's administration) and Ahmadinejad's government, Hossein Raghfar, a university professor and economic expert, says: "The damage the production sector has sustained was the most important measure taken by the 9th and 10th governments in line with [creating] imbalance in economy, and which became deeper and deeper by the lapse of time. This was mainly due to some transfers to some trans-governmental and quasi-governmental institutes in the economic sector. For this reason, the private sector was gradually eliminated from the economic cycle because in an imbalanced competition the private sector lagged further behind with the lapse of time in using foreign exchange resources which were mainly in the possession of the government. This is while production was the core of attention in the 6th government."

Over 8% Economic Growth Rate Should Have Been Achieved: What causes allocation of sums of money which should be spent on production activities in the country to government's consumer and bureaucratic costs is the government's huge volume, which in itself is a waste of resources and is paving the way for subsequent inflation. In this government, the price of finished commodities rose and as a result price of products soared and the purchasing power of people reduced. With the reduction in the purchasing power of people, the manpower demanded higher salaries, which meant renewed increase in production costs and the spiral trend of inflation. Based on statistics, it should be noted that the 9th and 10th governments have been the richest governments in terms of oil revenues.

Appropriate and regular use of these revenues would have not only caused an economic growth rate of over 8% but would have totally removed bottlenecks such as unemployment and high prices. Instead of being spent on production and industry sectors, creating job opportunities and bringing about welfare, such immense oil revenues have been spent on current government expenditures, a major part of which brought about no achievement to the country.

Commenting on the weak points of the 9th and 10th governments, Mohammad Reza Bahonar, a member of the five-party coalition of Principalists, says: "Unfortunately in the field of economy, the present government has exhibited a weak performance and failed to have a desirable outlook towards entrepreneurship, sustainable employment and production growth. Problems such as unemployment and absence of proper jobs for the young working force in the country are among reasons for bringing the economic growth rate down below zero. Meanwhile, if employment opportunities were accessible to our work force not only the country's economy would experience growth but we would have gained progress beyond our expectations."

Ahmadinejad's Failed Promise to Tackle Inflation: Prior to coming to power as president, Mahmoud Ahmadinejd gave genuine promises that by looking at the eight-year performance of his governments, at present we would notice that none of them has been realized. Ranging from introducing the oil Mafia to targeted subsidies, low prices and eradication of unemployment were among Ahmadinejad's slogans. Among his memorable remarks, one can mention "making inflation rate one digit" as one of his purest and main slogans. In the calendar year 1384 (2005-2006) when Ahmadinejad referred to the one-digit inflation rate, this rate was 12.1%  and on the basis of reports released by the Statistics Center of Iran. In the next year, inflation increased to 13.6% and in 1386 (2007-2008) it jumped to the outstanding rate of 18.4%.

But increase in inflation rate did not stop here as in the calendar year 1387 (2008-2009) the Statistics Center reported that the rate had gone up to 25.4%. According to these statistics, the promise for bringing down the inflation rate to one digit was not realized up to the last year of the 9th government, that is to say the Iranian calendar year 1388 (2009-2010). In that year, inflation dropped to 10.8%. However, the promise to bring down the inflation rate to one digit was not materialized because as in the year 1389 (2010-2011) it reached 12.5% with a growth rate of 2% and in the year 1390 (2011-2012) it jumped to 21.5%. According to the latest report issued by Iran Statistics Center, the rate in the current year has reached 36%.

Source: Shargh Newspaper


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  July 2013
No. 67