Iran’s economy has deteriorated significantly over the past three years due to sanctions, rising inflation rates, corruption, political turmoil, and the rapidly spreading coronavirus pandemic. Iran’s recently elected president, Ebrahim Raisi, has promised to reform and revitalize the country’s struggling economy. However, his proposals contain several gaps that need to be addressed in order to create economic growth.
Iran’s economic woes began when the Trump administration withdrew from the Iran nuclear deal in 2018, claiming that the Persian nation was not holding up its end of the agreement. Under the terms of the agreement, Iran would tear down most of its nuclear program and allow international representatives to extensively inspect their facilities in exchange for significant amounts of sanctions relief. Indeed, Iran was conducting illicit nuclear activities out of sight of EU and U.S. inspectors. As a result of such unlawful conduct, Trump slapped sanctions on the Iranian government. Between 2012 and 2014, Iran suffered a loss of $100 billion in revenues due to sanctions.
Over the past two years, the European Union has also imposed sanctions on Iran over the country’s mismanagement of domestic political affairs and human rights violations. These punitive actions have resulted in a significant decrease in oil exports from the country, crippling the nation’s economy. In 2018, the country generated $62.7 billion in oil exports, but by 2020, this figure decreased drastically to $29 billion. As a result, the country’s GDP growth rate dropped in both 2018 and 2019, and inflation rose to 36.5% in 2019. To further add fuel to the fire, the COVID-19 pandemic further exacerbated Iran’s financial woes. Iran has struggled to contain the spread of the deadly virus, killing more than 87,000 people, pushing the country’s healthcare sector and the economy to the verge of collapse. The country’s economy has further suffered thanks to ongoing corruption and mismanagement by Iran’s ruling elite.
After his election in June, Iran’s new president, and the former Judiciary Chief, Ebrahim Raisi, promised economic reform. During his campaign, he outlined seven pillars of proposed reform which focus on expansionary fiscal and monetary policies. These include providing the country’s poorest households with low-interest loans, increasing government subsidies for health care, building four million new houses, and creating four million new jobs.
While Raisi’s plans are ambitious, Iran-watchers have pointed out the flaws in his proposals. For example, experts from the Atlantic Council have noted that Iran would need to generate adequate funds from selling government bonds, oil revenues, and tax revenues for the government to achieve its goals. However, Raisi’s plan does not clarify where and how the government will generate this money. According to Iran’s March 2021 budget plan, selling government bonds comprises only 15% of government revenues. Therefore, it is unlikely to be a dependable income source for Iran’s economic recovery.
Further, the country has been struggling to wean off its dependence on oil revenues. Therefore, tying the country’s plan for economic growth to oil revenues is counterintuitive. Iran also does not have the stock market and tax system infrastructure needed to identify and produce tax revenue increases on speculative activities while simultaneously decreasing taxes on production and manufacturing entities.
Raisi’s plans are also likely to fail because his administration has not carefully considered the fact that Iran’s currency has significantly devalued over the past few years. This has resulted in capital outflows of $27.8 billion, which has dramatically impacted the nation’s economy. In addition, many experts have pointed out that Raisi’s expansionary monetary and fiscal policies would likely result in increased inflation. State-run media outlets and prominent economists have also warned that the country’s economy may be too far gone. Unless the government can address existing bureaucratic and corrupt structures, it will make little progress towards achieving its goals.
As Raisi strategizes the implementation of his proposed economic reforms, addressing the country’s deep-rooted corruption should be the first thing on his agenda. Iran ranked 149th out of 180 countries in the latest Corruption Perceptions Index (CPI). Over the past year, Iranian officials, including Parliament speaker, Mohammad Bagher Ghalibaf, and numerous judges, have been accused or convicted of corruption. Iran was also placed on a blacklist by the global anti-money laundering group Financial Action Task Force (FATF) early last year after legislation that would align Iran’s policies with FATF’s rules on banking transparency failed to pass. The country’s legacy of corrupt institutions and leaders has significantly undermined its economic growth and opportunities.
Raisi has promised to reform its economy and expand opportunities to all of its citizens, but it fails to acknowledge Iran’s current economic situation. If the newly-appointed President wishes to introduce change, he must address its longstanding history of corruption and political mismanagement; otherwise, he will sabotage any economic recovery efforts as previous leaders and decision-makers have done before.