So far the most visible improvement in the economy since Rouhani administration took office last August has been lower inflation. Last Bahman (Iranian month ending on February 20, 2014) the Consumer Price Index (published by the Central Bank) showed virtually no increase; the same month a year earlier it had jumped by 5.3%. During the last three months (December 21 to February 20), the CPI rose by only 1.6%, compared to 7.2% a year ago. What appears to be more stubborn is the real economy — output and employment that determine living standards. (more…)
The dominant view of the high inflation of the last three years blames it on the subsidy reform. (The latest high profile assertion to this effect came from a piece by Hashem Pesaran and Hadi Salehi Esfahani published by the Fars News Agency, to which Mohammad Ali Farzin, the former head of the subsidy reform program, responded by claming that only 10% of the inflation was due to the subsidy reform). Were it not for the fact that blaming energy prices for the destructive inflation of the last three years casts a long shadow over future policy on energy prices, the mere fact that it is wrong would not prompt me to bore the readers of this blog with yet another post on inflation. (more…)
President Rowhani has received well-deserved high marks in foreign policy for his management of the tough negotiations with P5+1 in Geneva, but his first attempt at dealing with Iran’s broken social protection system does not deserve a passing grade. I explain this in my latest post at Iran Matters. The food distribution plan that, according to an editorial in the conservative Keyhan newspaper, “could have been a gesture that the government cares about the poor … but instead it turned into insult and humiliation.”
The government seems to have made a hasty decision that transfers in kind are superior to cash, despite evidence to the contrary, as I argued in a recent post here. Tadbir, which is the motto of Rouhani’s government and translates into prudence and experience in Persian, should include economics research and the experience of other countries. Are there channels for this type of information to find its way into Iran’s policy circles?
I have my doubts about the rate of unemployment — 10.3% — recently published by the Statistical Center of Iran (SCI) for fall 2013 (Iranian year 1392), so in a piece that I just published in Lobelog.com I opted to report a rate of 14% that I estimated myself from the SCI report. The difference between the published number and mine is, as in my previous post on unemployment, all in counting the reduction in the number of people in the labor force as discouraged workers and therefore unemployed in common parlance. (more…)
The president’s television interview on his 101st day in office raised more questions that it answered, especially about the sorry state of the government finances. His criticisms of the previous government’s irresponsible spending commitments is well taken and well known. Less well known and more doubtful is the charge that the previous government is also responsible for lack of revenues. If the blame game is to continue for much longer, it should at least be extended to include two other parties: the public for its unwillingness to pay for the services it consumes and the present administration for not moving fast enough to get them to pay. (more…)
There seems to be considerable confusion in the Iranian media about the pace of inflation. Since inflation is the main concern of the new Rouhani economic team, getting the facts right about its pace, whether it is rising or falling, is extremely important. There are questions about the accuracy of the official inflation figures, much of it exaggerated, but the most common source of confusion is not about the accuracy of official data but how to read them. (more…)
Iran’s subsidy reform program of 2010 depended heavily on a monthly cash transfer for its social acceptance. About 450,000 rials per person has been paid to all Iranians every month since then without any condition, so people were free to do whatever they wanted with the money. We know little about what they actually did, but there is a sense in Iran that this was not the best way to redistribute the energy subsidies.
There is much talk of improving the targeting of the cash transfer program, but less motivated by a desire to improve its equity than by the desire to cut the program’s cost. The most talked about proposal is to limit payments to the poorer households only, for example, to the bottom 7 deciles. I have already warned in this blog that this is impractical, arguing that identification of people in the top three deciles is very difficult and likely not worth the cost. I believe that the same amount could be raised by some very practical measures, such as charging more for the gasoline sold to consumers in richer neighborhoods and with more expensive cars. (more…)
I published this post on Lobelog today in which I raise a theme familiar to the readers of this blog: there is a deep misunderstanding of Iran’s economy in the West, exemplified by the NY Time story of last week that invoked the collapse scenario. I have been hearing the “collapse” theory of Iran’s economy lately, something that I thought people gave up after the economy recovered (sort of) from the huge shock of rial devaluation last October. Inflation is coming under control and unemployment has a real chance of declining thanks to a producer oriented (as opposed to merchant-oriented) Rouhani administration.
But years of negative reporting on the economy (“inflation and unemployment are always double what official data say”) had created the impression of a teetering economy and the temptation in the West to be tough with Iran and extract more concessions. I argue that this could be a big mistake and shows ignorance of the facts about Iran.
Returning to the global economy, this time as producer rather than shopper, is extremely important for the future of the country. The time is right in many ways, and Rouhani’s team have done a good job to show they are serious about rapprochement with the US, but the more charm is brought in the more people think Iran is desperate and the less the West should change its position. At the center of this is the lack of a credible story about the dynamics of Iran’s economy. How bad is it really and where is it heading.
The freeze on national income data in the last few years has hampered the effort to put such a story together for Iran. The online data banks of most government agencies (Iran’s Statistical Center and the Central Bank, in particular) have little new data past 2008. Numbers are slowly coming out in the Persian-language press in Iran, but unless they are available in English, it is difficult to make the case that Iran’s economy is not about to collapse and the West should approach these negotiations wisely.
Ever since it took over the reigns of government in August, President Rouhani’s administration has been grappling with the challenge of closing the huge gap in the government budget that it has inherited from its predecessor, reportedly at about 800 trillion rials (about $33 billion) or more than one third of planned expenditures. This is no small challenge given the fact that half of the year is over and much of the expenditures have already taken place or been committed. So, to reduce the deficit the government has little choice but to raise revenue. Luckily, inflation started to slow down just before Rouhani took over and has stayed below the 20% annual rate for the last three months, down from twice that rate in previous months. The bad news is that the most praiseworthy of the Ahmadinejad programs, the subsidy reform, is in deep deficit. The program has other problems besides its revenue gap, but it is on life support and the chord will be cut unless this problem is taken care of. Good solutions are there, all involving further adjustment in prices, but to implement them the government needs to show courage. The idea that has been floating for some time to cut the payments to richer consumers is appealing but not practical.