Tyranny of numbers

The budget for 2020/2021 has become law

Posted in General by Djavad on March 26, 2020

The budget for the new Iranian year 1399, which started on March 20, was presented to the parliament back in November but fell victim to the devastating coronavirus crisis and the election of the new, conservative parliament.  I was not inclined to invest the time to update this blog on the proposed budget because they seemed subject to radical modifications.  However, the deliberations of the parliament were cut short on orders from Iran’s Supreme Leader, and a slightly modified budget was submitted to the Guardian Council, which approved it last week. So now is a good time to update my budget tables.  I did not have the numbers below when I wrote this piece for ForeignAffairs.com a week ago.  I could not find all the details (like the total revenue from taxes) in the final budget that the parliament sent back to the government. (more…)

More dire predictions of economic collapse in Iran from the Wall Street Journal

Posted in General, Macroeconomy by Djavad on March 4, 2020

An angry and dystopian op-ed about Iran, published in the Wall Street Journal on March 1, committed several errors in judging Iran’s economic performance that would fail my undergraduates economic students.  They are taught to never fall prey to the vagaries of exchange rate fluctuations in developing countries when making international comparisons of living standards.  For example, if the value of a country’s currency drops suddenly, its GDP measured in US dollars doesn’t collapse immediately — it may even go up.  Since the 1960s, millions of dollars has gone into research to make data available for international comparisons.  These are widely available on the World Bank data bank site and from the Penn World Tables, where the International Comparison Project originated.  I have previously written about international comparisons of living standards here and here in this blog and elsewhere.  There is therefore no more excuse for picking bad data from the internet to write bad op-eds. (more…)

Rising employment since Trump’s sanctions may not last

Posted in Employment, General, Macroeconomy by Djavad on January 20, 2020

Earlier this month the Statistical Center of Iran (SCI) released the results of the latest quarterly labor force survey, which show employment continued to expand during fall 2019 (the third quarter of the Iranian year 1398). The data question the dire accounts of Iran’s economy that have appeared in western media, a point that I raised in a recent post in Project Syndicate and again this week in ResponsibleStatecraft.org (which has replaced Lobelog.com).  However, there are reasons to believe that this positive trend is short-lived, that as excess capacity is used up and new investments fail to materialize, the economy takes a turn for the worse.  Below, after presenting the new data, I discuss several challenges to employment if sanctions continue.  Some of these challenges can be overcome by domestic reform, such as banking reform to enable the flow of credit to producers, but others are not under the control of the government, such as moving money internationally. (more…)

Cash transfers increase after Iran protests, but do they make a difference?

Posted in General, Poverty, Sanctions by Djavad on December 1, 2019

The gasoline price hike of November 15 triggered widespread violent protests in Iranian cities.  Three days later the government announced that it would increase the amount of cash transfers to compensate for the price increase and soften its blow.  But do the new transfers adequately compensate for the gasoline price increase? My estimates below show that they more than compensate those in the bottom 40 percent of the population — generally considered to be the vulnerable part of the population — while the top 40 percent lose.  Most people in the middle break even.

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The poor and the gasoline price hike

Posted in Poverty, Subsidy reform by Djavad on November 23, 2019

Since the announcement of the gasoline price hike on Friday November 15, events in Iran have taken a tragic turn with loss of life and destruction of property. They also took a perplexing turn.  Three days after the price increase and the vague promise of cash compensation for the price hike, on Monday the government announced it was putting the promised money into people’s bank accounts.  If the compensation scheme was ready, why not announce it with the price increase? I am not sure if it would have prevented the unrest altogether, but at least there would have been one fewer grievance. (more…)

Iran’s gasoline price hike misses lesson from Iran’s own experience

Posted in General by Djavad on November 17, 2019

This Friday, as Iranians were getting ready for their day off, they were rudely greeted with a surprise government announcement — a sharp increase in the price of gasoline.  Within hours they in turn surprised the government by rioting in several small and large cities.  Worldwide, riots and protests almost always follow gasoline price hikes, Mexico in 2017 and Paris 2018 are the latest examples.  The price increase came with rationing and a two-tier price.  Rationed gas of 60 liters per month is set to sell for 5000 rials (500 toman) per liter and the free market gas for 30000 rials.  Rationed gasoline accounts for roughly one-third of the total supply of about 90 million liters per day, so, taking into account the much higher price of the free market, the overall price increase is more than 100 percent. The logic of the price increase is not in dispute, but the way it was done shows that an important lesson from the last price hike, in 2010, has not been learned.  The lesson is this: cash compensation is an integral part of the removal of subsidies, and for a distressed and incredulous public, government promises to pay are not the same as money in the bank.

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Rising employment casts doubt on IMF’s grim forecast for Iran’s economy

Posted in Employment, Macroeconomy, Sanctions by Djavad on October 27, 2019

In October, the IMF downgraded its forecast of Iran’s economic growth for 2019 from -6 to -9.5 percent.  The adjustment brought the IMF’s assessment of Iran’s economic performance closer to that of the World Bank (-8.7 percent) and is revising opinion regarding the ineffectiveness of sanctions in forcing Iran to renegotiate the 2015 nuclear deal.  It has strengthened the hand of Iran foes who argue that sanctions are about to bear fruit and urge the Trump administration to stay the course and ignore appeals from Europeans to ease pressure on Iran.

The Financial Times, quoting an unnamed Iranian economist, added alarm to the downgrading by suggesting that Iran’s situation may be worse than it was during the Iran-Iraq war or the Anglo-Soviet occupation of Iran during World War 2.  The idea that life in Iran is anything like the 1940s or the 1980s is nonsense, and the FT reporter who files her reports from Tehran can (but did not) attest to that. It is easy to dismiss this comparison as silly, but the dire predictions of sharp contraction by IMF and the World Bank for the year should be taken seriously.  And by seriously I mean to ask why they are at odds with new employment data from Iran. (more…)

Good news for Iran from the inflation front

Posted in Inflation, Macroeconomy by Djavad on September 23, 2019

Good economic news greets President Rouhani as he arrives in New York for the UN General Assembly this week: a declining trend of inflation.  According to the latest consumer price index data published by the Statistical Center of Iran, during the Iranian month of Shahrivar (August 21-September20, 2019) inflation reached its lowest level since Trump’s assault on Iran’s economy began 18 months ago: the CPI increased at an annual rate of just 6.1 percent.  When Trump reimposed sanctions in May 2018, inflation was quite low: 2.7 percent annually in March 2018 and rose to 126.7 percent in October.  It has  declined more or less continuously from that peak since (see graph of the 3-month moving average below). (more…)

Can Iran’s economy restructure to minimize the impact of sanctions?

Posted in General, Macroeconomy by Djavad on September 20, 2019

In a post published on Lobelog.com today, I ask if Iran’s economy is sliding.  Available data do not allow me to answer this question one way or the other, but they do undermine the claim of doomsayers that the economy is on the verge of collapse.

A lot rides on the answer to this question, however, and I do not have more to say on it here.  There is no doubt that in the standoff between Iran and the US, time is on the US side. They can wait this out for a very long time, at least as long as Iran keeps to its promise not to develop nuclear weapons.  The question is then how quickly and to what degree will Iran’s economic situation deteriorate in the next year or so.  If the economic clock for Iran runs out fast, we should expect it to resort to asymmetric responses and further instability in the Persian Gulf.  If, as the data hints, the economy is stabilizing, albeit at a lower level, Iran could decide to use the sanction years (how long?) to restructure its economy away from oil and toward domestic production.

The reforms needed to do so range from reform of education and banking systems to better management of the exchange rate.  If the government is working on a strategy to achieve all this, I do not know.  But, when the big economic news from Iran is about kicking 800,000 rich people off the cash transfer roll, I have doubts. To be bust saving about $50 million a year when the economy is losing 5-10 percentage point in lost economic growth (worth $50 billion) a year, does not make sense.

 

 

 

Is Iran’s inflation rising?

Posted in Inflation, Macroeconomy by Djavad on July 27, 2019

The most recent report on consumer prices (link in Persian) published by the Statistical Center of Iran (SCI) last week shows that prices rose faster in Tir 1398 (June 21 to July 20, 2019) than they did in the preceding two months.  Low inflation rates during Ordibehesht (roughly, May) and Khordad (June), 19 percent and 10 percent (measured annually), seemed to signal that the cost push inflation of 2018 may be working its way out of the system.  But, the sharp increase in Tir prices, 38 percent annually, three times as fast as the previous month, may suggest otherwise. The dollar in the free market responded quickly, jumping above 120,000 rials per dollar. (more…)