Tyranny of numbers

The hottest topic in Iran’s impromptu presidential election is economic justice, with inflation a close second, the two topics on which the interests of the poor and the middle class diverge. The tragic death of President Raisi last month has thrown Iran into a contentious election debate in which the performance of his administration is a central issue. Raisi made many promises, most of which had remained unfulfilled at the time of his death. Promises for one million new jobs and one million new homes each year are well below target, as are bringing inflation down and preventing Iran’s currency slide. These failures might have been avoided had he succeeded in his other goal of ending US sanctions.

Given the importance of economic justice, his administration’s success in lowering poverty is oddly ignored. Most Iranian commentators repeat after each other that poverty has been continually on the rise for years. I wrote about the potential of Raisi’s 2022 cash transfers in lowering poverty in this blog, but at the time the survey data for 2022 (1401) was not available. In this blog I report the most recent estimates of poverty rates from the World Bank and my own with updated data. The data confirm my back-of-the-envelope calculation of poverty decline, though I was on the optimistic side on the extent of the decline.

The table below shows the latest World Bank estimates of poverty (available from its new Poverty Portal) as well as my own estimates (the last column). Both use the $6.85 PPP poverty line per person per day for upper middle income countries (even though Iran has fallen to the lower middle income category since 2019), but different measures of welfare. The Bank constructs its own measure of individual welfare, which is based on per capita expenditures adjusted for inflation, the regional cost of living (and perhaps minus durable purchases). The World Bank estimates show that there were 6 million fewer people in poverty in 2022 compared to 2020, before Raisi took office. My estimates indicate fewer people leaving poverty (about 4 million), but the downward trends are the same.

Significantly, my estimates show a larger increase in poverty since 2011, when comprehensive sanctions began, the difference no doubt caused by differences in the two welfare measures. I use per capita household expenditures as calculated by the Statistical Center of Iran, which is a more common measure than what the Bank is using (as described above).

To show the variation in the experience of poverty in rural, urban, and the urban areas of the Tehran province, I update my previous poverty graph below. The graph shows that the biggest burden of the recent economic crisis has been felt in rural areas and the least in Tehran.

A previous World Bank Report, which stopped its analysis in 2020 and therefore did not show the decline in poverty under Raisi, had a much wider circulation in Iran and is probably the reason why it is easy to read or hear in Persian language media that poverty increased under the Raisi administration. That report, summarized here, failed to emphasize the role of sanctions in rising poverty. This is not surprising given the fact that the Bank’s president is appointed by the US government, and is therefore loathe to criticize the US policy of unilateral sanctions against Iran. The second paragraph of this brief blames the rise in poverty on Iran’s own policies, not mentioning sanctions: “The continuous increase in poverty has been matched by the worsening of inequality. Between 2014 and 2019, per-capita expenditure of the poorest 40 percent of the population registered stronger contraction compared to the average, resulting in a shared prosperity premium of negative 1.11 percentage points. The disproportionate impact of the economic crisis on the poorest segments of Iran’s population can be partly explained by sustained inflation dynamics. This inflation has eroded the real value of universal cash transfers previously introduced to compensate for increasing energy prices after the subsidy reform.”