Tyranny of numbers

The cost of sanctions for Iran’s economy

Posted in General, Macroeconomy, Sanctions by Djavad on July 23, 2018

There is no easy way to determine the impact of international sanctions on Iran’s economy, but looking at the growth rate of the GDP after 2011, when international sanctions tightened, is a good place to start.  The question has become more than an historical curiosity since Trump decided to pull the US out of the Iran nuclear deal and reimposed sanctions.   (more…)

The return of inflation

Posted in General, Inflation, Macroeconomy, Sanctions by Djavad on July 1, 2018

According to the Central Bank of Iran, last month (Iranian month of Khordad, which ended on June 20, 2018), consumer prices increased by 4.3 percent.  This translates into a whopping annual inflation rate of 67 percent.  The government announcement was much less alarming, using the so-called point-to-point inflation rate (Khordad 2018 over the same month 2017) of 9.4 percent.  As I explained in a recent interview in Tejarat Farda (in Persian), the point-to-point reporting is very misleading when inflation is accelerating, and does not fool anyone (any more than I could fool a police officer whose radar registered my speed at 80 miles per hour by claiming that my average speed since leaving home has been below the speed limit). (more…)

How large is capital flight from Iran?

Posted in General, Macroeconomy by Djavad on April 19, 2018

On April 10, Iran instituted new foreign exchange regulations involving three changes: devaluation of the official rate by about 15 percent, restricting movement of capital out of Iran, and making the possession of foreign currency in excess of 10,000 euros ($12,500) illegal.  This policy was largely to stop the run on the rial, but rumors of capital flight may have also played a role. In particular, a claim by a prominent member of the parliament that, as reported in Al Monitor, “$30 billion of capital had fled Iran in the final months of the last Iranian year.” (more…)

Was the Living Standard of Iranians Higher Before the Revolution?

Posted in General by Djavad on March 21, 2018

It is not surprising to hear Iranians say that life was better before the revolution.  Depending on their social class, they could be thinking of a variety of metrics, social and economic.  But to hear economists speak about how life for the average Iranian was better before the revolution is surprising, at least to those with access to data.

Two and a half years ago, I addressed this subject in this blog, refuting a claim made by an Iranian economist that in 2013 Iran’s GDP per capita was 42% below its 1976 level. Then a week ago, Masoud Nili, the top economic advisor to President Rouhani, made a similar observation, this time with much wider publicity, saying, according to press reports, that, “income per capita now is 70 percent of its value in 1976.”  So, it’s time to repeat the argument of why this comparison is wrong.


Does economic growth in Iran increase income inequality?

Posted in General, Inequality by Djavad on January 15, 2018

Inclusive growth is what international organizations recommend these days, and it hard to argue otherwise.  Economic growth is better when rich and poor equally benefit.  Better still, is pro-poor growth, the type that lifts poor people’s incomes more than the rest.  The recent unrest in Iranian cities makes this question timely: was Iran’s recent economic growth following the implementation of the nuclear deal unequal, inclusive, or pro-poor?  Clearly, low-income youth who staged the protests believe that growth has not been inclusive.  Can data verify their sentiments? It turns out they do.  More specifically, the economic growth of 2016, which is the main fruit of Rouhani’s international and domestic policies, does not seem to have reached all social classes equally.    (more…)

Poverty and living standards in Iran after the nuclear deal

Posted in General, Poverty, Subsidy reform by Djavad on January 3, 2018

Many observers in the West have been quick to blame the recent unrest in Iran on high and rising poverty, which is in turn seen as a failure of the Iran nuclear deal (also known as the JCPOA), or the squandering of its windfall.  President Hassan Rouhani sold the nuclear deal to voters, who have elected him twice, as the only way he could improve their lives.  The unrest taking place in Iran’s smaller cities suggests that this promise is far from realized.  As I have written before, there is little doubt that the economy rebounded after JCPOA, but did poverty and the living standards of ordinary Iranians also improve with this economic recovery? (more…)

Rouhani’s new budget aims to eliminate cash transfers

Posted in General, Macroeconomy by Djavad on December 31, 2017

This post is in keeping with my past practice of reviewing proposed government budgets, but this year’s review takes greater urgency in view of the recent protests in Iranian cities that have been linked to the budget for 2018/19 sent to the parliament just three weeks ago.  The basic elements of the budget are the same as in previous years — keeping the size of the government in check and assigning a minimalist role to public investment.  But there are big cut to a popular cash transfer program that has been in existence since 2010.


Trends in poverty and income inequality and Iran election debate

Posted in General, Inequality, Poverty by Djavad on May 17, 2017

This is not my first post on poverty and inequality in this blog, but I feel I need to update my previous posts on these topics because of the confusing stuff said about them by the presidential candidates. Thanks to the availability of surveys of household expenditures and incomes, we know quite a bit about both poverty and income inequality, but everyone who uses these data does not come to the same conclusion.  I have read frequently that cash transfers have increased poverty, a claim that challenges common sense and the available evidence. (more…)

Iran’s changing demography and the 2017 presidential election

Posted in General by Djavad on May 14, 2017

We are told that the state of the economy does not favor Rouhani’s re-election.  The recession is over but ordinary people do not feel it: unemployment is up as was poverty (at least until a year ago).  Inflation is down, which is a big deal but they do not seems to care.  In any case, people confuse lower inflation with lower prices, which Rouhani had never promised.  They also did not understand that when government spends less to bring down inflation, it also slows down the rate of increase in wages.  Money illusion affects people in more advanced countries as well, though Iranians have a more from case of it because productivity is not the first thing that comes to their minds when they think about living standards.  Instead, they think of the country’s great national wealth under the ground, which a good government would distribute better.  In any case, can you blame them for expecting that lower inflation would mean higher income if the economic media equated inflation with loss of real income as they did while they were busy criticizing Ahmadinejad? (more…)

The 2017/18 budget

Posted in General, Macroeconomy by Djavad on April 17, 2017

If President Rouhani is re-elected to office next month, he will be presiding over his fourth frugal budget.  This is how he has gotten inflation down to single digits, and kudos to him for that, but the economic growth that he promised when he was elected has not materialized, and this frugality, borne out of his supply side economic views, is partly to blame.  If you expected to see a more expansive and stimulating budget because you heard oil minister Zanganeh say that oil exports will double in 2017/18, or noted the one-third higher expected oil price in the proposed budget, you might be wondering why this budget is only 10% larger than last year’s (see the number in the table below). You are not alone. (more…)