Five figures show the losers and winners of economic growth under different presidents of the Islamic Republic
Iran has been under four different presidents since the end of the war with Iraq in 1988, each with its own style and philosophy. As the June presidential election nears, it is interesting to look back to the past and ask how each administration did in terms of inequality, and how the poor, the middle class and the rich fared under them.
(more…)More dire predictions of economic collapse in Iran from the Wall Street Journal
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
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?
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.
Iran’s gasoline price hike misses lesson from Iran’s own experience
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.
Can Iran’s economy restructure to minimize the impact of sanctions?
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 economic slide bottoming out?
Last year, Iran’s economy was hit hard by sanctions. The US withdrawal from the nuclear deal and the return of unilateral US sanctions turned 10 quarters of economic growth into (so far) four quarters of negative growth (see graph below). During the year that ended on March 20, 2019, the economy shrank by nearly 5%, and further contraction is very likely this year. The 5% decline was led by manufacturing, which fell by 12% in the last quarter of 1397 (winter 2019) relative to the same quarter a year ago. Non-oil GDP fell by less since agriculture and services, which account for 3/4 of the GDP are less dependent on trade (services actually grew slightly). (more…)
A note on measuring living standards
A few weeks ago, in this blog and in opinion pieces (here, here and here), I argued that during the three decades since the end of the war with Iraq (1988), Iran’s economic growth exceeded that of Turkey, such that by 2012, when US sanctions intensified, living standards in the two countries were very similar. My analysis, which surprised some and angered others, is because of the particular data I used to measure GDP per capita (which I also refer to as the living standard). GDP comparison is not rocket science but most journalists (and even many economists) often get it wrong. So, in this post I try to explain why it is important that we use data specifically intended for such comparisons.
Rouhani’s new budget cuts back on expenditures, big time
If the government of Hassan Rouhani has a plan for fighting the downward trend in Iran’s economy, the one started with the US withdrawal from the nuclear deal, it is not to be found in its proposed budget for the Iranian year 1398 (March 21, 2019 to March 20, 2020). The budget, which may be modified by Iran’s parliament in the next few weeks, is proposing serious cuts to expenditures. Blaming shrinking revenues from oil, the government has decided to deal with the shock of the Trump sanctions and fleeing private investment by reducing its own expenditures. Not a surprise from a government that has made fighting inflation its top priority and jobs creation the purview of the private sector. This is reasonable logic in normal time, but not when factories are cutting back on production and employment or shutting down altogether. (more…)
The cost of sanctions for Iran’s economy
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…)
Tyranny of numbers 
8 comments