1. Iranian economy: Struggle for Development
Hossein Abdoh Tabrizi
Istanbul, May 2014

2. Iranian Administrations Since The Revolution
Iran Iraq War (Imam Khomeini’s Era, Mussavi’s Premiership ( )
Rafsanjani Administration, AKA Reconstruction Government ( )
Khatami Administration, AKA Reform Government ( )
Ahmadinejad Administration, AKA Populist Government ( )
Current Administration (August )

3. Investment in Infrastructure
Public Balance Sheet
Revenue
Oil Revenue
Tax Revenue
Other Revenues
Expenditure
Current Expenditures
Investment in Infrastructure

4. Government exposure to natural resources was volatile, though on average it had been more than 50%.
Oil
Tax
Other

5. In the last 30 years, around 75% of the Government budget was in the category of current expenditure.
current
infrastructure

6. Budget deficit
In the last 10 years, the budget deficit increased dramatically.

7. As the main source of monetary policy, liquidity grew without any discipline and unrelated to economic growth.
Liquidity
Growth

8. money base, high-powered money
10.3 برابر شدن پایه پولی
منبع: بانک مرکزی ج.ا.ا

9. Liquidity
17.9برابر شدن نقدینگی
منبع: بانک مرکزی ج.ا.ا

10. Central Bank of Iran had been highly dependent to the Government and boosted the money supply by political pressure.
Money Supply
Growth

11. Over supply of money was from 3 sources:
Budget deficit and lending to Government
Buying foreign assets (mainly oil revenue) from Government.
Borrowing from banks

12. Decomposition of the Base Money
منبع: بانک مرکزی ج.ا.ا

13. Considering high inflation, the real rate of interest for deposits was mostly negative.

14. Inflation is the main problem in all sectors of Iranian economy.

15. Consumer Price Index (CPI) 1978-2014
Average Inflation Rate : Percent
Single Digit Inflation Rates: 2 Years
Two Digit Inflation Rates: 34 years
Inflation Rate over 20 Percent: 16 Years
Inflation Rate over 30 Percent: 4 years
Highest Inflation Rate: 49.4 Percent (1995)
Lowest Inflation Rate: 6.9 Percent (1985)

16. Iran has the second highest inflation rate in the region.
Kuwait
Lebanon
Oman

17. Young population is a key advantage for Iran.
Men (thousands)
Women (thousands)

18. More than 70% of the population are living in cities.

19. Increasing unemployment rate; too many university graduates and female job demand

20. Real GDP Shrinkage
GDP, fixed prices
GDP, current prices

21. Following the sanctions, the GDP growth was negative during last 2 years. However, it is estimated to turn to positive figures in the current year.

22. GDP per capita which indicates the welfare level, did not change significantly over the past 3 decades.

23. Iranian trade balance fluctuated significantly
Iranian trade balance fluctuated significantly. During last 10 years, the exchange rate favored more imports.
Import, % change
Export, % change

24. oil boosted the income
The main source of Government income was from oil & gas which provided wrong signal to decision makers.

25. Last Three Years Performance: Stagflation
Inappropriate Government Policies
Unfriendly International Environment

26. Imposed Embargos on Iran
UN’s Security Council Embargos
US Embargos
EU Embargos
Other Countries Embargos

27. Harshest Embargos in History
Embargos on Products
Embargos on Buyers
Embargos on Sellers
Embargos on Transport
Embargos on Banks and other Financial Institutions

28. Embargos: Barriers of Contracts
Product Embargos
Insurance & Transportation Embargos
Bank Embargos
Self Determined Embargos

29. Product Embargos Products of Dual-Use: Specific Alloys
Petrochemical Catalysts
Electronic Equipment's
Hellion Gas For MRI
Oxidized Water

30. Beyond Product Embargos: Bank Embargos
When Payment Methods Become Problematic, So Does Buying and Selling

31. International Sanctions
Approach: Mutual, Comprehensive, Long- Term, Step by Step and Coherent.
Context For Iran’s Nuclear Program: In Keeping with Iran’s Proclamation of It’s Commitment to Non-Military Nature of Its Nuclear Program: A Purification Program with Mutual Definition, Practical Limitations and Clarifying Arrangements Guaranteeing The Peaceful Nature of Iran’s Nuclear Program Which Would Allow Iran to Both Utilize Nuclear Energy and Maintain Its’ Obligations to NPT.

32. Inflationary Pressures
Hyperinflation: 2 Years Back over 5% a Month

33. Inevitable Energy Reform
Cheap subsidized energy ended to high consumption rate, and low productivity of industries
700 ميليون بشکه در سال ×
100 $
124 Million $
twice the size of current year budget
180 ميليارد مترمکعب در سال ×
30$

34. Subsidy Reform How it was implemented? Coincided with sanctions
Cash subsidies: poor implementation
Devaluation problem
Could not save the energy
Adding to budget deficit
Could not improve productivity

35. Petrol Prices: Targeting Subsidies

36. Energy Price vs Exchange Rate
Energy price is not independent from exchange rate

37. Energy Price & Exchange Regime
Formal vs Market Rate of Exchange: Rent (payment to a factor of production in excess of its opportunity cost) & Corruption

38. Last Three Years Performance

39. Crude Oil Production

40. Recession Esteeming From less Government Expending

41. A lot of new projects; 750 units every year and 30% in Tehran
Housing Market
A lot of new projects; 750 units every year and 30% in Tehran

42. Housing Market: Supply Side
Built more than the plan: inappropriate distribution; over-built in large cities

43. Housing market: Demand Side
Still 1 million housing units in demand every year due to household growth rate, high divorce rate, and informal settlements

44. Social Housing: Maskan Mehr
Starting to build 2.2 million social housing units in 2007
Financing the project by borrowing from the central bank increasing M1 by 60%
It could not be finance like that any more
Problem at hand

45. Maskan Mehr

46. Current Labor Market Reduction of labor participation rate
3.5 million unemployed
Major difference of male & female unemployment rates
Major difference of unemployment rates across age groups
5 million students: the army of unemployment

47. Iranian Major Non-Oil Export Items

48. Growth Rate of Iranian Economy: Two Scenarios

49. Inflation Rate Forecast: Two Scenarios

50. Oil Production Forecast: Two Scenarios