Rowhani’s ups and downs in recovering the Iranian economy

Majid Rafizadeh

By: Majid Rafizadeh

A year has passed since Iranian President Hassan Rowhani assumed office. He received the blessings of Supreme Leader Ayatollah Ali Khamenei, and was elected by millions of Iranians to recover Iran’s economy, reduce the unemployment rate, address the high inflation and regain Iran’s currency (rial) value.

The question is; how have President Hassan Rowhani’s domestic and foreign policies impacted Iran’s economy after a year? Has Iran’s economy, which had been on a path of deterioration since the Iraq-Iran war, shifted its path?

President Hassan Rowhani’s accomplishments and successes

According to the latest statistics, Rowhani’s policies have indeed brought a considerable positive impact to Iran’s economy. According to the latest survey by the International Monetary Fund, “Iran has taken important steps to lower inflation… The Islamic Republic of Iran has made progress toward stabilizing its economy in recent months…”

In addition, according to the Bloomberg Businessweek and The Iran Project, Masood Ahmed, director of the IMF’s Middle East and Central Asia department, pointed out to reporters in Tehran on Tuesday that: “The process of stabilization has taken hold and we do see the results already in a dramatic improvement in inflation. Inflation rate has eased and currency rate has been stable and such improvements are the results of measures taken by the Iranian government…”

It appears that Rowhani is still popular among the population and the youth, probably due to the notion that there is no other alternative to him.

Majid Rafizadeh

Several crucial factors play a role in this positive and promising economic recovery. First of all, thanks to the change in the Islamic Republic’s outlook in the international arena, as well as the progress in nuclear talks between the Islamic Republic and the P5+1 (the United States, Russia, China, United Kingdom, and France, plus Germany), Iran has received billions of dollars, unfrozen its assets, removed the economic sanctions on some of its crucial industries including gold, precious metals, Iran’s auto industry, some airlines, Iran’s petrochemical exports and increased its oil exports, particularly to Asia.

The aforementioned measures added billions of dollars to the Islamic Republic’s revenue. Secondly, the new administration in the Islamic Republic has been attempting to lure Western investors and reform its contractual as well as economic policies in this regard.

Third, Rowhani’s administration made considerable shifts in its fiscal and monetary policies. In order to ratchet up the government budget and address the budget deficit left by the previous government of Mahmoud Ahmadinejad, the new administration has removed some of the crucial subsidies, cash payments, and social welfare packages. Specifically, the prices in the energy sector have ratcheted up; the price of diesel has seen a rise up to 67 per cent and gasoline by up to 75 percent.

In addition, Iran’s oil exports have increased by approximately 25 percent in the first six months of the year 2014. The top importers of the Islamic Republic’s oil are China and India. China alone has increased its oil import from Iran by fifty percent, India by nineteen percent, and Japan by 48.6 percent and South Korea’s import in the last year increased by seven percent thanks to the diplomatic headways with the Islamic Republic and the loosening of economic sanctions.

According to Fars News and International Monetary Fund, Iran’s economy and GDP is set to stop contracting and it will grow by approximately one to two percent in 2014 which will be a crucial factor in stabilizing Iran’s economy. The year before, Iran’s economy contracted by 1.7 percent. In 2015, IMF’s report predicts that the Islamic Republic’s economy and GDP will increase by 2.3 percent.

On the other hand, according to the IMF’s report, the inflation in the Islamic Republic has significantly declined by 29 percent: “The exchange rate has appreciated markedly in the bureau/parallel market. The CBI has kept a lid on base money growth thanks to tighter credit to the banking system and some fiscal consolidation, and inflation has declined to about 29 percent in January 2014.”

Iran’s currency has also been strengthened. This also led to a boost in the confidence of the business sector it seems.

Economic gaps and the future

Without a doubt, the new administration has made considerable amount of progress in the last year in stabilizing the domestic economy, strengthening the rial, reducing inflation, filling the gap in the revenues and the government’s budget, and turning the negative growth and contraction of its economy onto a positive path. Nevertheless, there are still some gaps and challenges which are evident for ordinary Iranian people.

First of all, will this economic growth be sustainable? This will depend on the outcome of the nuclear talks. If the nuclear talks fail, it will depend on the new demonstration policies to sustain the growth by decreasing reliance on its oil revenues as well as Western fuel, facilities and technology.

Secondly, and more fundamentally, although the business sector in Iran is witnessing a boom thanks to the nuclear talks progress and the shift in the fiscal and monetary policies, Iranian youth and middle class have not yet benefited from this economic growth and they still find it hard to find a job or see the positive changes on the ground. The unemployment rate is still in the double digits. According to the Statistical Center of Iran, the unemployment rate has hit 10.4 percent. In addition, by Spring 2014, 700,000 less workers had been employed in comparison to the previous year, and in urban areas, the consumption of households declined by five percent, while in villages it went down by 12 percent.

However, it appears that Rowhani is still popular among the population and the youth, probably due to the notion that there is no other alternative to him. But, will this popularity continue? We have to wait and see how nuclear talks will progress and whether a comprehensive nuclear deal will be achieved. In this case, the Islamic Republic and its business sector will undoubtedly continue to grow and witness a boom. In addition, the question should be how this economic growth can trickle down to the youth, poor, and middle class. Without doubt, if these positive moves occur, Rowhani will safeguard his re-election as a president for the next term.

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Majid Rafizadeh, an Iranian-American political scientist and scholar at Harvard University, is president of the International American Council and he serves on the board of Harvard International Review at Harvard University. Rafizadeh served as a senior fellow at Nonviolence International Organization based in Washington DC. He is also a member of the Gulf project at Columbia University and Harvard scholar. He is originally from the Islamic Republic of Iran and Syria. He has been a recipient of several scholarships and fellowship including from Oxford University, Annenberg University, University of California Santa Barbara, and Fulbright Teaching program. He served as ambassador for the National Iranian-American Council based in Washington DC, conducted research at Woodrow Wilson International Center for Scholars, and taught at University of California Santa Barbara through Fulbright Teaching Scholarship. He can be reached at rafizadeh@fas.harvard.edu.

 
 
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