Ten Major Economic Challenges Blocking Governance
Ten Major Economic Challenges Blocking Governance
Economists in the country emphasize that Iran’s economy is facing at least 10 major and chronic imbalances in sectors such as energy, banks, budget, industry, and even foreign policy. According to these experts, these imbalances are not only the result of inefficient policies but also the product of an imbalance-creating governance structure. In other words, the country’s economic and political system is in a condition and designed in such a way that instead of solving problems, it continually creates new imbalances. This note will delve into the roots of some of these imbalances and then offer a solution to overcome this crisis.
Roots of Imbalances in the Banking and Budgetary System
Iran’s banking system has reached a crisis due to expansionary policies, heavy reliance on central bank resources, and controls outside the market system. The excessive growth of liquidity along with the banks’ large debts to the central bank has led to increased inflation. Despite repeated promises to control inflation, these imbalances have resulted in not only a lack of success in reducing it but also in keeping inflation relatively high.
On the other hand, the government’s budget deficit, largely due to reduced oil revenues and sanctions, has led to increased pressure on banks and borrowing from them. To compensate for the deficit, the government is forced to increase taxes and reduce imports of certain goods, which in turn exacerbates the recession and creates more problems. This vicious cycle requires structural changes.
Imbalance-Creating Structure in Pension Funds
Pension funds are another imbalance-creating structure in the country’s economy. These funds, which should essentially have sustainable investments and strong financial resources, have become one of the main causes of the budget deficit due to pressure on the public budget and mismanagement. The imbalance between the inputs and outputs of these funds has become so widespread that, according to the parliamentary research center, the government is forced to allocate nearly 500 trillion tomans annually from the budget to cover their deficit. This situation is the result of decisions that, instead of strengthening the funds’ financial resources and managing investments, have made these funds dependent on the government budget.
Imbalance in Foreign Policy and Trade
Another existing imbalance is in foreign policy and trade, which is also a significant factor that has exacerbated the country’s economic problems. In Iran, different and conflicting approaches to foreign policy have led to economic imbalances. Unstable policies and ineffective interaction with global markets have reduced the country’s export and import capabilities, making the economic situation more complex.
With the continuation of sanctions and the lack of improvement in international relations, the possibility of reforming economic structures is also reduced, and these imbalances increasingly impact Iran’s economy. While the fourteenth government has focused its efforts on improving foreign relations, it seems unlikely that Iran’s entry into global markets will improve in the near future, given the escalating conflicts in the region.
Need for Structural Reform to Overcome Imbalances
As mentioned in the introduction, Iran’s economy, due to an imbalance-creating structure based on monopoly, reliance on oil resources, and politicization in economic decision-making, has consistently produced imbalances. It seems that the only way out of this situation is structural reforms and changes in inefficient economic policies. Reforming the government’s relationship with economic institutions, providing more space for the real private sector, reducing interference in market performance, improving transparency in public resource management, and increasing international interactions are important solutions that can improve this situation.
The Necessity of Institutional Convergence and Public Support
Solving the imbalances is not only possible through technical and economic reforms but also requires social support and convergence among governmental institutions. Without social backing, economic reforms are doomed to fail. Additionally, coordination among various branches, from the government to the judiciary and other governing bodies, is essential for these reforms to succeed. To reduce existing imbalances in the banking, pension funds, and budget sectors, a comprehensive and inclusive approach is needed.
In this regard, the consensus perspective highlighted in the fourteenth government’s views can be considered as one of the foundations of structural and economic reforms. Consensus and solidarity among the government, parliament, governing institutions, and the people allow us to make policy decisions in a coordinated manner, considering collective interests.
This solidarity can reduce conflicts of interest and increase inter-sectoral cooperation, providing a platform where economic decisions are implemented without creating political conflicts or short-term interests. Given the views expressed in the government of Pezeshkian, this consensus and harmony among different political and social groups can be a starting point for effective reforms in the banking system, pension funds, and also reducing the budget deficit.