The Iranian Economy is Bankrupt Part Two

IranGate
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The Iranian Economy is Bankrupt Part Two

The Iranian Economy is Bankrupt – Part Two

The Iranian economy is bankrupt. According to Iran Gate, some experts believe that the Iranian economy is practically on the brink of bankruptcy in its current state, and even the possibility of a collapse is not far-fetched. Although the number of these economists is not large, almost no analyst describes the Iranian economy as anything other than in a super-crisis. In such circumstances, can it be said that the Iranian economy is bankrupt and there is no hope for its future?

In a three-part report, Iran Gate attempts to paint a picture, albeit incomplete, but expert and principled, of Iran’s future. The general conditions of the country have practically left citizens with little hope for Iran’s tomorrow. However, away from emotional and excited atmospheres, it is necessary to examine the general features of Iran’s economy. This report, which is the second part of the three-part examination of Iran’s economy, attempts to assess the possibility of the Iranian economy’s collapse.

Today’s Features of Iran’s Economy

By looking at the current conditions of the economy, one can understand that the markets and also the productive sector of Iran’s economy are in a pre-collapse stage.

Inflation Rate

A country that has been grappling with double-digit inflation for about five decades has now entered a phase of stabilizing the inflation rate in the 40 percent range. Of course, this phase stabilization is analyzed considering the reliability of official statistics, while some experts believe the current inflation rate has even surpassed 70 percent, and governments are not being honest with the people about this.

However, even considering the accuracy of the current government reports, one can observe very worrying signs of consumer inflation and point-to-point inflation rates. These signs indicate the growing lower class and the thinning middle class in society.

By comparing the consumer inflation rate among the upper and lower income deciles, one can reach the very alarming conclusion that for the first time in the history of the modern state in Iran, the consumer inflation rate for low-income groups is more than 7 to 8 percent higher than this factor for the wealthy.

In such conditions, not only does the class gap deepen, but one should also expect a severe earthquake in the foundation of Iran’s economy, creating a very deep chasm in society, effectively splitting citizens into two.

Budget Deficit

On the other hand, a noteworthy and very concerning issue in Iran’s economy is the volume of the country’s structural budget deficit. This year, the government’s structural deficit has surpassed one quadrillion tomans, and economists predict this figure will grow by at least 15 percent for the year 1402, which means an imminent major disaster in the country. A disaster resulting from a sharp decline in government revenues and the inability to secure the necessary current resources for paying its employees.

Comparing the budget deficit statistics of countries with each other shows that Iran, with over 53 percent, has the highest structural budget deficit in the world, which is likely to reach around 57 to 59 percent in the next solar year. On the other hand, it should also be noted that international pressures on the Islamic Republic of Iran will be significantly greater than this year and previous years.

Events that have occurred in the past two months have led even the European Union, accused of appeasing the Islamic Republic, to rejoin the ranks of government sanctioners. The Americans have also officially announced their withdrawal from the JCPOA negotiations. Even from some more radical circles in the United States, it is heard that the White House should take steps to intensify comprehensive pressures on the Islamic Republic.

These conditions paint a picture for Iran that in 1402, it should expect a budget deficit much larger than 1401, as even these limited current revenue resources will be completely blocked or, at best, become much more limited in the coming months and even weeks.

Liquidity Growth

One of the features of Iran’s economy, which has become a tradition, is compensating for the budget deficit by borrowing from the Central Bank. This action, commonly known in everyday language as printing money, does not have a natural outcome in monetary policy mechanisms, and that is the intensification of the inflation rate.

As mentioned, the Iranian government has traditionally been accustomed to borrowing directly or indirectly from the Central Bank. The government of Ebrahim Raisi, contrary to its claims over the past year, has excessively followed this tradition. Therefore, it can be expected that the speed of liquidity growth, which has resulted from excessive borrowing from Central Bank resources, will increase at a much faster pace, so the thirteenth government can only pay its employees’ salaries. However, as mentioned, the burden of this adherence to tradition falls on the people, inflicting deep and severe wounds on society with the whip called inflation.

Economic Growth Rate

A look at the economic growth rate of the 1990s in Iran and its comparison with the population growth rate causes concern for any economist. Iran’s growth rate over the past decade has been close to zero in total. This is while the country’s population has increased by approximately 10 million people, and due to the decline in population growth rate, the share of elderly and disabled age groups has become much larger and more significant than in the 1980s and before.

This situation has occurred while the economic growth rate in the first half of the 1990s was about 4 percent, which coincided with Hassan Rouhani’s first government and ongoing diplomatic engagement with the Western world and the consequent economic opening. However, the United States’ withdrawal from the JCPOA and the halt of the engagement process with the world caused Iran’s economy to survive as an island with successive painkillers until today. Now, the situation has reached a point where hopes for a return to the global economy and the international trade structure have completely faded.

However, the government presents strange statistics on economic growth and, despite the outlook presented so far, promises an 8 percent economic growth rate to the people. The semi-annual report of the first half of 1401 indicates the baselessness of this promise. To achieve such growth, at least 2 million barrels of oil must be exported daily from Iran’s oil terminals, and industries must return to the production level they had during the JCPOA.

Even returning to that production level, given the population growth, cannot mean repeating the economic growth of those years. But overall, without attracting foreign investment and also benefiting from modern world technology, Iran’s industry will fall further behind. So, it can practically be said that the existing signs indicate the baselessness of the 8 percent economic growth promise, and the thirteenth government is well aware of this.

The Bankruptcy of the Economy is True

This report only addresses four main components in examining the situation of Iran’s economy, but by focusing on these four, one can understand that the purchasing power of the people has decreased, the rial is at its weakest historical point, the government is unable to pay its employees’ salaries, and industries are forced to lay off workers and even declare bankruptcy and closure, which will result in nothing but an increase in the unemployment rate.

In a word, Iran’s economy is currently based on speculation and has significantly distanced itself from being categorized as a productive economy. For example, currency rate speculation to cover government budget deficits is one consequence of this general economic trend towards promoting speculation. These tendencies, which are indeed inevitable, have caused Iran’s economy to move towards the precipice at full speed.

However, some economists believe that Iran still has a considerable distance from the point of economic collapse, thanks to natural resources such as oil. But given the non-productive nature of Iran’s economy and the description provided about the four vital economic components, it shows that there is little hope for the economy’s return to the mid-1990s. In such conditions, drawing a development prospect for the country’s economy is not only a dream but also unrealistic and misleading.


  • Where is the Economy Heading Without Public Trust? – Part Three
  • No Hope for the Future of Iran’s Economy – Part One
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