World Bank’s Forecast on Iran’s Economy Part One

World Bank’s Forecast on Iran’s Economy

According to Iran Gate, experts and analysts from the World Bank believe that Iran’s economy, given the intensifying sanctions, will enter a new recession phase that could make living conditions more difficult for Iranian citizens than they are today.

Recently, new reports from the World Bank regarding Iran’s economic outlook have been published, presenting interesting information. Among the significant forecasts by the World Bank is the worsening of living conditions for the Iranian people if there is no meaningful change in policy regarding Iran’s nuclear issue.

Iran Gate, in a two-part series, has translated a summary of the World Bank’s recent report on Iran’s outlook. The World Bank report, which pertains to the spring and summer of the current year, is based on official statistics and estimates from international bodies regarding Iran’s economic situation. This is the first part of the comprehensive World Bank report on Iran’s economy, initially providing an overview of the economy, with the second part making extensive predictions about the future of Iran’s economy.

What’s Happening in Iran

In 2022, Iran’s economy continued its moderate growth for the third consecutive year, although many believe this growth will not remain sustainable and stable. It should be noted that Iran’s GDP grew by about 38% in 2022, driven by the growth of the services sector. However, a significant portion of this growth was due to increased oil exports, which occurred as the Biden administration in the U.S. eased oil sanctions, leading to significant transformations in Iran’s economic statistics.

Moreover, improved weather and climatic conditions in 2022 provided a significant boost to the agricultural sector. This sector, after suffering a severe recession in previous years, was able to experience slight growth thanks to improved weather conditions in the country.

Inflationary Growth Will Persist

Official statistics and observations indicate that Iran’s GDP growth last year was driven by demand-side stimulation in the country. In other words, this 38% growth resulted from intensified and severe inflation over the past two years. The government’s budget, although expansionary in 2021, was this time somewhat aligned with the 40% inflation rate, which also caused the budget deficit to be more in line with the inflation rate.

On the other hand, the increase in the country’s oil revenues, which resulted from the U.S. government’s lenient policy, also contributed to the 38% growth. This increase in revenue led to a rise in exports and imports, which naturally has a significant impact on GDP. However, given the sharper growth in imports, it can be said that the non-productive sectors of Iran’s economy have become more inflated than the productive sectors.

Sanctions’ Shadow Over People’s Livelihood

Official reports from Iran indicate a worsening of living conditions in the country. This situation, despite the 38% GDP growth, has not led to an improvement in the livelihoods of Iranian citizens due to the persistence of economic sanctions. These sanctions, with their extensive restrictions on access to global markets, modern technologies, and most importantly, foreign investment, have made the situation more dire than ever.

Another indicator of the lack of improvement in Iranians’ living conditions is the unemployment rate in the country. Contrary to unofficially published statistics, employment rates have not seen significant improvement despite economic growth. It should be noted that the average employment growth in 2022 resulted from the loss of jobs due to drought and water shortages in the agricultural sector and the closure of the COVID-19 pandemic file in Iran and the world. However, this increase has not been sufficient to make a significant change in the livelihood of the Iranian people. Consequently, employment in Iran remains about 700,000 jobs less than the figure recorded before the COVID-19 pandemic.

Another concerning factor in Iran’s economy is the very weak labor force participation in the country. This factor, remaining around 40.9%, indicates insufficient job opportunities in Iran’s labor market. Although the unemployment rate retreated to 9% in 2022, this was mainly due to a decrease in labor force participation, as the active population seeking work has significantly declined.

Overall, it is estimated that about 300,000 jobs were created in 2022. Meanwhile, more than one million jobs were lost in 2020 due to the COVID-19 pandemic, and the government, despite the end of the pandemic, has not been able to fill the gap in the labor market. This gap has mostly harmed the body of working women in Iran, but economic recoveries also show

that men have been more successful than women in returning to the labor market. In 2020 and 2019, two-thirds of the jobs lost were related to women’s share of the labor market, but currently, women’s share of recovery is only one-fifth of the jobs created.

Source: World Bank