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Economy

A Dark Year For Iran's Economy: Two Predictions For 2023

October 17, 2022
Arash Hasan-Nia
4 min read
The International Monetary Fund's warnings about Iran's economy include the debt to the National Development Fund, the government's debt to private employers, social security organizations and pension funds, banks and individuals
The International Monetary Fund's warnings about Iran's economy include the debt to the National Development Fund, the government's debt to private employers, social security organizations and pension funds, banks and individuals

In the Iranian president’s budget for the upcoming year, which he recently sent to relevant institutions, there is no clear plan to grow the economy or tackle inflation. 

When mentioning economic growth and the rate of inflation, he used two vague phrases: "growth with economic stability" and "inflation control". Either the government has concluded it is better not to commit itself to measurable numbers, or it has realized there is no clear picture for Iran's economy in the coming year.

Future of inflation and limited growth

The International Monetary Fund and the World Bank have corrected and adjusted their estimates for Iran's economic outlook in their reports this year.According to the World Bank, Iran's economic growth will reach 2.9% in 2023. This assessment is 0.8% lower than its earlier prediction. In its July report, the World Bank previously estimated the growth rate of Iran's economy at 3.7%.

Iran's economic growth rate in 2023 will reach 2.2% with the continuing downward trend, the World Bank said in its recent report. This is a slight adjustment compared to the 2.5% forecast in its previous report.

The International Monetary Fund also said in its recent report that Iran's economy will experience growth of about 3% this year and next. This remains unchanged compared to the previous forecast of Iran's economic situation.

These figures become important when, according to government officials, if Iran's economy experiences 8% growth over the next six years, the size of Iran's economy will return to its 2011-size by the end of this period. In other words, any growth below 8% will lead to Iran's economy shrinking.

At the same time, the International Monetary Fund has said the inflation rate in Iran during 2022 and 2023 will be 40%. These figures are noticeably higher than the previous figures predicted by the institution.

In its previous report, the International Monetary Fund estimated an inflation rate of 33.3% in 2022 and predicted that the inflation rate would decrease to 27.5% in 2023.

Now, those optimistic assessments have been replaced by an intimidating estimate of the inflation rate. If these predictions are correct, this will be the first time in the Islamic Republic’s rule that an inflation rate higher than 40% will be imposed on the Iranian economy for three consecutive years.

It is natural that experiencing three years of inflation of 40% or higher will increase poverty and make earning a living more difficult for people across society.

Unbalanced governance

The government’s decisions in recent days paint an even more negative picture. This week it has brought two urgent bills to parliament to restore the rights of civil servants, state pensioners and military personnel.

The bill that received the initial vote in parliament, and its implementation in the second half of the year, will impose a financial burden of 55 thousand billion tomans ($1.5 billion) on the government.

According to Ali Nikzad, deputy speaker of the Iranian parliament, the government will address this burden through changes to the budget. This means construction budgets will be spent covering current expenses. This decision is being interpreted as a further blow to the economy.

In another story, Ehsan Khandozi, the minister of economic affairs, has announced this new budget will be funded by selling government assets and handing over assets to the private sector.

But a look at the performance of the four-month budget suggests that Khandozi is counting on a miracle to make this a reality.

More debt than ever

According to another report from the International Monetary Fund regarding the financial situation of the world's economies, public expenses are increasing in proportion to the GDP, from 12.5% this year to 14.3 and 14.9% next year. The percentage will further increase in 2023 and 2024.

At the same time, Khandozi and Masoud Mirkazemi, the head of the Plan and Budget Organization, have repeatedly said the government is cautious about selling government assets to the private sector. 

The government's debt from this sector has also increased. The Plan and Budget Organization warned in a report this year about the repayment of the principal and interest of the debt of more than 530 thousand billion tomans ($178 billion) by 2023.

The International Monetary Fund's warnings about Iran's economy include the debt to the National Development Fund, the government's debt to private employers, social security organizations and pension funds, banks and individuals. 

Referring to the doubling of the Iranian government's debts from 2020 to this year, the International Monetary Fund has predicted the Iranian government's debts will continue to increase.

Like economies around the world, Iran's economy is also under pressure from the war in Ukraine, high energy and food prices, inflation and increasing global interest rates.

The International Monetary Fund warned that economic conditions may worsen significantly next year, and this is already an economy suffering from numerous uncertainties. It means Iran can expect a dark year on the economic horizon.

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