Rouhani Hails Economic Recovery While Unemployment Figures Soar

During the 2013 election campaign, Hassan Rouhani promised to rebuild Iran’s economy and create new jobs. One year on, he’s achieved little beyond what the natural trend of Iran’s economy would have achieved on its own. But it hasn’t stopped him from taking part in a well-worn Islamic Republic tradition: taking credit for positive outcomes, while blaming any disappointment on others.

During a press conference on August 30, Rouhani, who also heads Iran’s High Council of Economic Affairs, announced that his administration had ushered in a string of successful measures that were boosting the economy and improving the lives of millions — from more efficient water management in rural areas to an impressive fall in rates of inflation. And, he said, this was just the beginning.

He’s right to have a degree of optimism: according to the Central Bank of Iran (CBI) and the Statistical Center of Iran (SCI), inflation rates have steadily fallen in recent months. By the end of the Iranian year, rates will have fallen below the 20 percent mark, Rouhani says, with the country enjoying its first single-digit inflation rates for 40 years by 2017.

But 20 percent is still high, and just because inflation has improved, it does not mean prices have stabilized. Despite his optimism, Rouhani had to face the facts during the press conference: the country is still suffering from a severe economic recession and economic growth is still dire.

Though he told reporters his cabinet had put together the necessary recovery package to bring the country out of recession, he failed to give any specifics — except to say that parliament will need to pass close to 30 pieces of legislation to implement it. Given Rouhani’s relationship with the majority of parliamentarians, it seems unlikely that the full raft of measures will go through. Economic and political analysts alike have commented that many politicians will be inclined to protect their own economic privileges — many of which may be threatened by this new legislation.

Unemployment Still Rife

During the press conference, Rouhani avoided discussing the country’s unemployment figures. SCI reports an unemployment rate of 24.8 percent among the country’s youth, more than twice the national average of 10.7 percent.  It is widely believed that official unemployment figures are significantly lower than the actual number of people out of work, meaning that Iran’s unemployment crisis is much more serious than the government is ready to admit. Though he told reporters that jobs would be created as the economy continued to grow, the president made no mention of a targeted government strategy for unemployment.

A day after the presidential news conference, Ali Tayyebnia, the minister of Finance and Economic Affairs, also announced that the economy was growing, though failed to back this up with any concrete evidence. The economic growth rate must sit firmly above zero before any substantial job creation can take root, say analysts, and under the country’s current economic conditions, it’s hard to imagine the jobs the Iranian youth so desperately need will be forthcoming any time soon. 

Ominous Silence

There were other points about which the president was ominously quiet, which gave the impression that he was detached and isolated from the realities of Iran’s economic environment. He gave no explanation of how the administration planned to combat the country’s rampant corruption, which continues to stifle any real possibility for a comprehensive economic recovery. Critics describe him as being unrealistically optimistic about recovery, and say that implementing anti-corruption policies is absolutely vital for attracting private investment and creating an environment where entrepreneurship can thrive.

Another issue Rouhani evaded is rural poverty. Many rural communities are still reeling from the fallout of Mahmoud Ahmadinejad’s administration, which spent vast amounts of money on poorly implemented projects to boost public housing and improve living standards (the disastrous Mehr Housing Project is one example). Yet Rouhani’s public projects have had little impact in some of the country’s poorest areas. Recent cuts to fuel and other subsidies have not reduced costs as dramatically as expected. The gap between rural and urban wealth remains vast and migration from rural areas to the city continues unabated.

Action is Needed Now

Rouhani’s public spending curbs have faced fierce opposition in parliament; many politicians have carried favour with constituents by launching huge public projects —adding an estimated 20 trillion tomans (around $6 billion) to the government’s expenses. During the August briefing, Rouhani said his administration had originally delivered a budget of 150 trillion tomans ($5 trillion) for the current fiscal year, leaving the government with a deficit of roughly 2 trillion tomans — but this was undermined by the vast public spending pushed through by certain MPs, who, he was quick to point out to reporters, were responsible for a current deficit of aproximately 22 trillion tomans ($7.3 billion). Many speculate that the actual deficit is larger than this amount, given the deficiencies that plague public financial management in Iran. 

The current administration claims it introduced fiscal discipline. But it would be wrong to think it has adopted a contractionary approach to fiscal policy. In fact, the current government is spending more on regional and national projects across Iran than its predecessor. Rouhani claims his government spent 3.2 times more this year than last on national projects and 15 times more on regional ones. But what remains unclear is the actual economic impact of these initiatives, and Rouhani has failed to point to any significant economic growth or new jobs in the regions where they have been implemented. For an administration eager to set itself apart from the previous one, Rouhani spoke in surprisingly similar terms, boasting about figures that bore little relation to the economic reality.

Rouhani can take credit for slight improvements when it comes to fiscal conditions and a fall in inflation, but, in reality, these are only minimal achievements. Some economists have argued that the current administration has offered little or no contribution to the current economic conditions. They indicate that Iran’s economy is reaching a new equilibrium after experiencing a severe crisis, the result of years of sanctions and failed policies. But it’s only following a trend that is characteristic of faltering economies. Prices are stabilizing, yes, but this means they are only rising at a slower rate, not declining. The Rouhani administration hasn’t amplified the crisis but it is failing to implement decisive policies that will quicken an economic recovery; there’s light at the end of the tunnel for Iran’s economy but it’s still got far to go.

In the current climate of instability — on both economic and political fronts —Rouhani is keen to reassure the Iranian people that recovery is on the horizon. His misplaced optimism may be appropriate in a market-led economy but this is not the case for Iran. Though there are positive signs of revival, it’s hardly the strong comeback the administration wants, or the country so badly needs. And, plagued by an unwieldy public sector and interference from the Revolutionary Guards and other powerful traditional institutions, Rouhani faces a tough road ahead. In order to navigate the terrain, the president will have to stop issuing reassuring platitudes and bragging about vague improvements and start implementing real change. Then he can take credit for something noteworthy.