This is the first of two articles about Iran’s economy produced by BBC Persian. It was originally published in Persian on December 9, before the recent protests.
Read part two: Looming Disaster for Pension Funds in Iran?
Household budgets in Iran fell 15 percent in a decade, between March 2007 and March 2017, according to research by BBC Persian. During this period, the average share of utility payments in budgets rose, while the share of expenditure on food decreased.
The household budget refers to the total value of all goods and services a household consumes. It is one of the best indicators for evaluating prosperity.
Household spending grew every year in the previous decade, from March 1997 to 2007 – taking inflation into account – according to statistics released by the Central Bank of Iran. Overall, budgets increased by 43 percent during this time. After 2007, the index started to fall.
In March 2007, each Iranian household spent a monthly average of $1,074 (3.872 million tomans in today’s exchange rate*) on goods and services. By 2016, this average had fallen to $909 (3.275 million tomans).
Iranians’ decline in fortunes after 2007 coincided with the United Nations Security Council imposing sanctions following two resolutions on the country’s nuclear and missile programs. This was also the year when chief nuclear negotiator Ali Larijani, now Speaker of Parliament of Iran, was replaced by Saeed Jalili, who was Secretary of the Supreme National Security Council from 2007 to 2013.
Petrol rationing, which sparked some violence, also began in 2007. Meanwhile, then-President Mahmoud Ahmadinejad disbanded the Management and Planning Organization, formerly known as the Planning and Budget Organization (reinstated under President Hassan Rouhani in 2014).
Between 2006 and 2007, the rate of inflation jumped sharply from 11.8 to 18.4 percent.
However, 2007 was also the third year in a row the Iranian government benefitted from a global hike in oil prices. After this point, Iran faced a drop in oil revenue and a decline in the gross national product. This fall in national income was accompanied by an even bigger slump in household budgets.
Significantly, each year after 2005, with the exception of 2012, the increase in annual household budgets was lower than the rate of Iran’s economic growth. Conversely, in the years of negative economic growth, budgets decreased faster than the national economy.
Before 2005, household budgets generally kept pace with the rate of economic growth. But after that year, budgets not only shrank but the ratio of household expenses in relation to each other changed.
The most significant change in expenses over the past two decades has been the 10 percent increase in the cost of utilities, including water, electricity and gas. Their share in the household budget increased from 26 percent in 1997 to 36 percent in 2016.
In March 2005, for example, the average budget of an urban household was approximately $988 (3.569 million tomans). The average utilities spend that year was $266 (961 thousand tomans), or 27 percent of the total budget.
In March 2009, the average monthly budget was largely the same as 2005, at $994 (3.588 million tomans). However, utilities comprised around 31 percent of the total budget ($312, or 1.125 million tomans).
The sharpest rise in utilities payments happened in 2007, when they increased by 17 percent. To compensate for this, Iranian households had to spend less on food and clothing. The share of food in the average household budget fell from 30 percent in 1997 to 23 percent in 2016. Iranians also spent less in absolute terms compared to previous years.
It should be noted that over the past two decades the size of the average Iranian household has decreased, meaning less is now spent on food and clothing. However, the drop in spending has been steeper than the reduction in household size, meaning that the per capita share of food and clothing expenditure for each household member has fallen since 2013.
* The original BBC Persian reports figures in Iranian toman at 2016 prices. They are converted here using current exchange rates.
Read part two of BBC Persian's articles on the economy: Looming Disaster for Pension Funds in Iran?