After freefall, Iran’s economy is stabilising

Penny MacRae | Updated on November 26, 2019

US sanctions have taken a toll, but the World Bank says the economy has bottomed out and will grow over the next two years

Sorry Donald Trump, Iran’s economy is not about to collapse despite far-reaching US sanctions targeting nearly every industrial sector, throttling oil exports and snapping the Islamic Republic’s financial links with the rest of the world. In fact, the International Monetary Fund and the World Bank says the economy’s bottoming out from the effects of the sanctions Washington imposed after President Trump abandoned the 2015 international nuclear accord struck with Iran.

Iranians are indeed suffering from skyrocketing inflation and an economy expected to shrink by nearly 10 per cent this financial year but the oil-rich country’s situation now is stabilising after being in economic freefall, the IMF and the World Bank say.

The currency has already rallied by 40 per cent in the past year, recovering from record lows hit after Trump abandoned the 2015 international nuclear deal struck with Iran and reimposed sanctions. Also, improbable as it sounds, the Tehran Stock Exchange has become one of the world’s best-performing share markets, thanks to economic green shoots and investors seeking a hedge against inflation.

Walking through the streets of Iran’s major cities, you’d be forgiven for believing all was normal. The roads are choked with traffic, the bazaars are full of shoppers and the women are as smartly dressed as ever, though many cloak their cutting-edge attire in chadors. Grocery shops’ shelves are piled high with fresh vegetables, cuts of meat and cheeses. Delicious Iranian sweets and nuts abound and appliance shops are full of washing machines, vacuum cleaners and other devices. Store windows display the latest Iranian fashions and it seems as though every young person is talking into their mobile phone or reading their messages via lighting-fast Internet connectivity.

Iranians say the appearance of normality is because sanctions are the rule for them rather than the exception, even though the latest “maximum pressure” tactics imposed by Trump in May 2018 to curb Iran’s nuclear programme are the toughest ever to be clamped on the country of 80 million people.

“We went through sanctions after the revolution in 1979, we had the terrible times during the (1980-1988) Iran-Iraq war and then there were the UN nuclear sanctions (from 2006 to 2015). We survived all that so this isn’t really much different,” said 37-year-old Kazem Shirazi who’s a fashion designer in Tehran.

Difficult conditions

Iranians, though, don’t minimise the economy misery they’re facing due to sanctions. Iranians say conditions are extremely difficult with 37 per cent annual inflation, according to the IMF. There’s a massive gig economy with many Iranians holding down two, three and sometimes four jobs to make ends meet. Even relatively senior civil servants say they’re earning extra by teaching English and offering courses like yoga. Weddings are being postponed because of the high costs. “Every month, I tell my fiancée: ‘Let us wait for another month for setting a date,’” said a 34-year-old male nurse in Shiraz who didn’t want to be identified.

Foreign Minister Mohammad Javad Zarif told a group of visiting journalists from New Delhi that the re-imposition of US sanctions was a “huge psychological shock” for Iranians who had high hopes of economic revival following the 2015 end to UN sanctions. The UN lifted the sanctions after Iran agreed to sharply limit its nuclear programme. But then the US walked away, accusing Iran of breaching the pact and overriding European objections. Still, while the latest sanctions have imposed “immense suffering on our population,” the economy’s now recovering, Zarif observed with satisfaction to the Indian Women’s Press Corps..

The minister’s comments were buttressed by the IMF’s latest forecast that Iran’s economy will contract in 2019-20 financial year by 9.5 per cent after shrinking four per cent last year. This would mark Iran’s worst annual growth since 1984 when the country was locked in war with Iraq. But the IMF says Iran’s economy will steady next year to post flat growth. The World Bank also says Iran’s economy has bottomed out and will notch annual growth of 0.5 per cent over the next two years. Meanwhile, manufacturing is already showing signs of accelerating, the Iran Chamber of Commerce says. The chamber’s Purchasing Manager’s Index (PMI) has topped the 50 mark, indicating expansion, in five of the last seven months.

Iranian officials say the country is surviving the sanctions by boosting exports of non-oil goods like food, textiles and petrochemicals and through bartering and back-room deals. Aside from crippling oil exports, Iran’s main source of hard currency, the sanctions also cut off Iranian banks’ ties to the international financial world, affecting how it finances global trade. In response, Iran has taken steps to preserve foreign currency and set up a government-run foreign-exchange platform to facilitate imports.

Become stronger

“Even with the toughest sanctions, we won’t be destroyed,” Zarif said, noting Iran’s vast natural resources and well-educated population. “There’s a famous saying in the US that if it doesn’t kill me, it will make me stronger.” Iran has lived with sanctions for most of the last four decades ever since the revolution, led by Islamic hardliner Ayatollah Khomeini, toppled the country’s autocratic shah Mohammad Reza Pahlavi. (While the country’s nominally a democracy, Iran’s Shiite mullahs still call the shots).

Sanctions “have only made Iran stronger,” Zarif said. In fact, sanctions have proved to be the mother of invention for Iran, he said, forcing the country to develop its own sophisticated missile defence programme, IT systems, machinery and medical treatments. But on the medicine front, Iran is encountering problems, the foreign minister conceded. Iran says it produces 97 per cent of its medicines. But foreign currency shortages have made it hard to procure advanced treatments for diseases like cancer and multiple sclerosis.

Earlier this month, Iran stepped up its uranium enrichment in the latest breach of its 2015 deal with big powers after abiding by the agreement for a year despite the US sanctions. Iran’s been steadily exceeding the deal’s caps on uranium enrichment, shortening the time the country would require to make a nuclear bomb. But Iran says it stands ready to undo the breaches if sanctions are lifted.

Iran’s always insisted its nuclear programme is for civilian use, though experts say Tehran has extensive know-how to build a nuclear bomb. “We never built nuclear weapons… we never wanted to build nuclear weapons,” Zafir said. But “we’ve paid the price more than any other country that’s built nuclear weapons,” he added.

The writer, a senior journalist, was recently in Tehran


Published on November 26, 2019

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