Iran Economic Freedom Index Sees Major Improvement: Fraser Institute's Latest Report Shows

EghtesadOnline: The economic freedom index of Iran has improved by 19 ranks, but the country is still far from claiming it has a free economy attractive for foreign investments, the latest ranking of the Fraser Institute shows.

News ID: ۷۴۶۱۳۱

22 October 2018

The 2018 report of the Canadian think-tank and research firm, which employs data from 2016, shows that Iran ranked 130th in the world in terms of economic freedom with a total score of 6.03 out of 10. In the 2017 report, which dealt with conditions in 2015, Iran ranked a dismal 149th among 159 countries with a score of 5.40.

According to the institute, which is one of the top entities presenting economic freedom reports, the cornerstones of economic freedom are personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others.

Fraser believes individuals have economic freedom when property acquired without the use of force, fraud or theft is protected from intrusion and usurpation and the owner is free to use, exchange, or sell the property, as long as these actions do not violate the identical rights of others, Financial Tribune reported.

Individuals are free to choose, trade and cooperate with others, and compete as they see fit.

The institute's reports are drafted based on five general areas, namely size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation.

The first area includes government spending, taxation and size of government-controlled enterprises, the second includes judicial independence, impartial courts, reliability of police and business costs of crime and the third denotes money growth, inflation and freedom to own foreign currency bank accounts.

Tariffs, regulatory trade barriers, black-market exchange rates and controls of the movement of capital and people from the fourth area while the fifth consists of credit market regulations, labor market regulations and business regulations.

In the 2018 report, Hong Kong retained its status as the world's freest economy with an overall score of 8.97. It was trailed by Singapore with 8.84 and New Zealand with 8.49.

On the other end of the spectrum was Venezuela that is considered the world's least free economy with a score of 2.88 and was followed by Libya and Argentina with scores of 4.74 and 4.84 respectively.

> Details of Iran's Ratings and Rankings

According to the 2018 report, Iran grabbed a 6.88 rating to give it a rank of 62nd in terms of government size. This was Iran's second-most improved area, as it had scored 5.3 to gain a rank of 127th in the 2017 report.

In the sound money area, Iran's most-improved category, the Islamic Republic gained a rating of 8.43 and a rank of 86th in the 2018 report. Its rating and ranking in the previous year stood at 5.1 and 152 respectively.

In legal system and property rights, Iran's rating and ranking were 4.58 and 103rd in the 2018 report respectively, compared to 4.5 and 100th a year before.

In the area of freedom to trade internationally, the 2018 Fraser report gave Iran a rating and ranking of 4.59 and 158th respectively, compared to 4.5 and 156th a year earlier. With regard to regulation, Iran received a rating and ranking of 5.67 and 147th, up from the 5.1 and 152nd of the 2017 report.

Iran also improved across two components of area five. In terms of credit market regulations, it received a rating and ranking of 6.41 and 140th, a notable improvement from 4.7 and 153rd.

In terms of business regulations, it was rated 5.76 and 124th, up from 5.6 and 129th. In the labor market regulations sub-area, however, it rated 4.84 to gain a rank of 142nd, lower than the 2017 report's rate of 5 and a rank of 130th.

> Reasons Behind Iran's Improvement

According to private sector representatives, Iran's economic freedom ranking has improved due to government concessions and more accurate data provided to Fraser as a result of closer cooperation with the Canadian firm.

On Saturday, President of Tehran Chamber of Commerce, Industries, Mines and Agriculture Masoud Khansari and the head of TCCIM's Foreign Investment Center, Ferial Mostofi, held a press conference in the chamber to review the results.

According to Khansari, about three years ago, when Iran's nuclear deal with world powers was implemented, which removed international sanctions and gave new life to business, the private sector joined ranks with the government and other entities to improve Iran's ranking.

It also contacted Fraser.

Last year, high-level representatives with the Canadian institute, including Michael Walker, a senior fellow with Fraser, and Fred McMahon, its chair of Economic Research, visited Tehran and supported its drive to improve.

"As a first, you have to try and keep people in your own country," Walker said at the time, referring to the high rate of brain drain in Iran, as its educated and skilled population continue to leave the country every year.

McMahon recommended ways of reducing corruption, simplifying laws and leveling the playing field and "not throwing sand in the engine of economic growth" by putting roadblocks in the way of economic activity.

"Iran is a tolerant, open and educated society, and this makes it achievable," he said last year.

During Saturday's press conference, Mostofi said the presentation of Fraser with more accurate information about Iran's economy has been instrumental in improving the country's rank.

"Previously, the institute would use statistics and figures of other international organizations, which were in many instances outdated and unreal due to sanctions against Iran and local difficulties in getting data," she said.

"During the consultation of Tehran Chamber of Commerce with Fraser, we reached the conclusion that with the help of the chamber and the private sector as a whole, we can give reliable statistics and information to Fraser."

TCCIM chief Khansari also pointed out that the private sector will have to continue to play a vital role in improving Iran's economic freedom by pushing the government and coordinating with local and international entities.

"Our current improved ranking is still not suitable at all and Iran has a long way to go, but the improved ranking can be a good sign and pave the way toward more economic freedom in working with the government," he said at the press conference.

Questioned about the future of Iran's economic freedom index, Khansari admitted that nothing is certain as returning US sanctions have created many challenges both for Iran's currency and its foreign trade.

Mostofi, however, pointed out that the acceptance of international conventions and norms will assist the country, in reference to recent developments related to the completion of Iran's action plan with the Financial Action Task Force.

All four pieces of legislation required to complete Iran's deficiencies in addressing anti-money laundering and combating financing of terrorism concerns identified by the intergovernmental Paris-based watchdog have passed through parliament.

One has been turned into law while the three others await final confirmation by top constitutional and advisory bodies.

Iran has until February to complete its action plan as per an FATF ruling on Friday.

"If we fail to adopt FATF regulations, even [major trade partners] like China and India won't be able to have economic dealings with Iran," Mostofi warned.

Nonetheless, she remained hopeful, saying current reforms will continue and expand to other areas.

In early February, American think tank Heritage Foundation, another major global entity publishing an economic freedom index, announced in its 2018 report that Iran's index has slightly improved to score 50.9 and rank 156th among 180 countries.