Economic Track Records of Successive Iranian Gov’ts

EghtesadOnline: The research arm of the Iranian Parliament has published a report detailing the economic performance of seven Iranian governments from March 1989-90 to March 2016-17.

News ID: ۷۷۶۷۷۸

06 June 2017

President Akbar Hashemi Rafsanjani headed the fifth and sixth governments, Seyyed Mohammad Khatami led the seventh and eighth governments, Mahmoud Ahmadinejad presided over the ninth and 10th governments and Hassan Rouhani managed the 11th government.

An Iranian president can head the government for a maximum of two consecutive terms of four years.

> Economic Growth

A careful look at economic growth over the past three decades shows the highest rate was registered for the first term of Hashemi Rafsanjani with 10% and the lowest of -6% for the second term of Ahmadinejad's presidency, Financial Tribune reported.

The average rate over the past 30 years has been 5%, but it did face considerable fluctuations over the years. The downtrend of economic growth rate started in the final years of the fifth government and continued for eight years, except for 1990-91 and 1996-97.

Once the government was handed over to Khatami, GDP growth had declined to 0%. The strong economic growth of 1990-91 was thanks to the country’s unused economic capacities following the 1980-88 Iraq-imposed war and the exponential GDP growth of 1996-97 was the result of the increase in oil and natural gas exports.

Khatami’s rise to power marked the beginning of the end of economic growth downtrend. Six out of eight years of Khatami’s presidency saw higher GDP growth rate than the average of three decades.

The index resumed its downswing over the years Ahmadinejad was Iran’s president. Economic growth hit lower rates than the 30-year average in five out of eight years of his presidency and even found itself in negative territory for two years.

The start of Rouhani’s administration spelt an end to the downtrend of GDP growth, similar to the first three years of Khatami’s presidency. The only difference between the behaviors of GDP during these two governments was the rapid growth of the index under Rouhani. In fact, the second year of Rouhani's administration saw a slight decline due to a drop in oil exports.

An economic growth of 8.9% was posted in 2016-17, which marks a turning point in Iran’s economy, and its continuation will help energize the stagnating housing sector.

One of the main factors, which needs to be considered when assessing the quality of economic growth, is the number of jobs created on the back of GDP rise. Normally, job creation should accompany economic growth but in countries reliant on natural resources, GDP growth is usually recorded without any rise in job creation. The insignificant number of jobs created in 2008-9 and 2014-15 indicate that economic growth in these years failed to create the jobs needed.

Ahmadinejad created a total of 8,000 jobs during his eight-year tenure whereas Rouhani generated around 2 million jobs in three and a half years.

> Oil & Natural Gas Exports

Using 2010 prices as base, the average revenues generated by oil and natural gas exports between 1989-90 and 2003-4 stood at $26.7 billion per annum.

The country recorded the highest and lowest oil and gas revenues in 1990-91 and 1998-99 at $37 billion and $13.6 billion, respectively. But for the first time, oil and gas exports reached $41.57 billion in 2004-5.

Government income from oil exports registered a 50% rise to hit $60 billion in March 2005-6 and continued its dramatic growth for the following six years to reach an all-time high of $109 billion in 2011-12.

Although oil revenues almost halved in 2012-13, they were by far more than those in 2005-6 and the average of the years between 1989-90 and 2003-4. Revenues gained through oil and gas exports returned to the same level it was 10 years before in 2014-15 at $45 billion.

Iran’s economic growth has always been in positive correlation with oil revenues. Nevertheless, the ratio of these two variables was different under four presidents. By dividing oil revenues by the average of economic growth registered under each president, research showed how much oil revenues successive governments had at their disposal to realize a 1% economic growth.

One figure was distinctly different among all seven figures. Between 2009-10 and 2012-13, under the Ahmadinejad administration, $67.18 billion were tapped in to materialize a 1% growth whereas the biggest ratio between oil revenues to economic growth under other governments was $17.87 billion.

It needs to be mentioned that the lower the ratio of oil revenues to economic growth, the less reliant the government is on petrodollars.

The fifth government led by Hashemi Rafsanjani and the eighth government headed by Khatami saw the lowest dependency of the economy on oil, as their respective administrations capitalized $4.18 billion and $4.9 billion, respectively, to make for a 1% economic growth.

The Rouhani government has relied on $13.99 billion oil money to achieve a 1% GDP growth.

> Trade Deficit

Iran's trade deficit has never been less than $5 billion over the past 30 years. Yet, the best performance was recorded in 2015-16.

The Rouhani government's claim of having reached a “positive trade balance” is only valid if exports of gas condensate are included in non-oil exports. Therefore, the best performance of Iranian governments goes to the sixth and seventh governments and the worst to the ninth and 10th governments.

> Misery Index

The misery index helps determine how the average citizen is doing economically and is the sum of inflation, interest and unemployment rates, minus the annual percentage change in per capita GDP. It provides a clear picture of the economic conditions facing nations. The misery index and inequality correlate strongly.

The average of this index during the fifth, sixth, ninth and 11th governments were more or less identical. The lowest rates were recorded during the 10th government in 2007-8.

Despite a single rise in 2009-10, the index shows a declining trend until 2011-12, which is mostly the result of the “Targeted Subsidies Plan” and distribution of cash handouts among all Iranians.

Cash subsidies accounted for a significant share of the poor’s income in its early years of the plan's implementation, but the effect gradually lost steam amid rising inflation in the subsequent years.

> Household Welfare

The ratio of food costs to total expenditure of a household is an index used to measure household welfare: the lower the ratio, the better the state of welfare. This ratio constantly decreased under the sixth to ninth governments, recording its best in 2007-8 and 2008-9, but resumed its uptrend after these two years.

Despite the improvement of misery index since 2007-8, household welfare was dented seriously during 2009-10 and 2012-13 compared with the earlier years. Food costs to total expenditure started to lower again under the 11th government to reach the same level as in 2010-11.

Minimum wage index is yet another indicator of household welfare. Real wages are those adjusted for inflation or those in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages.

Minimum real wage posted improvement over the years, except for the sixth and 10th governments. Minimum real wage declined by 7% under the second term of Hashemi Rafsanjani and 17% under Ahmadinejad’s last tenure.

The best performance in this regard has been recorded under Rouhani who raised the real minimum wage by 28%, followed by Khatami during his second term by 22%.

> Inflation

One of the main indicators to judge economic performance of the governments is by far the inflation rate. The highest rates of inflation have been registered during the sixth and 10th governments. This comes as the lowest rate of inflation was recorded during the second tenure of Khatami with 14.5%.

The ambitious policies adopted by the governments during their second tenures have mostly proved to increase the inflation rate during their final years in office.

During the period under review, the only Iranian president who managed to curb inflation rate in his second term was Khatami.