Five Economic Priorities for Next Government

EghtesadOnline: Creation of economic growth and employment, sustainable control of inflation, eradication of poverty via non-inflationary methods, campaign against corruption and unemployment reduction must be placed on the agenda of the next government, says the director of Sharif Business Think Tnk.

News ID: ۷۸۶۴۷۴

23 May 2021

“The past decade can be referred to as a period in which opportunities were lost. The average purchasing power of Iranians decreased by 40%. However, recalling these figures would only give way to disappointment. We believe there is greater opportunity for an economic surgery and structural reforms amid crises than in normal times,” Ali Marvi was also quoted as saying by Mehr News Agency.

Noting that his think tank had already warned about high inflation rates due to the rise in money supply and misguided forex policies, the economist said, “Collaboration with policymakers has never been effective. Conflict of interest, and not lack of knowledge, is the hurdle in the way of economic development. We need to clear this hurdle by demanding good governance by improving social accountability. It is our hope to see members of the public call out on future decision-makers to take responsibility for their incorrect policies, no matter what party they represent.”

Marvi stressed that the next government needs to place five missions atop its agenda.

“First, it needs to give more importance to economic growth that is accompanied by job creation. Iran’s demographic window — the period of time in a nation's demographic evolution when the proportion of population of working age group is particularly prominent — which was open for the past two decades but has currently turned into a national security threat. The country’s workforce increases by 17 million people but as few as three million jobs were created over the past 20 years,” he said.

Latest data released by the Statistical Center of Iran show Iran’s GDP during the nine-month period leading to Dec. 20, 2020 (Q1-3) saw a 1.2% contraction compared with the corresponding period of the year before.

“Second, inflation must be controlled in a sustainable manner. Non-standard methods to curb inflation would lead to a liquidity bomb, that’s what happened during the administration of President Hassan Rouhani,” he said.

Fiscal 2020-21 inflation rate stood at 36.4%, according to the Statistical Center of Iran.

“The third priority must be the eradication of poverty. The 40% decline in people’s buying power and increase in the Gini-index hurt low-income people even more particularly over the past two years. Eradication of poverty by increasing the monetary base or borrowing from the central bank would only drive up inflation and make it probable for us to meet the same fate of Venezuela.

The Gini index hit its 36-year low in the year ending March 2014 and settled at 0.3650 in that year. However, it began to rise from March 2014 to March 2019 but returned to a declining trend in the year ending March 2020. The index stood at 0.3788 in the year ending March 2015, 0.4093 in the year ending March 2019 and 0.3992 in the year ending March 2020.

On the other hand, the spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners increased from 10.68% in the year ending March 2014 to 14.45% in the year ending March 2019, but fell to 13.69% in the year ending March 2020.

“The importance of waging a war against corruption must be the fourth mission of the next government. Corruption is a threat to social capital and economic reform, given the country’s rank in the Corruption Perceptions Index that measures perceived levels of public sector corruption, as determined by expert assessments and opinion surveys,” he added.

Iran’s score based on the Corruption Perceptions Index dropped by two points in 2019 with 26 out of 100, according to a report by global graft monitor Transparency International. The CPI scale indicates that zero is perceived to be highly corrupt while 100 is perceived to be very clean. The country’s ranking also fell by eight places and is now ranked 146 out of 180 countries.

Marvi noted that the sustainable creation of employment must be the fifth mission of the next government, as there are three to five million long-term unemployed individuals in the country.

Iran’s unemployment rate, the proportion of jobless population of ages 15 and above, stood at 9.6% in the last Iranian year (March 2020-21), indicating a 1.1% decline compared with the year before, according to the latest SCI report.

Last year’s labor force participation rate — the proportion of the population of ages 15 and above that is economically active either employed or looking for a job — stood at 41.3% or 25.73 million people, registering a 2.8% decrease year-on-year.

“These problems won’t be resolved unless the country improves an effective collaboration with the world,” Marvi concluded.

Iranians are due to elect a successor to President Rouhani, who is constitutionally barred from running for a third consecutive term, on June 18.