Compounded Challenges

EghtesadOnline: At present, the Iranian people and economic players are facing a bevy of unresolved governance, economic, social, environmental, international, political and cultural challenges, and unfortunately there is no prospect of an end to these crises.

News ID: ۷۸۷۴۸۵

22 December 2021

This was stated by Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, in a write-up for the Persian economic daily Donya-e-Eqtesad.

A translation of the text follows:

Growing monetary base, money supply and inflation, the pressure of sanctions, unemployment, lack of domestic investment, inability to attract investment from foreigners and Iranian expatriates, water crisis and land subsidence, air pollution, rising corruption and rent-seeking practices at various levels, widening income levels, gender and ethnic inequalities are some of the fundamental challenges that the country is grappling with.

The outcome of this situation is nothing but a decline in consumer spending and people’s livelihood, poverty, marginalization and social ills, distrust, social disintegration and the fading of hope for the future and, of course, a rapid rise in the number of Iranian migrants, from the elite to ordinary people, and its concomitant capital flight.

Is there anyone to answer these questions: How come the average price of housing in Tehran increased from 40 million rials [about $130 at the current exchange rate/per square meter] in the year ending March 2017 to 320 million rials [$1,060] in the month ending Nov. 21, 2021? How can workers with incomes of 40-50 million rials [$130-160/per month] pay million-rial rents?

More than $100 billion left the country during the March 2010-20 decade; thousands of Iranians bought houses in neighboring countries, particularly in Turkey, why? Why did the inflation rate increase from 36.4% in March 2021 to 44.4% in November 2021? And how has the exchange rate of US dollar increased from about 250,000 rials in the month ending July 22 to more than 300,000 now?

Unfortunately, the accumulation of problems, the inefficiency of economic policies and decisions made by policymakers to overcome these crises and the dim outlook for the country’s future have sparked an occasional upsurge in agitation and protests in different parts of the country. One day in Isfahan we see the gathering of farmers and people, and another day we see people march through the cities of Khuzestan and Chaharmahal-Bakhtiari provinces.

Is there a way out of this situation? Controlling the inflation and improving the living conditions of people should be the government’s top priority, which depend on the fiscal 2022-23 budget bill, the outcome of nuclear talks and the lifting of sanctions.

As the adverse effects of inflation on people’s lives stay put, investment keeps eluding the country and people continue to convert their capital into unproductive assets to preserve its value, the economy will get smaller and poverty will become more institutionalized as long as we fail to reach single-digit inflation and get rid of sanctions.

The longer it takes to tackle these problems, the more entrenched they become. For sure, inflation must be controlled scientifically; it will be a mistake for the government to resort to the wrong policing strategies and mandatory pricing of the past. The time of budgeting is the best opportunity to streamline the country’s revenue and expenditure. The government should emphasize that the fiscal 2022-23 budget should be drafted realistically and without a deficit, while rejecting any proposal for increasing money supply and monetary base. The main focus must be on increasing export revenues and reducing the country’s operating expenses.

On the other hand, rent-seeking practices and corruption must stop, if the economy is to be organized and the country is to move on the path of development and attract domestic and foreign investors.

Economic stability must reign in all markets, including the foreign exchange market. You can’t expect to see stability and eliminate corruption and rent-seeking activities with a multiple exchange rate system that has turned into an economic scourge.

By employing a unified exchange rate system and terminating the subsidized forex policy, the government will be able to send the message that it is fighting rent-seeking practices and promoting transparency to the economic players and market.

In addition, the government needs to be tenacious in working toward real targeting of subsidies to prevent wasteful budget spending. According to Plan and Budget Organization, as much as $63 billon are being paid in fuel subsidies annually, i.e., 190 million rials to each Iranian, but we’ll see that high-income deciles are the ones taking advantage of these subsidies. This is while low-income deciles use 1.6% compared with high-income deciles that enjoy 21.8% of gasoline subsidies, which indicate that high-income deciles enjoy 20 times more gas subsidies than low-income deciles. The same condition applies to other subsidies, so this situation must end and social justice must prevail.

Today, the main responsibility of the establishment, including the government, the parliament and the judiciary, is to accept that public trust has been eroded and that they need to take steps to rebuild social capital and revive hope in the society; otherwise, irreparable damage will be inflicted.