Deputy head for research at the Presidential Office’s Management and Planning Institute Mehdi Barakchian believes that Iran’s economy has to tackle four main bottlenecks to achieve a high economic growth in a short period, Iran Daily wrote. They are the downward trend of oil prices, reduced national revenues, lower domestic production due to a decline in the import of intermediate goods and the government’s shrunk budget which is revealed by the drop in development funds. These problems will severely hinder speedy economic growth even if Iran comes to an agreement in the nuclear talks with P5+1.
Experts forecast that in case the current economic situation continues, economic growth rate will fall to below 1, or even nil before the removal of Western sanctions. Central Bank of Iran estimates indicate that if the sanctions are removed, economic growth will reach 3 percent by mid-March 2016, otherwise it will not exceed 1 percent. This is while the CBI announced earlier that in the year to March 20, 2015, the domestic economy experienced a growth of 3 percent. Barakchian maintains that following the positive economic shock of two years ago, and mainly under the influence of output growth in domestic oil and auto manufacturing sectors, Iran’s production embarked on an upward trend in the year to mid-March, 2014, and remained almost stable for the rest of the year. He, as well as some other economists, however, holds that even if domestic production does not decrease in the year to mid-March 2016, the present condition of the market will lead to a further decline in economic growth. He outlines two scenarios for Iran’s economy, one defined in terms of the nuclear negotiating team’s success in talks with the sextet and the other based on the two sides’ failure to reach an accord. Favoring the first scenario for the current year, Barakchian believes that in case oil prices remain around $60 per barrel in the coming months, Iran’s economy will not undergo any drastic changes by the time the sanctions are lifted. Although the positive expectations deduced from the first scenario will prevent the destructive and negative economic mechanisms from being activated, it also cannot be inferred that something significant will happen, he said. “With the current economic trend running on, the active mechanisms in domestic economy will develop a lot whereby the fall in oil prices and their negative impacts on state revenues will result in reduced imports.” This was experienced in March, April and May, 2015, when imports dropped 20 percent, he added. “Since domestic production is highly dependent on imports, reduced purchase of intermediate goods, will lead to a decrease in economic activities in the future.”
He said reduced oil prices also activate another mechanism which is lower state budget, adding the mechanism will first directly affect the housing sector and then encompass other sectors. Barackchian noted this mechanism will most probably shield domestic economy from harm by restricting imports and reducing development spending, until the sanctions are lifted. “Another active mechanism which will adversely impact economic growth in the coming years pertains to the lowered sales of economic agencies. Although the fall in oil prices might boost the negative effects of this mechanism, it has been witnessed in domestic economy for a long time, even before the onset of the downward trend in oil prices.” He noted that it has been a while that domestic financial organizations and agencies have been grappling with fiscal contraction problems that have resulted in slowed and complicated money circulation and increased interest rates and are also expected to continue exerting pressure on the agencies in the year to mid-March 2016, adding unfortunately, at present, no immediate solution exists in this regard. “Economic growth is expected to decline continuously by the time sanctions are completely lifted. The outcomes of an economic study revealed that Iran’s economic growth will not exceed 3 percent by 2021.” A glance at the ups and downs of the domestic economy shows that it has always been dependent on national capital and not the workforce. Given that the job market is faced with surplus workforce and assuming that domestic productivity and technology will not experience any substantial improvements in the near future, the dominant factor in calculating the average economic growth will still be the capital growth rate.
In the past 30 years, the economy has never witnessed a two-digit investment growth rate for more than six consecutive years. Investment is different from the national capitals. National capital is reliant on the degree of investment. The amount of investments made in a country per year, determines its total capital. Given that the growth of domestic economic capacities are highly dependent on raising national capital, the domestic production rate is to increase, on average, by 3 percent every year until 2021. Barakchian concluded that although sporadic changes might take place in GDP, as is expected in the current year, the average economic growth will hover around 3 percent.