iranian economy : struggle for development
DESCRIPTION
Iranian economy : Struggle for Development. Hossein Abdoh Tabrizi Istanbul, May 2014. Iranian Administrations Since The Revolution. Iran Iraq War (Imam Khomeini’s Era, Mussavi’s Premiership (1980-1988) Rafsanjani Administration, AKA Reconstruction Government (1989-1997) - PowerPoint PPT PresentationTRANSCRIPT
IRANIAN ECONOMY: STRUGGLE FOR DEVELOPMENT
Hossein Abdoh Tabrizi
Istanbul, May 2014
IRANIAN ADMINISTRATIONS SINCE THE REVOLUTION
Iran Iraq War (Imam Khomeini’s Era, Mussavi’s Premiership (1980-1988)
Rafsanjani Administration, AKA Reconstruction Government (1989-1997)
Khatami Administration, AKA Reform Government (1997-2005)
Ahmadinejad Administration, AKA Populist Government (2005-2013)
Current Administration (August 2013- )
o Government exposure to natural resources was volatile, though on average it had been more than 50%.
Oil Tax Other
o In the last 30 years, around 75% of the Government budget was in the category of current expenditure.
current infrastructure
BUDGET DEFICIT
In the last 10 years, the budget deficit increased dramatically.
o As the main source of monetary policy, liquidity grew without any discipline and unrelated to economic growth.
LiquidityGrowth
MONEY BASE, HIGH-POWERED MONEY
منبع: بانک مرکزی ج.ا.ا
برابر شدن پایه 10.3پولی
برابر شدن پایه 10.3پولی
LIQUIDITY
منبع: بانک مرکزی ج.ا.ا
برابر شدن نقدینگی17.9 برابر شدن نقدینگی17.9
o Central Bank of Iran had been highly dependent to the Government and boosted the money supply by political pressure.
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0.5
0100000200000300000400000500000600000700000800000
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Money Supply
ϑ έΎμ ϣΐ δΣήΑ ϟϮ� ϪϳΎ�ϝΎϳέΩέΎϴϠϴϣ ϟϮ� ϪϳΎ�ΪηέΥήϧMoney Supply Growth
o Over supply of money was from 3 sources:
1) Budget deficit and lending to Government
2) Buying foreign assets (mainly oil revenue) from Government.
3) Borrowing from banks
-200,000-100,000
0100,000200,000300,000400,000500,000600,000700,000
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Money Supply
ΰ� ήϣ ϧΎΑ ΟέΎΧ Ύϫ ϳ έΩκ ϟΎΧϝΎϳέΩέΎϴϠϴϣ ΰ� ήϣ ϧΎΑϪΑ ΘϟϭΩζ ΨΑ ϫΪΑκ ϟΎΧϝΎϳέΩέΎϴϠϴϣ
ΰ� ήϣ ϧΎΑϪΑΎϫ ϧΎΑ ϫΪΑϝΎϳέΩέΎϴϠϴϣ
Net Foreign Assets (B IRR)Net Governement Borrowing (B IRR) Banks Borrowing (B IRR)
DECOMPOSITION OF THE BASE MONEY
منبع: بانک مرکزی ج.ا.ا
oConsidering high inflation, the real rate of interest for deposits was mostly negative.
Inflation is the main problem in all
sectors of Iranian economy.
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Inflation
¹ Âew ¿� �| {� �Inflation
CONSUMER PRICE INDEX (CPI) 1978-2014
Average Inflation Rate : 17.79 Percent Single Digit Inflation Rates: 2 Years Two Digit Inflation Rates: 34 years Inflation Rate over 20 Percent: 16 Years Inflation Rate over 30 Percent: 4 years Highest Inflation Rate: 49.4 Percent (1995) Lowest Inflation Rate: 6.9 Percent (1985)
o Iran has the second highest inflation rate in the region.
o Young population is a key advantage for Iran.
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30,000
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Population
ϥΩήϣΖϴόϤΟήϔϧέΰϫ ϥΎϧί ΖϴόϤΟήϔϧέΰϫ Men (thousands)
Women (thousands)
o More than 70% of the population are living in cities.
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30,000
40,000
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60,000
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Population Distribution
Urban Willage
Increasing unemployment rate; too many university graduates and female job demand
oReal GDP Shrinkage
02,000,0004,000,0006,000,0008,000,000
10,000,00012,000,000
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
GDP
d]ZiÉZÅd¼Ì«Ä],Ê yY{ ·ZyZ¿| Ì·Âe�{ZÌ Ì»�É ZmÉZÅd¼Ì«Ä],Ê yY{ ·ZyZ¿| Ì·Âe� �{ZÌ Ì»�
GDP, fixed pricesGDP, current prices
oFollowing the sanctions, the GDP growth was negative during last 2 years. However, it is estimated to turn to positive figures in the current year.
-10
-5
0
5
10
15
20
25
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
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GDP Growth
o GDP per capita which indicates the welfare level, did not change significantly over the past 3 decades.
020,000,00040,000,00060,000,00080,000,000
100,000,000120,000,000140,000,000160,000,000
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
GDP per capita
d¼Ì«Ä]Ä¿Y Ê yY{ ·ZyZ¿| Ì·Âe� � �d]ZiÉZÅ d¼Ì«Ä]Ä¿Y Ê yY{ ·ZyZ¿| Ì·Âe� � �Ê §ÉZÅFixed Prices Current Prices
o Iranian trade balance fluctuated significantly. During last 10 years, the exchange rate favored more imports.
-50-40-30-20-10
010203040
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Trade Balance
ΕΎϣΪΧϭϻΎ�Ε ΩέϭϢΠΣήϴϴϐΗΪλ έΩ
ΕΎϣΪΧϭϻΎ�Ε έΩΎλ ϢΠΣήϴϴϐΗΪλ έΩ
Import, % changeExport, % change
OIL BOOSTED THE INCOME
The main source of Government income was from oil & gas which provided wrong signal to decision makers.
Inappropriate Government PoliciesUnfriendly International Environment
LAST THREE YEARS PERFORMANCE: STAGFLATION
IMPOSED EMBARGOS ON IRAN
UN’s Security Council Embargos US Embargos EU Embargos Other Countries Embargos
www.finance.i
r
HARSHEST EMBARGOS IN HISTORY
Embargos on Products Embargos on Buyers Embargos on Sellers Embargos on Transport Embargos on Banks and other Financial
Institutions
www.finance.i
r
EMBARGOS: BARRIERS OF CONTRACTS
Product Embargos Insurance & Transportation Embargos Bank Embargos Self Determined Embargos
www.finance.i
r
PRODUCT EMBARGOS
Products of Dual-Use:1. Specific Alloys2. Petrochemical Catalysts3. Electronic Equipment's4. Hellion Gas For MRI5. Oxidized Water
www.finance.i
r
BEYOND PRODUCT EMBARGOS: BANK EMBARGOS
When Payment Methods Become Problematic, So Does
Buying and Selling
www.finance.i
r
INTERNATIONAL SANCTIONS
1. Approach: Mutual, Comprehensive, Long-Term, Step by Step and Coherent.
2. Context For Iran’s Nuclear Program: In Keeping with Iran’s Proclamation of It’s Commitment to Non-Military Nature of Its Nuclear Program: A Purification Program with Mutual Definition, Practical Limitations and Clarifying Arrangements Guaranteeing The Peaceful Nature of Iran’s Nuclear Program Which Would Allow Iran to Both Utilize Nuclear Energy and Maintain Its’ Obligations to NPT.
www.finance.i
r
INFLATIONARY PRESSURES
Hyperinflation: 2 Years Back over 5% a Month
www.finance.ir
INEVITABLE ENERGY REFORM
Cheap subsidized energy ended to high consumption rate, and low productivity
of industries
124 Million$
twice the size of current
year budget
ميليون بشکه در 700سال×100 $
ميليارد مترمکعب در 180سال×
30$ www.finance.ir
How it was implemented?Coincided with sanctionsCash subsidies: poor implementationDevaluation problemCould not save the energyAdding to budget deficit
Could not improve productivity
SUBSIDY REFORM
PETROL PRICES: TARGETING SUBSIDIES
ENERGY PRICE VS EXCHANGE RATE
Energy price is not independent
from exchange rate
www.finance.ir
ENERGY PRICE & EXCHANGE REGIME
Formal vs Market Rate of Exchange: Rent
(payment to a factor of production in excess of
its opportunity cost) & Corruption
www.finance.ir
LAST THREE YEARS PERFORMANCE
CRUDE OIL PRODUCTION
RECESSION ESTEEMING FROM LESS GOVERNMENT EXPENDING
www.finance.ir
HOUSING MARKET
A lot of new projects; 750 units every year and 30% in Tehran
www.finance.ir
HOUSING MARKET: SUPPLY SIDE
Built more than the plan: inappropriate distribution;
over-built in large cities
www.finance.ir
HOUSING MARKET: DEMAND SIDE
Still 1 million housing units in demand every year
due to household growth rate, high divorce rate,
and informal settlements
www.finance.ir
SOCIAL HOUSING: MASKAN MEHR
Starting to build 2.2 million social housing units in 2007
Financing the project by borrowing from the central bank increasing M1 by 60%
It could not be finance like that any moreProblem at hand
Maskan Mehr
Reduction of labor participation rate3.5 million unemployedMajor difference of male & female unemployment ratesMajor difference of unemployment rates across age groups5 million students: the army of unemployment
Current Labor Market
EXPORT
Iranian Major Non-Oil Export Items
www.finance.ir
Growth Rate of Iranian Economy: Two Scenarios
Inflation Rate Forecast: Two Scenarios
Oil Production Forecast: Two Scenarios