Free Web Hosting Provider - Web Hosting - E-commerce - High Speed Internet - Free Web Page
Search the Web

Iranian Economy in 2000: An Outlook

Hammihan (Morning Daily)
Apr. 8, 2000, Vol. 1, No. 33
By: Bayazid Mardoukhi

Summary: Basic political changes in Iran have paved the ground for structural and institutional reforms in the administrative system of the country. These changes can depict inspiring outlooks in the area of economy. These changes would certainly not bring about major reforms in the short run. Nevertheless, Iran's economic outlook in the year 2000 is expected to be by far better than the previous two years. The fulfillment of a growth rate of 4.5 percent in gross domestic product (GDP) and the rise of non-oil exports to over 4 billion dollars are among such predicted achievements.

Text: In 1377 (1998), the Iranian economy, including the oil sector, attained an unenviable growth rate of 1.6 percent. This figure indicates a drop of 72 percent in comparison with the 5.8 percent growth rate for the year 1376 (1997). The non-oil economic growth rate of 2.1 percent in 1998 fell by 60 percent in regard with the similar figure of 5.2 percent in 1997. The fall in crude oil prices and the maturity of foreign debts were among the major reasons for the retardation of economic growth in 1998.

The forecasts made by the Plan and Budget Organization (PBO) regarding the country's economic growth are relatively favorable for the past Iranian year (March 21, 1999 - March 20, 2000). According to these forecasts, the country's gross domestic product (GDP) growth, including the oil sector, would rise to 2.5 in the aforementioned year, and the figure would be 2.4 percent if we exclude the oil sector. Fixed capital formation in 1998 relative to 1997 fell by 6.3 percent. This indictor speaks of worsening of its 0.2 percent drop in 1997.

The share of capital formation in the country's GDP in 1997 was equivalent to 16.2 percent, which unbelievably nose-dived to 14.9 percent in 1998. The PBO predictions for the last fiscal year provide for a favorable 4 percent growth in the fixed capital formation in Iran. Consequently, the capital formation share in the country's GDP should show a small improvement and reach 15.1 percent. This incremental growth rate is still far away from the required and expected levels in the Second Plan.

Examination of these two macro-variables in the country's economy signifies the fact that the IRI's economy has been for a relatively long time suffering from chronicle disease which is incompatibility of government organs, structures and policies with economic development and growth. Inconsequential improvements in these two highly important key indicators do seem to have originated from accidental and fluctuating variations in oil revenues in some odd years. In fact the Iranian economic system plunged into crisis in 1997, 1998 and 1999 and this protracted crisis had deprived the country's economy of a sound and robust health. The said crisis failed to respond to the implementation of the Second Plan's policies and the approaches in the prescription of the plan for rejuvenation of the country's economy. If there is an imaginable hope for restraining the economic crisis or rather stagflation according to economists, then these measures should be looked for in all out and fundamental reforms as well as infrastructural ones. These reforms should bring about tremendous changes in the present inefficient government organs, structures, policies and strategies.

It seems as though that the country's third economic plan has been practically prepared and drawn up to make these hopes for changes come true. Contrary to previous and customary development plans, the focus on appearances are to be changed to the focus on fundamentals as well as making and thorough revision in them. The present condition according to the knowledgeable scientist, Dr. Javad Tabatabaie, spells a fundamental dead end, which requires a solution to the problem of foundations. There is no other imaginable way out of this problem. Any other solution with disregard for the aforementioned is doomed to fail.

The year 2,000 is an exceptional year for the Iranian economy. The new Iranian parliament members will probably be at the head of the affairs while enjoying a different composition, the new five year plan with its emphasis on basic and structural reforms will take over to lead the society's economic, social, and cultural affairs. Highly fundamental and basic functions will be placed on the economic agenda. Naturally, success in any of the above functions depends on achievement of fundamental and structural reforms in the administrative and judicial systems of the country.

The year 2,000 can only be the year for a halt in the hazardous economic trends (which are the trends of decreasing economic growth, increasing inflation rate, decreasing capital formation rate, and increasing unemployment rate) under the best of conditions. The expectation of a miracle to take place in this year and the favorable trends to begin to move at a quicker pace is far from anybody's expectation because:

1. A change in priorities is hardly possible. The Iranian market, with its traditional enterprising trading, as well as its untouched power bases, would in all probability demand a lion share of the country's resources and facilities. Production and investment to produce will probably given more lip service.
2. The forested basic and fundamental reforms in the Third Plan are badly in need of new legislations, organizational reshuffles, justifications and education, which would swamp most of the policy making governmental offices and the Islamic Consultative Assembly (Parliament) in hard work. The resulting benefits will however, be reaped in later years.
3. Solicitation of financial investments and expert manpower for productive investments would definitely depend on such confidence buildings which would bear fruit gradually and the resulting outcomes would not translate into rising production and still more investment within a short period of a single year.

According to forecasts made by the PBO the country's GDP growth rate in the year 2,000 would amount to 4.5 percent. The main responsible factors for this growth would be the economic productive sectors and the services sector. In the same breath, the oil sector would have a negative growth rate.

The forecast for growth rates of different economic sectors for the year 2,000 in realization of 4.5 percent growth rate in the GDP are enumerated in the table below.

According to these forecasts, the country's aggregate non-oil revenues in the year 2,000 would amount to 4.581 billion dollars and the aggregate imports would reach 16.280 billion dollars. These figures translate into a trade deficit of 11.700 billion dollars in consideration of only non-oil commodities. The balance (deficit) should then be offset by revenues generated from the export of oil and other resources of the country. The non-oil share of the country's aggregate exports is to increase from 24.4 percent in 1999 to 27.9 percent in 2,000. The revenues generated from the exports of non-oil goods and services in 1999 could pay for about 28.3 percent of the aggregate imports of the country. However, the aforementioned exports should be able to cover for 28.1 percent of the aggregate imports of country in 2,000.

Sources for statistics and figures: The economic report of 1999 by the PBO
Forecast for Economic Growth in 2,000 and Sources to Be Used