Can the new Iranian President Raisi solve the troubled economy? | Bank News

Tehran, Iran – Ebrahim Raisi, who will be sworn in as Iran’s eighth president on Thursday, has inherited a troubled economy whose fate is intertwined with political turmoil.

The “revolutionary” government he promised to form faces the daunting task of repairing an economy suffering from a harmful combination of US sanctions, the COVID-19 pandemic, and structural problems that have been affected by decades of mismanagement.

Inflation makes daily life of Iranians more and more difficult. This is an inevitable economic difficulty. Many Iranian economists and analysts predict that the inflation rate will remain above 40% until at least later this year.

At the same time, the central bank has set an annual inflation target of 22% for the previous and current Iranian calendar year (as of March 2022).

“Unfortunately, today we are on the verge of a severe and uncontrollable inflation situation,” economist Massoud Neely warned in a meeting with economists. Reisi According to a government press release, in early July.

According to a report from the Department of Labor, food inflation exceeded the “crisis” threshold in the month ended June 21, and the prices of staple foods such as meat, rice, and fruit increased by at least 24% annually.

Other food necessities even exceed this number. The prices of butter, chicken, and liquid oil have soared by 121%, 118%, and 89% respectively in the past year.

As economies scaled back COVID-19 restrictions and restarted operations, causing supply bottlenecks, global food prices have soared this year.

But this will only exacerbate Iran’s inflation problem before the pandemic.

The “revolutionary” government that Raisi promised to form is faced with a daunting task to solve an economy that is a harmful combination of US sanctions, the COVID-19 pandemic, and structural problems that have emerged after decades of mismanagement [File: Majid Asgaripour/Reuters]

The rapid growth of the money supply has always been the main culprit in pushing the Iranian rial to depreciate, especially when US sanctions prevent the country from acquiring its own currency reserves.

The US sanctions have also effectively excluded Iran from the global economy, cutting oil revenues and revenues. As the administration of former US President Donald Trump blacklisted Iran one after another, the government of former President Hassan Rouhani continued to rely on the central bank to print more currency.

Since the Trump administration unilaterally abandoned Iran’s 2015 nuclear agreement with world powers in 2018, and began to exert maximum pressure to hinder the country’s economy, Iranian officials have Promise to introduce “Structural reforms” have divorced the country’s excessively strained budget from oil revenues.

But even if the government is accused of supporting its finances by encouraging ordinary Iranians to jump into the bursting stock market bubble, it still faces a huge budget deficit, believed to be as high as 3 trillion riyals ($12 billion). The current fiscal year ending March 2022.

At the same time, according to data from the Central Bank, the unemployment rate for all workers in the calendar year ending in March was 9.6%, and the unemployment rate for youths between the ages of 18 and 35 was 16.7%.

Inflation, as well as inequality, corruption, and housing issues are all issues that surfaced during this period. Presidential Debate on TV In June.

Supporters of Ebrahim Raisi celebrate his presidential election victory in Tehran, Iran, June 19 [File: Majid Asgaripour/West Asia News Agency via Reuters]

Raisi pledged to build 4 million houses within four years to ease the housing contraction, reform the outdated banking system, create 1 million jobs every year, and reduce the inflation rate by half, and then gradually reduce it to single digits.

His predecessors made similar promises, but they largely failed to deliver.

JCPOA factors

Iran said that relying on its doctrine of “resistance economy” to promote local production, it has largely withstood the storm of US sanctions and the deadliest epidemic in the Middle East.

The Central Bank claimed that the economy grew by 3.6% in the previous calendar year to the end of March.

But even the hardliners who have criticized the total failure of the nuclear agreement for many years have said that the agreement must be restored to lift US sanctions.

Raisi also promised to form a “strong” government that will be able to force the West to make concessions in negotiations on the Joint Comprehensive Plan of Action (JCPOA), as the nuclear agreement is officially known, and permanently lift US sanctions.

However, even if the nuclear agreement is restored with little or no change to the original text, economist Messam Hashimhani said that the direct economic impact will be moderate.

“The whole world has witnessed Trump’s withdrawal from the JCPOA and will consider the risk of similar things happening again when dealing with Iran,” he told Al Jazeera.

U.S. sanctions effectively excluded Iran from the global economy, cutting oil revenue and revenue [File: Majid Asgaripour/West Asia News Agency via Reuters]

“Even if they might think Trump was wrong, they saw what happened. So now the JCPOA must remain stable for a few years before others can believe it is sustainable.”

However, in the short term, Hashim Hani believes that a full restoration of the nuclear agreement can prevent further damage to the country, especially as its troubled private companies face numerous challenges, including but not limited to the issue of remittances.

The government can sell more oil, but Hashim Hani said he is not optimistic that this will translate into a major improvement in an oil-dependent economy that has been dealing with similar structural issues for decades.

He said that in the long run, Iran should use the opportunity brought by the resumption of the nuclear agreement to prevent itself from the possibility of another collapse.

“Iran must establish a strategic alliance with countries in the region in the form of a long-term trade agreement that lasts at least 15 years,” he said.

On June 18, during the presidential election in Tehran, Iran, voters hold their documents while queuing at the polling station [File: Majid Asgaripour/West Asia News Agency via Reuters]

He added that through these agreements, as well as the promotion of tourism and investment transactions, regional interests will become so intertwined that the United States must think twice before considering another violation of the JCPOA.

Hashemkhani also believes that solving long-term problems such as budget deficits and inflation has nothing to do with sanctions and can be remedied by policy changes, such as the abolition of Artificial exchange rate for imports And similar measures that encourage rent-seeking activities and waste billions of dollars every year.

He said, for example, neighboring Iraq and Afghanistan are facing greater crises and continued instability, but the inflation rate remains in the single digits.

“In contrast,” he said, “Iran’s inflation rate averaged 15% during the three-year period when the JCPOA came into effect.”