A new Iranian year commenced on March 21, 2013 (1392 in the Iranian calendar). The consensus among experts on the Iranian economy is that the previous year (1391) had witnessed the deepest economic crisis in Iran since the end of the Iran-Iraq war in 1988.  As such, both the business community and the society at large hope for an economic upturn — something that has been echoed by Ayatollah Ali Khamenei in his New Year speech when he dubbed 1392 as the “Year of Economic and Political Epics.”    

But can Iran realistically move out of the current state of economic decline and embark on a new phase of growth? In other words, which economic challenges would be on the agenda of Iran’s government beyond President Mahmoud Ahmadinejad and how could a new government resolve the key issues?

The top priority of the new government will be to contain inflation. According to Central Bank of Iran (CBI), annual inflation hit 32% at the end of the Iranian year. The high inflation is a direct consequence of misplaced government and CBI policies in three inter-related areas — liquidity growth, foreign exchange and subsidy reforms. The CBI is now taking steps to discontinue the lowest exchange rate and consolidate the value of the Iranian currency about 25,000 rials to the US dollar. Considering that the inflationary impacts of the rial devaluation will continue for a while and also that subsidy reforms would have to be pursued by the new administration, the main instrument of containing inflation will be to manage liquidity (or money supply) more efficiently. In the past few years, money supply has grown by an average of about 20% per annum – a phenomenon that has reinforced inflationary pressures.  To contain the growth of money supply, CBI and the government need to focus on non-cash instruments such as utilization of debit cards (designed to be used in dedicated outlets) rather than cash transfers to distribute handouts to recipients.

Another alarming economic indicator is the current level of unemployment. Official statistics put unemployment at 14%, while independent economists believe that 20% of the Iranian workforce is unemployed. The difference can partly be explained through the mismatch between available jobs versus available expertise in the market. Nonetheless, it's a challenging socio-economic phenomenon, especially when one considers youth unemployment standing at 27%.  The outlook for unemployment under current policies is bleak. The prospect of new job creation is hampered by subsidy reforms (higher energy costs), sanctions (undermining the operations of many private sector companies), privatization (which leads to redundancies in the short term), corruption and domestic political uncertainties. The only positive development in the field of unemployment could emerge from the rial devaluation that has made Iranian products more competitive domestically (versus imports) and externally. The consequent promotion of the Iranian industry could help create jobs, but this new opportunity has emerged at a time when local companies are most vulnerable because of the negative phenomena mentioned above.