In its latest review of Iran, the World Bank has forecast a period of
stagflation in medium term for the Iranian economy. The WBís reason for this
forecast is the continued decline in oil output over the next year, and
escalation of external shocks of the Iranian economy.
Accordingly, the average growth rate of Iranís economy for the calendar
years 1397 and 1398 is projected to decline by 2%, before it returns to its
boom in the coming years. According to the forecast, Iranís inflation rate
will reach 30 percent by the end of the calendar year 1397 (20 March 2019).
Due to the effect of depreciation of the local currency (rial), the
inflation rate will continue to rise this year.
Furthermore, with the continued decline in government revenues - due to the
reduction in tax revenues resulting from the recession in economic
activities and cut in oil exports - the governmentís fiscal deficit will
continue to drop.
In the foreign sector, the decline in exports in both sectors of goods and
services will cause the trade surplus in the Iranian economy go down and
reach very low levels in the upcoming years. The shrinking of the current
account balance along with the expectation of exacerbating outflow in
financial accounts creates challenges for the Central Bank of Iran to
maintain the value of the local currency and control the inflation.
The decline in real GDP per capita due to the increase in inflation from
various channels - including the labor market and the weakening of the value
of the cash subsidies - exacerbates poverty in Iran. Accordingly, the WB has
forecast that the trend of rising poverty in Iran would continue to reach
12.8% by 2021. Of course, a more precise trend in poverty depends on the
policy response of the government. In this regard, increasing the amount of
cash subsidies, along with the introduction of more precise targeting
mechanisms can help the poor population at risk of economic and social
Risks and Challenges
The assumption for the mid-term outlook of the Iranian economy is based on
continuation of oil exports at a level of at least one million barrels per
day in the coming years. The continuation of the trade of non-oil
commodities needed for economic activities facilitated by banks is another
assumption in this forecast.
Of course, these assumptions are faced with negative risks. Among these
risks is the export of oil below the expected levels due to the escalation
of the US sanctions or falling demand from Iranís trading partners,
especially from traditional partners such as China, India, Russia, Turkey
and Iraq. Further restrictions on foreign trade, barter chambers of trade
and debts can also increase the cost of financing and inflationary