Events | Number 5, June 2004 | Iran’s Economy in 2003-2004

Iran’s Economy in
2003-2004

In the Iranian year 1382 (ending March 19th 2004) Iran faced many large and small crises, some of which like the US threats with respect to Iran’s nuclear facilities, came from the outside and some, like the Bam earthquake disaster, from within.

The highlights of the country’s economic developments during that year are indicated below:

The country managed to attain a rate of growth of GDP of 5.6%, about the same as in the year before.

A stable oil market allowed the country to increase its exchange reserves by 5.6b USD.

However, a slower than envisaged pace of privatization and lower tax earnings than considered in the budget,

ft the budget with a deficit of 2000 billion toomans (840 t=1USD).

The very open Foreign Investment Act did not succeed to attract as much investment as had been hoped. Even so it reached 2b USD, three times the figure for the previous year.

Iran’s 16th request to be admitted into WTO was rejected.

Azadegan oil field, which is shared with Iraq, was contracted with the Japanese who are investing 3b USD in the project.

Efforts towards establishing a “swap trade” of oil with Central Asian countries were finally fruitful. According to this arrangement Iran receives oil from these countries, which it uses in its refineries in the north, and delivers equal amounts of oil from Kharg Island in the south to international buyers of oil.

The discovery of oil reserves in the deserts of central Iran has encouraged the nation to look for oil in areas hitherto neglected in this regard.

A 2b USD contract was signed by Iran with Total of France and Petronas of Malaysia for the extraction of natural gas.

The government’s efforts to reduce contraband imports were quite effective. Official imports of cigarettes have, as a result, increased from 500,000 in 2000-2001 to 13 billion cigarettes in the first seven months of 2003, the government’s income from cigarettes thus rising from 800 million toomans to 55 billions.

The high rate of unemployment remains a nightmare for the Iranian authorities. Every year 700,000 people enter the labor market and remain jobless. To find a remedy Iran has resorted to the UN as well as the International Labor Organization. Furthermore, agreements have been signed with South Korea, Australia, Qatar, Kuwait and the UAE in this regard. The issue has also resulted in a brain-drain that is itself another cause for concern.

The country’s airports can handle 59 million passengers a year but in 2003-2004 only 20 million passengers traveled by air in Iran, which means that the Iranian air travel industry is facing a serious problem.

In the year under study the number of auto vehicles produced in the country rose to 700,000 from 500,000 in the previous year. It is expected to further rise to 900,000 in the current year. However, the country still has difficulties exporting vehicles.

There is a crisis concerning gasoline which is partly imported. The government may have to ration its use and/or increase its price.

The stock market flourished in the year under study particularly with the opening of Tabriz and Isfahan stock exchanges. The relevant authorities are considering some restriction to avoid unreasonable rises in the value of stocks.

Another crisis that Iran is facing is the large number of projects that remain incomplete. According to some source 8,000 national and 45,000 provincial projects remain incomplete some of which were begun after the end of Iran-Iraq war. The average duration of completion of these projects is 10 years and experts maintain that if such projects cannot be completed within 3 years maximum, they will not be economically feasible. According to Mr Mohammad Sattarifar, the Head of Management and Planning Organization (M&PO), to complete the national projects requires an investment of 35,000 billion toomans and that is only for the national projects. The major reason for the delays in the past has always been the same, that is a budget deficit every year.

The 10-year perspective for the future of Iran’s economy
During autumn and winter of 2003-2004, the M&PO of Iran made a survey of the possibilities for the next 25 years and, based on the results, prepared a report on the economic condition of the country 10 years from now.
The most interesting point was that Iran could not possibly survive without joining the world economy. The same report predicts that if Iran joins the world economy the rate of unemployment might rise from 5.17% to 7% but inflation will subside from 22% to 5%.