According to the 2018 Index of Economic Freedom, Iran boasts of an economic freedom score of 50.9. The economy of Iran is ranked as the 156th freest index in 2018. 50.9 is an increase of 0.4 points from the previous year of 2017 (Heritage Foundation, 2018). Despite the improvement, the country still lags behind as it is ranked at position thirteen out of the all the fourteen countries in the Middle East and North Africa region. This is below the expected regional and global averages (Heritage Foundation, 2018). In Iran, the top personal income tax is 35.1% while the high corporate tax rate is 25.0%. The overall tax burden is 7.15% of all domestic income inclusive of the tax collected from property transfers.
In the span of the past three years, the government expenditure has totaled to 17.21% of the total output (GDP) (Heritage Foundation, 2018). The high expenditure has resulted in budget deficits which have averaged to 1.9% of the GDP and a public debt of 35.0% of the GDP. The importance of trade to the economy of Iran cannot be underestimated as it results in 39% of the GDP. The average applied tariff rate is 15.24%, and nontariff barriers are impediments to business activities (Heritage Foundation, 2018). The cost of transacting business in Iran is relatively high due to unfavorable government policies such as production caps which limit foreign investment (Heritage Foundation, 2018). The government of Iran also controls limit businesses’ access to financing and dictates credit allocation and terms.
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It is evident that Iran has continued to enjoy robust economic growth over the last ten years due to the rise in oil prices. As will be observed from the figure provided, it can be concluded that there has been a growth in the GDE and increased in income as a result of the end of the Iraq war. According to World Bank, the current measure of the per capita income is close to what is used to be in the 1970s when Iraq enjoyed economic dominance and stability (World Bank, 2017). It is estimated that if the current trend of 3% per capita continues, then the living standards of most Iranians should be twice what it currently is in the next generation (World Bank, 2017).
Unemployment in Iran is very high as the government has failed to develop an effective plan of providing jobs for most unemployed youth. According to the population census conducted in the recent past, the rate of unemployment in Iran is 12.8%. 12.8% is the average figure that caters to people below and above the age of 30 years (Salehi-Isfahani, 2008). It was also revealed that more 20% of the young male people are unemployed while the rate of unemployment in the young females is twice that of their male counterparts. In summary, 4 out of every five unemployed people are below the age of 30 years, which is utterly devastating.
Inflation is still on the rise as the prices of goods and services continue to skyrocket (Trading Economics, 2018). In Iran, the cost of consumer goods increased by 9.7% year-on-year in January 2018 which is a 10% decrease from the previous month of the same year (Trading Economics, 2018).
The medical and housing sectors are the most affected by the prices have risen to alarming levels. These services are both income elastic and cannot be imported. It means that as the income increases, so do the prices of medical and housing services. It also says that they rise faster than the cost of other goods. Although the inflation rate of housing and utilities decreased from 9.2% in January 2017 to 8.8% in 2018, it is still high (Trading Economics, 2018). The price of clothing has reduced due to the importation of cheap clothes from China. Despite the fact that most industries in Iran such as the textile industries are not modernized, they still would not be able to compete with China which has lower labor costs as compared to Iran. Regulation of the expenditure of oil earnings would mean the application of the sophisticated fiscal policy which would help avoid inflation (Trading Economics, 2018). In so doing, the industries that might be sustainable in the end when the prices of oil slide back to a standard level will be protected (Trading Economics, 2018). Unfortunately, this is not the case in Iran, as the government continues to play populist politics by allowing the entrance of too much oil into the economy. As a result, the prices of land, medical care, housing and other essential goods continue to rise.
References
Djavad Salehi Isfahani. (2016, July 29). Iran’s Economy: Short Term Performance and Long Term Potential. Retrieved from https://www.brookings.edu/on-the-record/irans-economy-short-term-performance-and-long-term-potential/
The Heritage Foundation. (2018). Iran Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. Retrieved from https://www.heritage.org/index/country/iran
Trading Economics. (2018, March 22). Iran Inflation Rate | 1957-2018 | Data | Chart | Calendar | Forecast | News. Retrieved from https://tradingeconomics.com/iran/inflation-cpi
World Bank Group. (2017). Iran Economic Monitor. Retrieved from http://documents.worldbank.org/curated/en/344651498863986174/pdf/117165-WP-P162048-OUO-9-P162048-Iran-Economic-Monitor-FINAL-web-Jun-29-2017.pdf
