Iran’s Economy Suffers From Accumulated Shocks

Iranian government efforts to confront the country’s worsening economic crisis have backfired and things are likely to get worse
Iranian government efforts to confront the country’s worsening economic crisis have backfired and things are likely to get worse

Published by the state-run media Shahrvand, we will write some of the parts of his speeches.

At the meeting, economist Ali Saedvandi discussed Iran’s macroeconomic environment, referring to the pains that have plagued the country’s economy and said: “By examining the economic history of the country in all the years after the revolution, it is now clear that the economy of the country is suffering from accumulated shock, and the destructive power of this subject on the economy is more effective than anything else.”

With an example, he explained: “Small earthquakes have very limited destructive power, but if the impact of small earthquakes is condensed, we will eventually face a very large earthquake, which is what the Iranian economy is experiencing, so that small economic shocks are accumulated without resolving it and this is still ongoing.”

“One of the economic shocks in the country is inflation. Keep in mind that if for five consecutive years the inflation rate should be below 10 percent of the normal rate of Iran’s today’s economy which is 20 percent, is suppressed, and then this latent inflation is suddenly released, it will not result in a 50 percent inflation rate, but unfortunately, the possibility that we face a super-inflation is very high, and this danger today is a direct threat an Iran’s economy.”

“Shocks accumulated over the years from 2014 to 2019 as well as delaying inflation rather than resolving it had happened, while much of this inflationary energy released in years 2018 and 2019, with the remainder, will be discharged next year and with the government’s inflationary budget which its sent to the parliament, we cannot hope that the inflation rate in 2020 will be not significant.”

He also reiterated the issue of the proposed budget for the coming year: “If the proposed budget is adopted with the same icon, we should expect the government will stop its civil and infrastructure activities to stabilize the current budget at the expense of the elimination of the development and construction budget to reduce its deficit. And because of sanctions that have led to lower oil revenues, the government will have to suspend foreign infrastructure contracts, construction, and its buy services.”

“The government will also be obliged to divest a significant portion of its movable and immovable assets, also, the share of transfers of financial assets or securities from government revenues will increase and will use any other means necessary to offset the budget deficit. Combining these with other struggles of the Iranian economy, we cannot have hope to Iran’s economy in 2020.”

He also said: “The pain is that structural reform is said to have occurred in budgeting but in practice, the budgeting process has been repeated in the past. Structural reform in the budget will occur when the government budget is separated from the central bank budget, but in practice, this is not the case.”

Ponzi scheme in the ambush of the Banks

While criticizing the behavior of the central bank, he said: “The central bank outlines a positive path in announcing its policies and announcements, but not in practice, and the output does not match the positive outlined environment. It is also possible that the central bank with this procedure suggests the banks follow the ‘Ponzi Scheme’.”

“Also, the trend taken by the central bank creates the possibility that, given the current economic situation, the granting of facilities will be slowed or even stopped, and together with these factors we will see a recession in the real sector of the country’s economy.”

The 28 percent ascending process of the country’s liquidity in November 2019 and the growth of the country’s monetary base reminds us that if depositors take even a small amount of quasi-money or bank deposits to make a profit from the banks and to get to other markets, we have to wait for increased liquidity and inflation, which is not unlikely. In the past two years, we have seen that only three percent of quasi-money has been converted into currency and the currency rate has tripled since then.”

In the years 2016-2017, the liquidity rate has increased 1.6 percent monthly; in 2018, two percent; and in 2019, 2.25 percent and by analyzing this trend and taking into account the monetary and inflation variables, the volume of liquidity will increase by 25 to 30 percent in 2020.

This is at a time when next year’s economic growth rate will be zero in the most optimistic way that seems to be out of reach, and the difference between liquidity growth and economic growth will not yield good results.

Read more:

Iran: The Hidden Part of the 2020–2021 Budget