The economic landscape of Iran in 2023 is etched in the memory of its citizens primarily through one overarching theme: inflation. During this period, a surge in prices was intricately linked to the sudden devaluation of the rial, leading to a general decline in the purchasing power of Iranians.
The socioeconomic divide in Iran has witnessed a marked increase. This heightened inflation, coupled with numerous challenges in housing, rent, and the provisioning of basic necessities, has significantly elevated the pressure on the everyday lives of Iranians.
Challenges in the agricultural and animal husbandry sectors, as well as other economic domains, have compounded these struggles, resulting in a disconcerting imbalance between income and expenditures.
In simpler terms, the incomes of families are increasingly unable to meet the growing costs of living, leading to a reduction in the overall quality of life.
One glaring issue contributing to these disparities is the lack of effective wealth redistribution systems within Iran.
The banking, tax, and subsidy systems lack the necessary mechanisms for equitable wealth distribution, contributing to the accumulation of wealth, a trend confirmed by global statistics. Rent and corruption further amplify these inequalities, exacerbated by a lack of meritocracy.
In essence, the evidence points towards a widening class divide that is eroding the middle class. To bridge this gap, fundamental reforms in wealth redistribution systems are imperative for the stability and well-being of the society.
Addressing the issue of inflation is crucial for rectifying macroeconomic imbalances in Iran. The country is grappling with a myriad of conflicts, some deeply rooted in history, others more recent.
Without resolving these issues, curbing inflation is an insurmountable challenge. The pace of macroeconomic imbalances has surpassed the rate of actions and constructions in Iran’s economy, presenting a precarious scenario.
Iran finds itself among the top five countries with the highest inflation rates. Over the last five years, the average inflation rate has exceeded 40%, with long-term inflation hovering around 20%.
While external factors, such as sanctions, contribute to some of the inflationary pressures, structural deficiencies within Iran’s economy play a substantial role.
The continuation of the current inflationary situation poses a significant threat, potentially leading to the complete erosion of the middle class and transforming Iran into a dual-class society, characterized by prosperity and poverty.
In an article published on January 30, the National Council Resistance of Iran (NCRI) wrote:
“Skyrocketing inflation in Iran has taken a significant toll on the country’s economy and its citizens’ well-being. According to a recent report by the Central Bank of Iran, the annual inflation rate reached 55.7% in April 2023, the highest level in decades. The consequential rise in prices has eroded the purchasing power of ordinary Iranians, making it increasingly difficult for them to afford basic necessities such as food, housing, and healthcare.”
The ramifications of high inflation are evident in the drastic depreciation of Iran’s national currency, the rial, which is now considered one of the world’s weakest currencies.
This depreciation has unleashed a cascade of economic problems with potentially irreparable consequences.
Effective reforms to address inflation necessitate comprehensive measures to rectify the imbalances inherent in Iran’s economy.
Unfortunately, disharmony persists across various sectors, including energy, water, budget, pension funds, banking, and the capital account.
Until these imbalances are effectively addressed, the challenge of curbing inflation remains daunting.
Over the last decade, Iran has witnessed minimal economic growth, and in a pessimistic view, the growth in the 2010s was negative. A prolonged absence of economic growth signifies a failure of economic policies.
Capital formation in the country has witnessed a steep decline, resulting in significant wear and tear, particularly in infrastructure.
The economy is grappling not only with challenges in infrastructure and services but also with obsolescence.
The public transportation system is dependent and antiquated, contributing to substantial costs for the country. Even within households, many appliances have become old and worn out.
Furthermore, the erosion of financial power within a large segment of the population has hindered investment opportunities.
This is exacerbated by the increasing gap between market prices and the salaries and wages paid, a gap that widens each day.
Consequently, the market for specialized goods, including steel and foreign production machinery, which require substantial investments, is stagnating.
This stagnation is having a domino effect on the production sector of the country, resulting in severe challenges.
