Iran’s ambitious goal of achieving 8% economic growth, as outlined in its Seventh Development Plan, has come under scrutiny from economic experts and officials. Mehdi Sadeghi Niaraki, the vice president of the Iranian Chamber of Commerce, has raised significant doubts about the feasibility of this target, highlighting the enormous financial challenges the country faces.
Speaking at a meeting of the Tehran Chamber of Commerce on August 13, Niaraki stated that reaching the 8% growth target would require an astronomical investment of approximately $83.4 trillion (five quintillion tomans). To put this figure into perspective, he explained that achieving such growth would necessitate an annual investment of $100 billion. However, the total lending capacity of Iran’s banks and financial institutions in 2023 was only about $93.5 million (5,500 billion tomans), illustrating the vast gap between the country’s financial capabilities and its economic aspirations.
The economic landscape in Iran appears even more challenging when considering recent financial data. Niaraki revealed that according to the Central Bank, Iran’s net foreign exchange account was negative by about $15 billion in the first nine months of 2022. This deficit underscores the country’s struggle to maintain a positive balance in its international financial dealings. Furthermore, foreign investment in Iran has remained modest, with an average of only $1.5 billion annually between 2011 and 2022, indicating a lack of international confidence in the Iranian economy.
The state-run website Tejarat News has also questioned the logic behind the 8% growth target. The website pointed out that even a more modest 4.5% economic growth would require a 15% investment growth, a figure that seems out of reach given Iran’s economic history. To highlight the improbability of achieving such growth, Tejarat News noted that Iran’s economy has never experienced investment growth exceeding 7%, making the 8% target appear particularly unrealistic.
While Iran’s Central Bank reported an average economic growth rate of 4.3% from 2021 to 2023, experts caution against interpreting this as a sign of sustainable economic progress. The total economic growth over these three years amounted to about 13%, meaning that the gross domestic product at the end of 2023 had grown by 13% compared to 2020. However, economists argue that this growth appears to be driven primarily by short-term factors, particularly oil exports, rather than long-term, structural improvements in the economy.
Several key concerns have been highlighted in the analysis of Iran’s economic situation:
- High capital-to-production ratio: At 3.75, this figure indicates low capital productivity in Iran’s economy, suggesting inefficiencies in how capital is utilized across various sectors.
- Negative growth in capital stock: Both the oil and gas sector and the industrial sector have experienced negative growth in their capital stock. This means that the amount of capital in these crucial sectors has been decreasing annually, contradicting the notion of sustainable growth.
- Oil-dependent growth: The economic growth appears to be primarily driven by currency fluctuations resulting from crude oil exports. This source of growth is considered unstable and highly dependent on external factors such as global oil prices and geopolitical situations.
- Sectoral disparities: In the winter of 2023, the Iranian Statistics Center reported negative growth (-7%) in industries and mines (excluding oil) and minimal growth (0.6%) in the agricultural sector. In contrast, the oil sector experienced a growth of 14.7%, further emphasizing the economy’s reliance on crude oil sales.
- Services sector stagnation: The growth rate of the service sector was reported at a modest 1.5%, indicating limited expansion in this crucial area of the modern economy.
- Industrial production decline: The Parliament Research Center has reported a downward trend in industrial production, based on data from companies registered in the stock market. This decline in a key productive sector raises concerns about the overall health of the economy.
Experts argue that the proposed 8% growth target in the Seventh Development Plan appears to lack a solid foundation in economic realities. They suggest that the plan’s authors may not fully grasp the complexities of Iran’s economy, its growth drivers, and its actual capacities. The disparity between the ambitious target and the country’s economic performance history raises questions about the planning process and the expertise of those setting these goals.
To put the challenge in perspective, achieving even a 1.7% economic growth would require a 1.7% growth in capital stock, necessitating a 4.5% growth in investment. The leap to an 8% target, therefore, seems to be disconnected from Iran’s economic realities and historical performance.
The nature of Iran’s recent economic growth also raises concerns about its sustainability. The increase in GDP over the past three years has been largely allocated to household expenses (13.5%), with little change in government expenses and investment. This pattern suggests that the growth is not being channeled into productive sectors that could drive long-term economic development.
Furthermore, the heavy reliance on oil exports as a growth driver is problematic. For this source of growth to continue, either exports must increase or oil prices must rise, neither of which can be guaranteed considering global market dynamics and geopolitical factors. This underscores the political, rather than economic, nature of Iran’s current growth trajectory.
