IRAN ECONOMIC MONITOR Adapting to the new normal: A protracted pandemic and ongoing sanctions Fall 2021 Middle East and North Africa Region Iran Economic Monitor Adapting to the new normal: A protracted pandemic and ongoing sanctions IRAN ECONOM Fall 2021 MONITO Middle East and North Africa Region Weatherin triple- © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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TABLE OF CONTENTS Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix ‫چکیده مدیریتی‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi 1.  Recent Economic and Policy Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Output and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Labor Market and Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Public Sector Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Monetary Policy and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Risks and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 List of Figures Figure 1 GDP Rebounded in 2020/21 and Q1-21/22… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 …Partially Reducing Iran’s Income Gap with Peers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3  Services and Oil Drove the Q1-21/22 Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 4 Iran Faced the Driest Year in Half-a-Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 5 Electricity and Water Shortages Impacted Industrial Production in Summer 2021 . . . . . . . . . . .5 Figure 6 The Rebound in GDP in Q1-21/22 Was Driven by Exports on the Expenditure Side . . . . . . . . . 5 Figure 7 The Pandemic Drove Economic Participation Down Further . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 8 The Labor Market Effects of the Pandemic Were Felt Differently across the Country . . . . . . . . . 7 Figure 9 The Employment Ratio Has Been Persistently Low in Iran Despite Having a Young Population… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 10 …and One of the Lowest Female Labor Participation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 11  Oil Revenues Have Plummeted to Historic Lows… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 iii Figure 12 Leading to a Widening Fiscal Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 13 Bond Issuance through Auctions Was Significantly Lower than 2020/21… . . . . . . . . . . . . . . . . 10 Figure 14 ...Even with Comparable Nominal Return Compared to other Assets in 8M-21/22 . . . . . . . . . .10 Figure 15 Inflationary Expectations Drove Higher Inflation… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 16 …and as the Rial Depreciated Further in 2021/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 17 Food and Beverages Were the Main Contributors to Inflation in 8M-21/22 . . . . . . . . . . . . . . . . 12 Figure 18 …while Producer Price Inflation also Peaked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Figure 19 Higher Government Debt to the Central Bank Drove Monetary Balance Growth in Q1-21/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 20 Bank Credit Growth Accelerated in 2020/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 21 TSE Underwent Lower Volatility in 2021/22, Partly Reflecting Exchange Rate Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Figure 22 The CAB Registered a Surplus in Q1-21/22… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Figure 23 …as Oil Export Revenues Rebounded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 24 Non-Oil Exports to Traditional Partners Surged in H1-21/22…. . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 25 …and UAE Replaced China as the Largest Exporter to Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 List of Tables Table 1 Selected Economic and Financial Indicators, 2018/19–2023/24 . . . . . . . . . . . . . . . . . . . . . . . . 22 List of Boxes Box 1 Iran Grappled with Five Waves of COVID-19 Infections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Box 2 A Comparison of the New CBI GDP Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Box 3 Inflation and Exchange Rate Dynamics in Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 iv IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS ABBREVIATIONS AND ACRONYMS CAB Current account balance m/m Month-on-month CBI Central Bank of Iran NDFI National Development Fund of Iran COVID-19 Corona Virus Disease 2019 (Novel NIMA Unified system of foreign exchange Coronavirus) transactions (Persian acronym) CPI Consumer price inflation OPEC Organization of Petroleum Exporting ER Exchange rate Countries ERPT Exchange rate pass through PBO Plan and Budget Organization FX Foreign e PMI Purchasing Manager’s Index GDP Gross domestic product PPP Purchasing Power Parity ICCIMA Iran Chamber of Commerce, Industries, PRC Parliament Research Center Mines & Agriculture RHS Right-hand-side IEM Iran Economic Monitor q/q Quarter-on-quarter IMF WEO International Monetary Fund World SCI Statistical Centre of Iran Economic Outlook SOE State-owned enterprise IPI Industrial Production Index TEDPIX Tehran Stock Exchange main index IRICA Islamic Republic of Iran Customs TSE Tehran Stock Exchange Administration US(A) United States of America IRR Iranian Rial US$/USD United States Dollar kWh Kilowatt-hour WB WDI World Bank World Development LHS Left-hand-side Indicators database mbpd Million barrels per day WHO World Health Organization MBRI Monetary and Banking Research Institute y/y Year-on-year MENA Middle East and North Africa v PREFACE T he Iran Economic Monitor (IEM) provides Team Leader, MTI) and Razieh Zahedi (Consultant, an update on key economic developments MTI) under the general guidance of Saroj Kumar and policies. It examines these economic Jha (Regional Director), Eric Le Borgne (Practice developments and policies in a longer-term and global Manager, MTI), and Christos Kostopoulos (Lead context, and assesses their implications for the outlook Economist, MTI). Muna Abed Salim (Senior Program for the country. Its coverage has ranged from the macro- Assistant) print-produced the report. economy to financial markets to indicators of human The findings, interpretations, and conclusions welfare and development. It is intended for a wide expressed in this Monitor are those of World Bank audience, including policy makers, business leaders, staff and do not necessarily reflect the views of the financial market participants, and the community of Executive Board of the World Bank or the governments analysts and professionals engaged on Iran. they represent. The Iran Economic Monitor is a product of the For questions and comments on the content World Bank’s Global Practice for Macroeconomics, of this publication, please contact Majid Kazemi Trade and Investment (MTI) team within the Global (mkazemi@worldbank.org) or Eric Le Borgne Practice Group for Equitable Growth, Finance (eleborgne@worldbank.org). and Innovation (EFI). The ninth issue of the IEM The data cut-off date for this report was was prepared by Majid Kazemi (Economist, Task December 10, 2021. vii EXECUTIVE SUMMARY I ran’s economy is gradually recovering in 2020/21 was less pronounced compared to following a lost decade (2011–2020) of other countries due to less stringent COVID-19 negligible economic growth. Less stringent restrictions, lower dependency on highly affected COVID-19 restrictions, adaptation to the new normal— sectors such as tourism, oil recovery in the second reflected in a recovery in consumption, and more half of 2020/21, and a relatively lower economic base favorable oil sector conditions have driven a four- after two consecutive years of economic contraction quarter rebound after June 2020, albeit from a low following the reimposition of US sanctions. Real GDP base. The rebound was boosted by the rapid rollout in 2020/21 was at the same level as a decade ago of COVID-19 vaccines in the second half of 2021/22.1 while the country forwent the demographic window However, limited accessible foreign exchange of opportunity (a highly educated young population) reserves, due to ongoing US sanctions, have led to along with a period of high oil prices (2010–2014) and exchange rate volatility and a surge in inflation. The unemployment remained high at around 10 percent. economic rebound has also been predominantly The government fell short of meeting its jobless which coupled with high inflation has budget targets in the first four months of 2021/22 translated to declining household welfare, especially but managed to keep the deficit close to 2020/21 among the bottom income deciles who were also (in percent of GDP). Fiscal data for Apr-Aug 2021 disproportionately impacted by the pandemic. shows that while budget targets including for oil Meanwhile, adverse climate change events such as revenues were not met, oil revenues nonetheless droughts and record temperatures have led to water expanded from their record low levels (1.1 percent of shortages and energy blackouts which have brought GDP) in 2020/21. However, this met only 15 percent of the socio-economic urgency of these challenges to the budget revenue for the period. In light of these, the the fore. government adjusted expenditures which helped keep After exiting a two-year recession in the deficit-to-GDP ratio close to the 2020/21 rate. The 2020/21, Iran’s economy returned to some fiscal deficit in Apr-Aug 2021 was primarily financed growth in 2021/22. The relaxation in cross-border through bond issuance and withdrawal from the trade, better oil market conditions and non-stringent National Development Fund of Iran (NDFI) as planned COVID-19 related restrictions drove Iran’s economic rebound in the first quarter of 2021/22 which was driven by oil and services. The impact of the COVID-19 1 The Iranian calendar year starts on March 21 each year pandemic on gross domestic product (GDP) growth and ends on March 20 of the following year. ix sales of asset did not materialize. Iran’s relatively low Iran’s economic outlook is affected by the level of public debt—which is predominantly from COVID-19 pandemic and the demand prospects domestic sources—provides room for further debt from key export partners. Domestically, the initial issuance and help buffer some of the fiscal shocks. slow response with regards to COVID-19 immunization Inflation continued to surge in 2021/22 in the face of the large Delta variant wave is expected driven by inflationary expectations and further to dampen growth due to the scarring effects of the depreciation of the rial. In the absence of an effective pandemic and lingering threat of future waves of nominal anchor, inflation was driven by growing infection. Stricter COVID-19 containment measures inflationary expectations which had been subdued aimed to contain the spread alongside shortfalls after the US presidential elections and the start of in attracting new investment, due to negative real nuclear talks. This trend reversed after the pause in interest rates, will be additional headwinds to growth nuclear talks in June 2021 leading inflation to rise to in the outlook. Globally, slower growth in major trade 43 percent year-on-year (y/y) in Apr–Nov 2021. The partners such as China, together with ongoing US rial exchange rate against the dollar followed a similar sanctions on exports is also projected to weigh down trend to expectations but ultimately depreciated by on growth in both oil and non-oil sectors. As such, 18 percent (y/y) over Apr–Nov 2021 as restricted average GDP growth is projected to be modest, at access to foreign exchange reserves abroad limited under 3 percent per annum, in the medium term. the scope of direct interventions in the market. Major risks to Iran’s economic outlook relate Government borrowing from the banking system and to the course of the pandemic and the prospects sales of foreign assets to the central bank also led to of geopolitical developments. The emergence of high money supply growth, thereby reinforcing higher more infectious and deadly new variants of COVID-19 prices. High inflation and the loss of real disposable and subsequent containment measures would pose incomes have worsened households’ welfare. The a significant risk to the recovery in Iran’s economy pandemic also severely affected jobs and incomes in until full vaccination of a large share of the population many labor-intensive activities, including high-contact is achieved. Trade disruptions and weaker demand services and the informal sector. from neighboring countries such as Afghanistan and The current account balance (CAB) turned Iraq, the main source of accessible foreign exchange positive in 2021/22 as a surge in both oil and non- reserves, would also prove as a major headwind for oil exports outweighed the increase in imports. The growth and financing imports. The economy also recovery after the pandemic led to a sharp increase in remains vulnerable, albeit less than in the past, to oil and non-oil exports by 125 and 69 percent in Apr– future downturns in global oil prices. The mounting Jun 2021 (y/y), respectively. This led the CAB to register climate change challenges resulting in more severe a surplus for the first time since the pandemic despite water and energy shortages together with high imports also growing by 42 percent during the same inflation could further increase pressures on the most period. Other sources of external financing, namely vulnerable and add to social grievances. Upside foreign direct investment and portfolio investments risks relate to the possibility of sanctions relief which also remained muted due to US financial sanctions, could boost economic activity, as the economy has high inflation, and exchange rate volatility. chronically operated below potential capacity. x IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS ‫چکیده مدیریتی‬ ‫دولت در فصل اول سال ‪ ،1400‬نتوانست به اهداف بودجه خود دست‬ ‫اقتصاد ایران پس از سپری کردن یک دهه از دست‌رفته با رشد اقتصادی‬ ‫یابد‪ ،‬اما توانست کرسی بودجه (به نسبت تولید ناخالص داخلی) را‬ ‫ناچیز (‪ ، )2011–2020‬به تدریج در حال بهبودی است‪ .‬محدودیت‌های‬ ‫نزدیک به کرسی بودجه سال ‪ 1399‬نگه دارد‪ .‬داده‌های بودجه دولت‬ ‫مالیم‌تر‌ کووید–‪ ،19‬تطبیق با نُرم جدید (که در بهبود مرصف منعکس‬ ‫از فروردین تا تیرماه ‪ 1400‬نشان می‌دهد که هر چند اهداف بودجه‬ ‫شده است)‪ ،‬همراه با رشایط مناسب‌تر در بخش نفت‪ ،‬منجر به چهار فصل‬ ‫از جمله اهداف درآمدهای نفتی محقق نشده است‪ ،‬با این وجود‬ ‫پی‌درپی بهبود اقتصادی (هر چند از سطحی پایین) پس از فصل اول ‪1399‬‬ ‫درآمدهای نفتی از سطح پایین بی‌سابقه خود (‪ 1/1‬درصد از تولید‬ ‫شده است‪ .‬رونق اقتصادی با واکسیناسیون گسرتده کووید–‪ 19‬در نیمه دوم‬ ‫ناخالص داخلی) در سال ‪ 1399‬افزایش یافته است‪ .‬با این حال‪ ،‬این‬ ‫سال ‪ 1400‬تقویت شد‪ .‬با این حال‪ ،‬محدودیت ذخایر ارزی قابل دسرتس‪،‬‬ ‫میزان تنها ‪ 15‬درصد از هدف درآمدهای نفتی بودجه برای این دوره‬ ‫به دلیل تداوم تحریم‌های آمریکا‪ ،‬منجر به نوسانات نرخ ارز و افزایش تورم‬ ‫را تأمین کرده است‪ .‬از این‌رو‪ ،‬دولت با تعدیل هزینه‌ها‪ ،‬نسبت کرسی‬ ‫شده است‪ .‬این رونق اقتصادی که عمدتاً اشتغالزا نبوده است همراه با تورم‬ ‫بودجه به تولید ناخالص داخلی را در حدود سطح آن در سال ‪1399‬‬ ‫باال منجر به کاهش رفاه خانوارها شده است‪ ،‬به‌ویژه در میان دهک‌های‬ ‫حفظ کرده است‪ .‬کرسی بودجه در فرودین تا تیر ‪ ،1400‬عمدتاً از طریق‬ ‫پایین درآمدی که به طور نامتناسبی تحت تأثیر پاندمی قرار گرفته‌اند‪.‬‬ ‫انتشار اوراق بدهی دولتی و برداشت از صندوق توسعه ملی ایران‬ ‫در همین حال‪ ،‬اتفاقات ناگوار ناشی از تغییرات اقلیمی مانند خشکسالی‬ ‫تأمین شده است زیرا فروش برنامه‌ریزی شده دارایی‌های دولت محقق‬ ‫و افزایش بی‪‎‬سابقه دما‪ ،‬منجر به کمبود آب و قطعی‌های برق شده که‬ ‫نشد‪ .‬سطح نسبتاً پایین بدهی عمومی ایران—که عمدتاً از منابع داخلی‬ ‫فوریت اجتامعی‪-‬اقتصادی این چالش‌ها را هر چه بیشرت آشکار می‌مناید‪.‬‬ ‫است—فضا را برای صدور بدهی بیشرت فراهم آورده است که می‌تواند‬ ‫مانع بروز برخی شوک‌های بودجه‌ای شود‪.‬‬ ‫پس از خروج از رکود دو ساله در سال ‪ ،1399‬اقتصاد ایران در سال‬ ‫‪ 1400‬میزانی رشد را تجربه کرد‪ .‬کاهش موانع تجاری در تجارت خارجی‪،‬‬ ‫تورم در سال ‪ ،1400‬به دنبال تدوام انتظارات تورمی و کاهش مجدد‬ ‫رشایط بهرت بازار نفت‪ ،‬و محدودیت‌های مالیم‌تر مرتبط با کووید–‪19‬‬ ‫ارزش ریال‪ ،‬به افزایش خود ادامه داد‪ .‬در غیاب یک لنگر اسمی مؤثر‪،‬‬ ‫منجر به رشد اقتصادی ایران در سه ماهه اول ‪ 1400‬شد که عمدتاً ناشی‬ ‫رشد انتظارات تورمی منجر به افزایش تورم شد‪ .‬روند کاهشی انتظارات‬ ‫از بخش نفت و بخش خدمات بود‪ .‬تأثیر پاندمی کووید–‪ 19‬بر رشد‬ ‫تورمی که پس از انتخابات ریاست جمهوری آمریکا و آغاز مذاکرات‬ ‫تولید ناخالص داخلی در سال ‪ 1399‬در مقایسه با سایر کشورها کمرت‬ ‫هسته‌ای رشوع شده بود‪ ،‬پس از توقف مذاکرات هسته‌ای در خرداد‬ ‫بود از جمله به دلیل محدودیت‌های کمرت سخت‌گیرانه‌تر کووید–‪،19‬‬ ‫‪ 1400‬معکوس شد و باعث شد تورم در فرودین تا آبان ‪ ،1400‬به ‪43‬‬ ‫وابستگی کمرت اقتصاد به بخش‌های بسیار آسیب‌پذیر مانند گردشگری‪،‬‬ ‫درصد (نسبت به مدت مشابه سال قبل) افزایش یابد‪ .‬نرخ برابری ریال‬ ‫رونق نفت در نیمه دوم ‪ ،1399‬و نیز پایه اقتصادی نسبتاً پایین پس از‬ ‫در برابر دالر روندی مشابه با انتظارات تورمی را دنبال کرد‪ ،‬اما در نهایت‬ ‫دو سال متوالی رکود اقتصادی ناشی از تحریم‌های مجدد آمریکا‪ .‬تولید‬ ‫کاهش ارزشی معادل ‪ 18‬درصد (از فرودین تا آبان ‪ )1400‬را تجربه کرد‬ ‫ناخالص داخلی واقعی در سال ‪ ،1399‬در هامن سطح یک دهه قبل بود‪،‬‬ ‫زیرا دسرتسی محدود به ذخایر ارزی خارج از کشور‪ ،‬دامنه مداخالت‬ ‫در حالی که کشور فرصت پنجره جمعیتی (جمعیت جوان با تحصیالت‬ ‫مستقیم در بازار را محدود کرده است‪ .‬استقراض دولت از سیستم بانکی‬ ‫عالی) را همراه با یک دوره قیمت باالی نفت (‪ )2010–2014‬پشت رس‬ ‫و فروش دارایی‌های خارجی به بانک مرکزی نیز منجر به رشد باالی عرضه‬ ‫گذاشت و بیکاری در حد باالی حدود ‪ 10‬درصد باقی ماند‪.‬‬ ‫‪xi‬‬ ‫جدید‪ ،‬در کنار میزان اندک جذب رسمایه‌گذاری جدید‪ ،‬به دلیل نرخ‌های‬ ‫پول و در نهایت افزایش قیمت‌ها شد‪ .‬تورم باال و کاهش درآمدهای‬ ‫بهره واقعی منفی‪ ،‬موانع دیگر چشم‌انداز رشد اقتصادی خواهند بود‪ .‬در‬ ‫قابل ترصف واقعی‪ ،‬رفاه خانوارها را بدتر کرده است‪ .‬پاندمی هم‌چنین‬ ‫سطح جهانی‪ ،‬رشد کندتر رشکای بزرگ تجاری مانند چین‪ ،‬همراه با تداوم‬ ‫مشاغل و درآمدها را در بسیاری از فعالیت‌های کاربرتر‪ ،‬از جمله خدمات‬ ‫تحریم‌های آمریکا بر صادرات‪ ،‬می‌تواند بر رشد بخش‌های نفتی و غیرنفتی‬ ‫پرمتاس و بخش غیررسمی‪ ،‬به شدت تحت تأثیر قرار داده است‪.‬‬ ‫تأثیر منفی بگذارد‪ .‬به این ترتیب‪ ،‬میانگین ​​رشد تولید ناخالص داخلی در‬ ‫میان‌مدت‪ ،‬متوسط​​و کمرت از ‪ 3‬درصد در سال پیش بینی می‌شود‪.‬‬ ‫تراز حساب جاری در سال ‪ 1400‬مثبت شد زیرا افزایش صادرات نفتی‬ ‫و غیرنفتی بیش از افزایش واردات بود‪ .‬بهبود پس از پاندمی‪ ،‬منجر به‬ ‫خطرات عمده پیش‌روی اقتصاد ایران به روند گسرتش پاندمی و‬ ‫افزایش شدید صادرات نفتی و غیرنفتی به ترتیب ‪ 125‬و ‪ 69‬درصد در‬ ‫چشم‌انداز تحوالت ژئوپلیتیک مربوط می‌شود‪ .‬تا زمانی که واکسیناسیون‬ ‫فروردین تا خرداد ‪( 1400‬نسبت به مدت مشابه سال قبل) شد‪ .‬این امر‬ ‫کامل بخش عمده جمعیت محقق نشود‪ ،‬انتشار سویه‌های جدید‬ ‫باعث شد که با وجود رشد ‪ 42‬درصدی واردات در این دوره‪ ،‬تراز حساب‬ ‫و خطرناک کووید‪ 19-‬و اقدامات مهارکننده متعاقب آن‪ ،‬ریسک‌های‬ ‫جاری برای اولین بار از زمان شیوع پاندمی مثبت شود‪ .‬سایر منابع‬ ‫قابل‌توجهه در روند بهبود اقتصاد ایران خواهند بود‪ .‬اختالالت تجاری‬ ‫تأمین مالی خارجی‪ ،‬مانند رسمایه گذاری مستقیم خارجی و رسمایه‬ ‫و تقاضای ضعیف از سوی کشورهای همسایه مانند افغانستان و عراق‪،‬‬ ‫گذاری در سبد مالی نیز به دلیل تحریم‌های مالی آمریکا‪ ،‬تورم باال‪ ،‬و‬ ‫منبع اصلی ذخایر ارزی قابل دسرتس‪ ،‬از موانع اصلی رشد و تأمین مالی‬ ‫نوسانات نرخ ارز تغییرعمده‌ای نداشتند‪.‬‬ ‫واردات به شامر می‌روند‪ .‬اقتصاد همچنان‪ ،‬هرچند کمرت از گذشته‪ ،‬در‬ ‫برابر افت قیمت‌ جهانی نفت در آینده آسیب‌پذیر است‪ .‬چالش‌های‬ ‫چشم‌انداز اقتصادی ایران تحت تأثیر پاندمی کووید–‪ 19‬و چشم‌انداز‬ ‫فزاینده تغییرات اقلیمی که منجر به کمبود شدیدتر آب و انرژی‌می‌شوند‪،‬‬ ‫تقاضا از سوی رشکای اصلی صادراتی قرار دارد‪ .‬از سمت داخلی‪ ،‬انتظار‬ ‫همراه با تورم باال می‌تواند فشار بر قرشهای آسیب‌پذیر را افزایش دهد و‬ ‫می‌رود که روند کند اولیه واکسیناسیون کووید–‪ 19‬در مواجهه با موج‬ ‫بر نارضایتی‌های اجتامعی بیفزاید‪ .‬ریسک‌های مطلوب مربوط به امکان‬ ‫بزرگ سویه دلتا به علت اثرات ماندگار کووید–‪ 19‬و خطر مجدد انتشار‬ ‫لغو تحریم‌ها است که می‌تواند فعالیت اقتصادی را تقویت کند‪ ،‬زیرا‬ ‫سویه‌های جدید‪ ،‬منجر به محدود شدن رشد شود‪ .‬اقدامات سختگیرانه‌تر‬ ‫اقتصاد به طور مستمر کمرت از ظرفیت بالقوه خود در حال فعالیت است‪.‬‬ ‫در راستای مهار کووید–‪ 19‬با هدف جلوگیری از گسرتش مجدد سویه‌های‬ ‫شکل ‪... • 6‬هم راستا با تطبیق تقاضای داخلی و‬ ‫شکل ‪ • 1‬اقتصاد ایران به تدریج در حال خروج از یک‬ ‫خارجی به رشایط جدید‪...‬‬ ‫رکود دوساله است‪...‬‬ ‫‪20‬‬ ‫‪70‬‬ ‫‪15‬‬ ‫ﻣﺸﺎرﮐﺖ در رﺷﺪ )ﻧﺴﺒﺖ ﺑﻪ ﺳﺎل ﻗﺒﻞ(‬ ‫‪50‬‬ ‫‪10‬‬ ‫‪5‬‬ ‫‪30‬‬ ‫‪0‬‬ ‫واﺣﺪ درﺻﺪ‬ ‫درﺻﺪ‬ ‫‪–5‬‬ ‫‪10‬‬ ‫‪–10‬‬ ‫‪–10‬‬ ‫‪–15‬‬ ‫‪–20‬‬ ‫‪–30‬‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ اول‬ ‫‪–50‬‬ ‫‪1392‬‬ ‫‪1393‬‬ ‫‪1394‬‬ ‫‪1395‬‬ ‫‪1396‬‬ ‫‪1397‬‬ ‫‪1398‬‬ ‫‪1399‬‬ ‫‪* 1400‬‬ ‫ﻓﺼﻞ اول‬ ‫‪1397‬‬ ‫‪1398‬‬ ‫‪1399‬‬ ‫‪1400‬‬ ‫ﻣﴫف ﺧﺼﻮﺻﯽ‬ ‫ﴎﻣﺎﯾﻪﮔﺬاری‬ ‫ﻣﴫف دوﻟﺘﯽ‬ ‫رﺷﺪ ﺗﻮﻟﯿﺪ ﻧﺎﺧﺎﻟﺺ داﺧﻠﯽ ﺑﺪون ﻧﻔﺖ‬ ‫ﺻﺎدرات‬ ‫**ﺗﻐﯿﯿﺮ در ﻣﻮﺟﻮدی اﻧﺒﺎر‬ ‫واردات‬ ‫رﺷﺪ ﺗﻮﻟﯿﺪ ﻧﺎﺧﺎﻟﺺ داﺧﻠﯽ‬ ‫ﺗﻮﻟﯿﺪ ﻧﺎﺧﺎﻟﺺ داﺧﻠﯽ‬ ‫رﺷﺪ ﺑﺨﺶ ﻧﻔﺖ‬ ‫‪xii‬‬ ‫‪IRAN ECONOMIC MONITOR: THE ECONOMY AT THE CROSSROADS‬‬ ‫شکل ‪...• 12‬در حالی که کرسی بودجه افزایش یافته‪...‬‬ ‫شكل ‪... • 7‬ولی این بهبود تأثیر اندکی بربهبود‬ ‫‪20‬‬ ‫مشارکت نیروی کار داشته است‪...‬‬ ‫‪15‬‬ ‫‪70‬‬ ‫‪10‬‬ ‫درﺻﺪ از ﺗﻮﻟﯿﺪ ﻧﺎﺧﺎﻟﺺ داﺧﻠﯽ‬ ‫‪60‬‬ ‫‪5‬‬ ‫‪50‬‬ ‫‪0‬‬ ‫‪40‬‬ ‫درﺻﺪ‬ ‫‪–5‬‬ ‫‪30‬‬ ‫‪–10‬‬ ‫‪20‬‬ ‫‪–15‬‬ ‫‪10‬‬ ‫‪–20‬‬ ‫‪0‬‬ ‫‪1395‬‬ ‫‪1396‬‬ ‫‪1397‬‬ ‫‪1398‬‬ ‫‪1399‬‬ ‫‪1400‬‬ ‫زﻧﺎن ﻣﺮدان ﮐﻞ زﻧﺎن ﻣﺮدان ﮐﻞ زﻧﺎن ﻣﺮدان ﮐﻞ زﻧﺎن ﻣﺮدان ﮐﻞ‬ ‫‪ 4.5‬ﻣﺎه اول‬ ‫ﻧﺮخ ﻣﺸﺎرﮐﺖ‬ ‫ﻧﺮخ ﺑﯿﮑﺎری‬ ‫ﻧﺮخ ﺑﯿﮑﺎری‬ ‫ﻧﺮخ ﺑﯿﮑﺎری‬ ‫درآﻣﺪﻫﺎی ﻧﻔﺘﯽ‬ ‫درآﻣﺪﻫﺎی ﻣﺎﻟﯿﺎﺗﯽ‬ ‫ﻧﯿﺮوی ﮐﺎر‬ ‫ﺟﻮاﻧﺎن‬ ‫ﻓﺎرغاﻟﺘﺤﺼﯿﻼن‬ ‫ﺳﺎﯾﺮ درآﻣﺪﻫﺎ‬ ‫ﻫﺰﯾﻨﻪﻫﺎی ﺟﺎری‬ ‫ﻫﺰﯾﻨﻪﻫﺎی ﴎﻣﺎﯾﻪای‬ ‫ﮐﴪی ﺑﻮدﺟﻪ‬ ‫ﻓﺼﻞ دوم ‪1398‬‬ ‫ﻓﺼﻞ دوم ‪1400‬‬ ‫شكل ‪ • 22‬در همین حال‪ ،‬رشد صادرات باعث ایجاد‬ ‫شكل ‪ ... • 16‬که همراه با کاهش ارزش ریال وافزایش‬ ‫مازاد حساب جاری شده‌است‪...‬‬ ‫انتظارات تورمی باعث افزایش تورم شده‌اند‬ ‫‪35‬‬ ‫)ﻧﺴﺒﺖ ﺑﻪ ﻣﺪت ﻣﺸﺎﺑﻪ ﺳﺎل ﻗﺒﻞ(‬ ‫‪80‬‬ ‫‪350‬‬ ‫‪10‬‬ ‫‪25‬‬ ‫‪300‬‬ ‫ﻣﯿﻠﯿﺎرد دﻻر آﻣﺮﯾﮑﺎ‬ ‫‪15‬‬ ‫‪50‬‬ ‫‪8‬‬ ‫درﺻﺪ )ﻧﺴﺒﺖ ﺑﻪ ﻣﺎه ﻗﺒﻞ(‬ ‫رﺷﺪ‪ ،‬درﺻﺪ‬ ‫ﻫﺰار رﯾﺎل ﺑﻪ ازای ﯾﮏ دﻻر‬ ‫‪5‬‬ ‫‪20‬‬ ‫‪250‬‬ ‫‪0‬‬ ‫‪–10‬‬ ‫‪200‬‬ ‫‪6‬‬ ‫‪–5‬‬ ‫‪–40‬‬ ‫‪–15‬‬ ‫‪150‬‬ ‫‪4‬‬ ‫‪–25‬‬ ‫‪–70‬‬ ‫‪100‬‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ دوم‬ ‫ﻓﺼﻞ ﺳﻮم‬ ‫ﻓﺼﻞ اول‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫ﻓﺼﻞ ﭼﻬﺎرم‬ ‫‪2‬‬ ‫‪50‬‬ ‫‪0‬‬ ‫‪0‬‬ ‫دی ‪97‬‬ ‫ﻓﺮوردﯾﻦ ‪98‬‬ ‫ﺗﯿﺮ ‪98‬‬ ‫ﻣﻬﺮ ‪98‬‬ ‫دی ‪98‬‬ ‫ﻓﺮوردﯾﻦ ‪99‬‬ ‫ﺗﯿﺮ ‪99‬‬ ‫ﻣﻬﺮ ‪99‬‬ ‫د ی‪99‬‬ ‫ﻓﺮوردﯾﻦ ‪1400‬‬ ‫ﺗﯿﺮ ‪1400‬‬ ‫ﻣﻬﺮ ‪1400‬‬ ‫‪1396‬‬ ‫‪1397‬‬ ‫‪1398‬‬ ‫‪1399‬‬ ‫‪1400‬‬ ‫ﺗﺮاز ﺣﺴﺎب ﺟﺎری‪ ،‬ﻣﯿﻠﯿﺎرد دﻻر آﻣﺮﯾﮑﺎ )ﻣﺤﻮر ﺳﻤﺖ ﭼﭗ(‬ ‫رﺷﺪ واردات‪ ،‬درﺻﺪ‪ ،‬ﻧﺴﺒﺖ ﺑﻪ ﻣﺪت ﻣﺸﺎﺑﻪ ﺳﺎل ﻗﺒﻞ‬ ‫ﻧﺮخ ﺗﻮرم ﻣﺎﻫﯿﺎﻧﻪ )ﻣﺤﻮر ﺳﻤﺖ راﺳﺖ(‬ ‫)ﻣﺤﻮر ﺳﻤﺖ راﺳﺖ(‬ ‫ﻧﺮخ ارز ﺑﺎزار آزاد )ﻣﺤﻮر ﺳﻤﺖ ﭼﭗ(‬ ‫رﺷﺪ ﺻﺎدرات‪ ،‬درﺻﺪ‪ ،‬ﻧﺴﺒﺖ ﺑﻪ ﻣﺪت ﻣﺸﺎﺑﻪ ﺳﺎل ﻗﺒﻞ‬ ‫ﻧﺮخ ارز ﻧﯿ )ﻣﺤﻮر ﺳﻤﺖ ﭼﭗ(‬ ‫)ﻣﺤﻮر ﺳﻤﺖ راﺳﺖ(‬ ‫ﻧﺮخ ارز رﺳﻤﯽ )ﻣﺤﻮر ﺳﻤﺖ ﭼﭗ(‬ ‫‪Executive Summary‬‬ ‫‪xiii‬‬ ‫شكل ‪ ... • 24‬تا حدی به‌دلیل افزایش صادرات‬ ‫غیرنفتی به چین و کشورهای همسایه‬ ‫‪45‬‬ ‫‪40‬‬ ‫‪35‬‬ ‫‪11, 26%‬‬ ‫‪30‬‬ ‫‪9, 26%‬‬ ‫‪2.4, 6%‬‬ ‫ﻣﯿﻠﯿﺎرد دﻻر آﻣﺮﯾﮑﺎ‬ ‫‪25‬‬ ‫‪5, 12%‬‬ ‫‪2.3, 7%‬‬ ‫‪2.5, 7%‬‬ ‫‪20‬‬ ‫‪4.5, 11%‬‬ ‫‪4.7, 13%‬‬ ‫‪6, 28%‬‬ ‫‪15‬‬ ‫‪1,5%‬‬ ‫‪9, 22%‬‬ ‫‪2.3, 11%‬‬ ‫‪7.4, 21%‬‬ ‫‪2.3, 11%‬‬ ‫‪10‬‬ ‫‪3.8, 17%‬‬ ‫‪5‬‬ ‫‪9.5, 23%‬‬ ‫‪9.1, 26 %‬‬ ‫‪6.5, 30%‬‬ ‫‪0‬‬ ‫‪1398‬‬ ‫‪1399‬‬ ‫ﻧﯿﻤﺴﺎل اول ‪1400-‬‬ ‫ﭼﯿﻦ‬ ‫ﻋﺮاق‬ ‫اﻣﺎرات ﻣﺘﺤﺪه ﻋﺮﺑﯽ‬ ‫ﺗﺮﮐﯿﻪ‬ ‫اﻓﻐﺎﻧﺴﺘﺎن‬ ‫ﺳﺎﯾﺮ ﮐﺸﻮرﻫﺎ‬ ‫(منبع شکل‌ها در منت اصلی)‪.‬‬ ‫‪xiv‬‬ ‫‪IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS‬‬ 1 RECENT ECONOMIC AND POLICY DEVELOPMENTS Output and Demand Exporting Countries (OPEC) production quotas. OPEC oil production data also puts Iran’s oil production growth After exiting a two-year recession in 2020/21, in the period at 25 percent (y/y) close to the reported oil Iran’s economy returned to growth in the first GDP growth.3 Oil production has continued an upward quarter of 2021/22 (Q1-21/22). Iran’s GDP grew trend since July 2020 when it registered a record low of by 6.2 percent in Q1-21/22 (y/y) (Apr–Jul 2021), 1.93 million barrels per day (mbpd) due to the pandemic driven by the expansion in oil and service sectors.2 related slump in global oil demand and ongoing US The economic rebound in Q1-21/22 came after sanctions. The average oil production in Jan–Nov 2021 the modest recovery in 2020/21 (3.4 percent, see was 2.4 mpbd, almost the same level in 2019, but still far Figure 1). The impact of the COVID-19 pandemic below the pre-sanction level of 3.8 mbpd in 2017. on GDP was less pronounced compared to other The non-oil sector rebound in Q1-21/22 countries due to less stringent COVID-19 restrictions was primarily driven by the pickup in services (despite facing multiple waves of infections, see Box 1), and manufacturing activity. Non-oil GDP grew by lower dependency on highly affected sectors such 4.7 percent (y/y) in Q1-21/22 as services rebounded as tourism, oil recovery in H2-20/21, and a relatively by 7 percent (y/y) (Figure 3). The strong recovery lower economic base after two consecutive years of of services is partly a reflection of the previous economic contraction following the reimposition of contraction in Q1-20/21 and a gradual adaptation of US sanctions. The recent rebound only marginally households to the new normal (for example, reflected reduced the income gap between Iran and Middle East and North Africa (MENA) region which had been widening in previous years (Figure 2). 2 The Q1-21/22 data is based on the Central Bank of Since mid-2020, oil production has grown Iran’s new GDP series with a new base year (2016/17) and updated national accounts methodology. See Box 1 steadily in line with the gradual pickup in global for a brief comparison of the CBI GDP series. demand. Oil GDP grew by 23.3 percent in Q1-21/22 3 As reported by OPEC’s secondary sources. Iran has stopped (y/y) as global demand recovered and as Iran remained publishing crude oil production and export volumes data exempt from the recent Organization of Petroleum since the reimposition of US sanctions in 2018. 1 GDP Rebounded in 2020/21 and FIGURE 1 •  …Partially Reducing Iran’s Income* FIGURE 2 •  Q1-21/22… Gap with Peers 70 20 50 18 (International Thousand US$) 30 Percent GDP per capita, PPP 10 16 –10 –30 14 –50 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Q1-21/22* 12 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Non-oil GDP growth rate GDP growth rate Oil growth rate Iran Middle East & North Africa World Source: Central Bank of Iran (CBI) and World Bank staff calculations. Source: World Bank World Development Indicators (WDI). Note: * Based on the CBI’s new base year series (2016/17=100). Note: * Measured by GDP per capita, PPP (current international US$). in 29 percent y/y growth in food and accommodation central and southern regions. More than three-quarters services). Within the non-oil industrial sector, less of Iran’s land is under extreme groundwater overdraft, market competition—due to import restrictions on non- where the rate of natural replenishment is lower than essential goods—and the price competitiveness of the rate of extraction.4 This makes water security and manufacturing and mining production—following the climate change among the top challenges in the coming currency depreciation—contributed to the two sectors’ years with potentially dire consequences for agricultural growth of 5.7 and 6.3 percent in Q1-21/22 (y/y), production and food security. These climate challenges respectively. However, this growth was partly offset by have already weighed on key staples’ production, a large contraction in construction (12.3 percent) due including wheat which witnessed a 30 percent drop to a surge in the price of construction materials (100 (y/y) in production in H1-21/22 (Apr–Sep 2021) due to percent increase in Q1-21/22, y/y), while at the same higher temperatures and water shortage. time, soaring housing prices (57 percent growth, y/y) Electricity blackouts during the summer of weakened demand deeming ownership an unviable 2021 disrupted the industrial sector and normal option for many young families. daily life in major cities. In 5M-20/21 (Apr–Aug Similar to other countries in the region, Iran 2021), electricity consumption during peak hours is facing the driest year in five decades which has surged by more than 20 percent (y/y) owing to negatively impacted the agriculture sector and has record high temperatures in the summer5 and surges exacerbated water scarcity. The sector contracted by 1 percent in Q1-21/22 (y/y) due to an unprecedented drought. The impact of the drought was partly mitigated 4 Ashraf, S., Nazemi, A., and A. AghaKouchak (2021). by lowering outflows from dams and increased extraction Anthropogenic drought dominates groundwater from finite groundwater reserves. However, average depletion in Iran. Scientific reports, 11(1), 1–10. rainfall in Sep-2020 to Sep-2021 (156 mm) declined by 5 The spring and summer of 2021 were also the hottest in fifty years. The average temperature in Spring and Summer 50 percent and was 34 percent below the country’s long- 2021 was 2.5 and 1.2 Celsius above the long-term average term average (238 mm) which made this year one of the and, all provinces of the country experienced average driest in half a century (Figure 4). Currently, one-third temperatures greater than the long-term average (Iran of the population lives in water-stressed areas mostly in Meteorological Organization, Quarterly Reports). 2 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS BOX 1 IRAN GRAPPLED WITH FIVE WAVES OF COVID-19 INFECTIONS Iran continues to face the large health impact of the COVID-19 Iran Underwent five waves of FIGURE B1.1 •  pandemic but the recent acceleration in vaccination has the COVID-19 pandemic (as of improved the situation. Iran has experienced the worst outbreak Dec. 10, 2021) in the MENA region with over 6.2 million officially confirmed cases of infections and 131 thousand deaths as of Dec. 10, 500 10 Daily confirmed deaths per million Daily confirmed cases per million 2021. Since first cases were confirmed in February 2020, the country underwent five major waves of infection (Figure 400 8 B1.1). The most severe surge, registering the highest single- 300 6 day infections (50K) and deaths (709), came with the spread of the Delta variant in August 2021. This trend improved after the 200 4 implementation of the containment measures and accelerated vaccine rollout in Sep-Dec 2021 (Figure B1.2). The majority 100 2 of administered vaccines were the Chinese Sinopharm (80 percent) followed by AstraZeneca which were mainly financed 0 0 2/19/2020 4/19/2020 6/19/2020 8/19/2020 10/19/2020 12/19/2020 2/19/2021 4/19/2021 6/19/2021 8/19/2021 10/19/2021 through existing funds abroad. The country remains vulnerable to potential future waves of COVID-19, though the recent successful vaccination drive will help mitigate some of this risk. As of December 10, 2021, 57 percent of people in Iran were fully vaccinated, comparable to New deaths per million Iran (RHS) many neighboring countries (Figure B1.3). However, A sudden New deaths per million World (RHS) New cases per million Iran (LHS) easing of containment measures could still lead to future waves of New cases per million World (LHS) COVID-19 breakthrough cases associated with new variants that are more virulent. Source: Our World in Data. FIGURE B1.2 • Vaccination accelerated ... Bringing the Share of Fully FIGURE B1.3 •  significantly in Sep-Dec 2021… Vaccinated People in Line with Neighboring Countries (as of 70 Dec. 10, 2021) 60 100 50 80 40 Percent 60 30 Percent 20 40 10 20 0 2/9/2021 3/11/2021 4/10/2021 5/10/2021 6/9/2021 7/9/2021 8/8/2021 9/7/2021 10/7/2021 11/6/2021 0 UAE Iran Turkey Oman World Azerbaijan Pakistan Share of partly vaccinated population Share of fully vaccinated population Share of fully vaccinated population Share of partly vaccinated population Source: Our World in Data. Source: Our World in Data. in energy-intensive crypto-currency mining activity6, 6 It is estimated that around 4.5 percent of the world’s while at the same time the sharp decline in rainfalls bitcoin mining takes place in Iran which could bring close to US$1 billion a year (Reuters). reduced hydropower output by 40 percent. This led Recent Economic and Policy Developments 3 Services and Oil Drove the Q1-21/22 FIGURE 3 •  FIGURE 4 • Iran Faced the Driest Year in Half-a- Rebound Century 12 400 Contrbution to y/y GDP growth, 8 350 300 Annaul Precipitation, mm percentage points 4 250 0 200 –4 150 –8 100 –12 50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1-21/22* 0 1964/65 1966/67 1968/69 1970/71 1972/73 1974/75 1976/77 1978/79 1980/81 1982/83 1984/85 1986/87 1988/89 1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2018/19 2019/20 2020/21 Annual precipitation Long term average Oil Agriculture Industries Services GDP Source: Irda.ir and Asakereh et al. (2021).a a Asakereh, H., Masoodian, S. A., & Tarkarani, F. (2021). An investigation of Decadal Source: CBI and World Bank staff calculations. variation of Iran precipitation over four decades (1976–2016). Geography and Notes: * Based on CBI’s new base year series (2016/17=100). Planning, 25(76), 187–202. BOX 2 A COMPARISON OF THE NEW CBI GDP SERIES The CBI has released a new national account data series based on GDP Growth Rates in 2011/12 FIGURE B2.1 •  a new base year (2016/17) and an updated methodology (System vs. 2016/17 of National Accounts, SNA 2008). The CBI’s previous national accounts data was based on the base year of 2011/12 and the 15 SNA 1993 methodology. The SNA 2008 methodology includes an expansion of subcomponents of economic activity from 16 10 to 19 categories based on the ISIC4 classification of economic activities. The change in the base year also reflects changes in 5 Percent weights of sectors in underlying surveys in line with the change in the structure of the economy between the two periods.a 0 The update has generated some discrepancies between the two series historical data including an upward revision to the GDP level –5 (e.g., 12 percent higher nominal GDP in 2020/21) and different real GDP growth rates. For example, while based on the previous –10 data (2011/12=100) the economy contracted by about 12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 percent over the latest two years, the new data (2016/17=100) indicates a smaller contraction at just under 5 percent (Figure B2.1). On the supply side, the main discrepancy in growth rate of components relates to the oil sector (Figure B2.2) and on the GDP growth rate (2011/12=100) expenditure side, the main difference is regarding investment GDP growth rate (2016/17=100) and change in inventories data (Figure B2.3). Source: CBI and World Bank staff calculations. The main change in the composition of GDP according to the new series is a relatively lower share for services on the supply side and lower total trade (exports and imports) on the demand side. As a result, the relative contributions of components show significant differences between drivers of growth in these two series in certain years. (continued on next page) 4 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS BOX 2 A COMPARISON OF THE NEW CBI GDP SERIES (continued) Difference in Growth Rates of FIGURE B2.2 •  Difference in Growth Rates of FIGURE B2.3 •  Supply Side GDP Components, Demand Side GDP Components, 2011/12 vs. 2016/17 2011/12 vs. 2016/17 15 40 10 20 Percentage points 0 Percentage point 5 –20 0 –40 –5 –60 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 –10 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Private consumption Government consumption Investment Inventory & SD Oil Agriculture Industries Services Exports Imports Source: CBI and World Bank staff calculations. Source: CBI and World Bank staff calculations. Note: Positive values show a higher growth rate of a given component in the new series and vice versa. a Annex of the SNA 2008 volume summarizes changes between SNA 1993 and SNA 2008 are as follow: “further specifications of statistical units and revisions in institutional sectoring; further specifications of the scope of transactions including the production boundary; extension and further specification of the concept of assets, capital formation, and consumption of fixed capital (CFC); further refinement of treatment and definition of financial instruments and assets; further specifications of the scope of transactions concerning government and public sector; and harmonization between concepts and classifications of SNA and the six edition of Balance of Payment Statistics (BPM6)”. to a sharp reduction in electricity exports and major due to the lower base effect of plummeting trade after blackouts, disrupting operations in many industries. border closures at the onset of the pandemic in Q1- Temporary measures employed, including electricity 20/21. The strong growth in inventories in the period supply rationing and a four-month ban on the mining came due to the anticipation of a breakthrough in of crypto-currencies were stop-gap measures negotiations for sanctions relief as Iran and the US to alleviate the severe electricity shortage. The started indirect talks around the revival of the 2015 electricity outages especially disrupted operations nuclear agreement. Private consumption also grew in energy-intensive industrial sectors forcing some moderately by 2.2 percent in Q1-21/22 (y/y) after producers to temporarily halt production which led experiencing a 10.7 percent contraction over the to a decline in Purchasing Manager’s Index (PMI) last three years. However, investment declined by in July and August which subsequently recovered 3.5 percent in Q1-21/22 (y/y), largely driven by a in September as new COVID-19 cases started contraction in construction investment. declining (Figure 5). On the demand side, exports and inventory Labor Market and Jobs growth were the main drivers of Q1-21/22 output performance (Figure 6). Real exports and imports The recent GDP rebound has yet to be reflected strongly rebounded in Q1-21/22 growing by 35 in (structurally weak) labor market indicators percent and 30 percent (y/y), respectively, mainly as the expansion was partly driven by the Recent Economic and Policy Developments 5 Electricity and Water Shortages FIGURE 5 •  The Rebound in GDP in Q1-21/22 FIGURE 6 •  Impacted Industrial Production in Was Driven by Exports on the Summer 2021 Expenditure Side 70 30 20 Contrbution to y/y GDP growth, 15 60 20 10 percentage points Growth rate y/y, percent 50 5 10 0 PMI Index 40 0 –5 30 –10 –10 –15 20 –20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1-21/22* 10 –20 0 –30 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 2018/19 2019/20 2020/21 Private consumption Gov. consumption PMI (LHS) Investment Exports Manufacturing PMI (LHS) Imports Inventory** Selected industries' production, y/y growth (RHS) GDP Source: Iran Chamber of Commerce, Industries, Mines & Agriculture (ICCIMA) and Source: CBI and World Bank staff calculations. Monetary and Banking Research Institute (MBRI). Notes: * Based on the CBI’s new base year series (2016/17=100). Note: A PMI index above 50 shows an improving outlook from the point of view of ** Includes statistical discrepancy. producers/managers. capital-intensive oil sector. In Q2-21/22 (Jul–Sep percent in Q2-21/22. The latter group still accounted 2021), there were almost 0.137 million fewer Iranians for 40.6 percent of unemployed population. employed compared to Q2-20/21 and employment Existing labor market inequalities further remained 1.3 million below the pre-pandemic level in widened during the pandemic. Similar to other Q2-19/20. The recent rebound in the economy also countries, the pandemic’s negative impact on labor came with negative dynamics in the labor-intensive force indicators was stronger for women due to the large (but drought affected) agriculture sector. Higher impact on services where a larger portion of females employment in the service and industry sectors in Q2- (57 percent) work compared to men (47 percent).7 In 21/22 (y/y) could not compensate job losses in the addition, lockdowns and school closures led women to agriculture sector. In addition, the underemployment exit the labor force to shoulder the additional childcare ratio also increased by 0.2 percentage points to reach responsibilities. As a result, female employment shrank 9.5 percent in Q-21/22 (y/y). Despite an additional 0.7 by 21 percent compared to pre-crisis level in Q2-19/20 million people entering the working-age population while male employment reduced by only 2.1 percent in Q2-21/22 (y/y), the labor force participation rate during the same period. Female labor participation also declined by 0.6 percentage points in Q2-21/22 declined by 4.1 percentage points to 13.5 percent in compared to Q2-20/21 to reach 41.4 percent; this Q2-21/22 compared to the pre-pandemic level of 17.6 level is significantly below the pre-pandemic level in Q2-19/20, while participation of males contracted of 44.9 percent in Q2-19/20—a level that is low by from 72.2 percent to 68.5 percent. Even with a much international standards. Even with this lower effective lower participation rate, the female unemployment rate demand for jobs, the unemployment rate slightly increased to 9.6 percent in the same period. Youth unemployment also increased by 2.4 percentage 7 See, https://blogs.worldbank.org/jobs/how-covid-19-aff points to 17.6 percent but the rate for university ecting-womens-employment-evidence-world-banks- graduates declined by 0.5 percentage points to 14.4 gender-innovation-labs. 6 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS of 17.7 percent in Q2-21/22 was twice as large as for FIGURE 7 • The Pandemic Drove Economic men (at 8.1 percent), highlighting obstacles facing the Participation Down Further female jobseekers. The unemployment rate gender 70 gap is even wider among the youth and educated 60 (Figure 7). In Q2-21/22, 25 percent of women with 50 university degrees were unemployed while this number 40 Percent was 9.7 percent for male graduates. In the same period, the unemployment rate of female youth (15–24 30 years) was 31 percent rate versus that of male by 14.4 20 percent. 10 Labor market outcomes vary considerably 0 Women Total Men Women Total Men Women Total Men Women Total Men across the country and the effects of the pandemic were also felt differently (Figure 8). In Q2-21/22, the lowest labor employment ratio belonged to Sistan Labor force Unemployment Youth Graduates participation rate unemployment unemployment and Baluchestan with 29.7 percent and the highest rate rate rate to Zanjan with 43.7 percent. The unemployment rate Q2-19/20 Q2-21/22 also ranged between 6.2 percent in Qazvin to 18.3 percent in Hormozgan. In the same period, labor force Source: Statistical Centre of Iran (SCI) and World Bank staff calculations. participation rate in Iran’s provinces ranged between 33.4 percent (Sistan and Balochestan) to 48.5 (Yazd). Importantly, the effect of the pandemic also 18.3 percent in Q2-21/22, (4.1 percentage points varied among all provinces. More than 60 percent of increase from the pre-pandemic level in Q2-19/20) provinces experienced more than 3 percentage points even with a 4-pp decline in its labor force participation decline in their employment ratio compared to pre- rate during the same period, mainly due to water crisis level in Q2-19/20, where 5 out of 32 provinces shortage and protests in Q2-21/21. These variations (15 percent) reported declines above 5 percentage highlight the need for a local approach to job creation points. Hormozgan’s unemployment rate surged to and poverty alleviation policies by the government. The Labor Market Effects of the Pandemic Were Felt Differently across the Country FIGURE 8 •  a) Labor force participation b) Employment ratio 50 50 45 45 40 Percent Percent 40 35 35 30 30 25 Yazd Zanjan Azerbaijan, East Ardabil Khorasan, North Kermanshah Gilan Hormozgan Qazvin Mazandaran Azerbaijan, West Kurdistan Hamadan Khorasan, South Lorestan Bakhtiari Tehran Isfahan Khorasan, Razavi Kerman Khuzestan Alborz Bushehr Golestazn Markazi Semnan Fars Qom Kohgiluyeh Ilam Sistan Zanjan Ardabil Azerbaijan, East Yazd Qazvin Khorasan, North Mazandaran Hamadan Azerbaijan, West Gilan Khorasan, South Kurdistan Kermanshah Tehran Khorasan, Razavi Lorestan Bakhtiari Isfahan Alborz Ho rmozgan Kerman Bushehr Khuzestan Semnan Fars Golestan Markazi Qom Ilam Kohgiluyeh Sistan Q2-19/20 Q2-21/22 Q2-19/20 Q2-21/22 (continued on next page) Recent Economic and Policy Developments 7 The Labor Market Effects of the FIGURE 8 •  FIGURE 9 • The Employment Ratio has been Pandemic Were Felt Differently Persistently Low in Iran Despite across the Country (continued) Having a Young Population… c) Unemploymnet rate 70 20 60 16 50 12 40 Percent 8 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4 Iran MENA 0 Lower middle income Upper middle income Hormozgan Khuzestan Kermanshah Yazd Isfahan Bakhtiari Lorestan Gilan Khorasan, North Sistan Kerman Bushehr Kohgiluyeh Kurdistan Azerbaijan, East Alborz Tehran Qom Golestan Azerbaijan, West Markazi Khorasan, South Khorasan, Razavi Ilam Zanjan Semnan Hamadan Ardabil Fars Mazandaran Qazvin World Source: WDI. Q2-19/20 Q2-21/22 Source: SCI and World Bank staff calculations. labor force participation of females is only comparable to countries in the MENA region, and it is far below the average in the world and even lower-middle-income Iran’s labor market challenges are structural countries (Figure 10). Thus, these structural challenges and have persisted over the long term. Over the last were worsened with the pandemic. few decades, even with an exceptionally low participation rate (averaged 42 percent), the unemployment rate has consistently been at or above the double-digit mark Public Sector Finance while underemployment was also high at 10 percent on The sharp decline in oil revenues in 2020/21 placed average. This resulted in a substantially low employment a significant pressure on government finances.8 In to population ratio of an average of about 40 percent, 2020/21, revenues fell to 9 percent of GDP due to oil one of the lowest rates in the world (Figure 9). The revenues falling by 17 percent (nominal) to 1.1 percent of GDP (the lowest in recorded history) and tax revenues as a share of GDP declining to 5.9 percent (Figure 11 FIGURE 10 •  …and One of the Lowest Female and Figure 12). However, tax revenue level met the Labor Participation Rates budget target despite weak economic growth, mainly 50 due to higher inflation and better collection including stock exchange transaction tax. The expenditures to 40 GDP ratio remained stable at 15.4 percent. This brought 30 the fiscal deficit to 6.3 percent of GDP which was mainly Percent financed through bond issuance (70 percent), followed 20 by sales of assets (13 percent) and withdrawals from 10 strategic reserves (10 percent). 0 Iran MENA Lower Upper World middle middle 8 The authorities have ceased to systematically publish income income Iran’s fiscal data since the return of US sanctions in 2000–2019 2018. Data used here are based on those quoted by officials in the media and other ad-hoc reports including Source: WDI. from the Parliament Research Center. 8 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS Oil Revenues Have Plummeted to FIGURE 11 •  …Leading to a Widening Fiscal FIGURE 12 •  Historic Lows… Deficit 60 20 15 40 Percent of GDP 10 5 Growth, percent 20 0 –5 0 –10 –15 –20 –20 2016/17 2017/18 2018/19 2019/20 2020/21 4.5M- –40 21/22 –60 Oil revenues Tax revenues 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Other revenues Current expenditures Oil revenue growth Tax revenue growth Capital expenditures Fiscal balance Source: CBI, PBO, and World Bank staff calculations. Source: CBI, PBO, PRC, and World Bank staff calculations. Fiscal data for 2021/22 shows that the The government continued bond auctions government fell short of its budget targets but it held by the CBI to finance the fiscal deficit. The has succeeded in keeping the deficit close to that bond auctions were less successful (40 percent lower of 2020/21 rate. The 2021/22 budget targets were in Apr-Sep 2021, y/y) despite higher offered interest based on highly optimistic projections of an increase in rates on bonds (though still negative) (Figure 13), oil revenue, tax revenues, and financial asset sales.9 The due to heightened economic uncertainties even with global oil market recovery contributed to a significant comparable nominal interest rate relative to other growth in oil revenues (446 percent, y/y) in 4.5M- assets (Figure 14). Therefore, in September 2021, the 21/22, however, this was only 15 percent of the budget target for the period. In the same period, tax revenues 9 The 2021/22 budget law envisaged a 58 percent grew by 63 percent but were 24 percent below target.10 expansion compared to the previous year’s budget. Faced with these revenue shortfalls, the government However, the budget could be 124 percent higher than adjusted current expenditures to reduce the deficit. 2020/21 if revenues meet their target in the first six- As such, current expenditures were at 60 percent of months (Apr-Sep 2021). Realization numbers quoted are the budget plan, though 92 percent of planned capital based on the second higher budget ceiling. 10 Tax revenues also fell short of the budget target in Q1- expenditures in 4.5M-21/22 materialized. However, 21/22. Direct and indirect tax revenue met about 70 the new government faces the challenge of additional and 79 percent of their budget targets, respectively. The expenditures after upward adjustments to public increase in corporate tax by 48 percent in Q1-21/22 sector wages and pension payments were approved to (y/y) was compensated by an 8.6 decline in income counter the impact of high inflation. tax and a 66.6 decline in the wealth tax, resulting in The fiscal deficit was financed mainly through 0.5 percent growth indirect tax in Q1-21/22 (y/y). The large decline in wealth tax was largely due to the decline bond issuance and withdrawal from the National in the stock market transactions which was the main Development Fund of Iran (NDFI). More than half contributor to the wealth tax growth in 2020/21. The of the deficit in 4.5M-21/22 was financed by bond economic rebound contributed to a 38 percent increase issuance (50 percent) and withdrawal from NDFI (9 in goods and services taxes in Q1-21/22 (y/y), but these percent). The government also exhausted the funds of taxes were still 20 percent below the target. its revolving fund for the year11 in Q1-21/22 as planned 11 The revolving fund is an annual designated proportion of the budget used by the government to clear current sales of public assets were negligible. This is in contrast expenditures and must be cleared at the end of each year. to the budget plan, where the deficit was to be financed In June 2021, the revolving fund share was increased based on sales of assets (60 percent), bond issuance from 3 percent to 4 percent to help the government clear (32 percent), and withdrawals from NDFI (8 percent). current payments. Recent Economic and Policy Developments 9 FIGURE 13 • Bond Issuance through Auctions Was ... Even with Comparable Nominal FIGURE 14 •  Significantly Lower than 2020/21… Return Compared to other Assets in 8M-21/22 120 25 25 100 20 80 20 Trillion IRR 15 Percent 60 10 40 15 Percent 20 5 10 0 0 week 1 week 2 week 3 week 4 week 5 week 6 week 7 week 8 week 9 week 10 week 11 week 12 week 13 week 14 week 15 week 16 week 17 week 18 5 Bond Auction-2020/21 (LHS) Bond Auction-2021/21 (LHS) 0 TSE Gold FX Real Estate Bank Government Effective interest rate-2020/21 ( RHS) Coin Index Deposits Bond Effective interest rate-2021/22 ( RHS) inflation Source: CBI and World Bank staff calculations. Note: Week 1-Week 18 refers to the period between May to September of each year. Source: CBI, SCI, TSE, media, and World Bank staff calculations. government issued more bonds with shorter maturity and electricity and water (2 percent). Although the (between 6 to 16 months) that helped it improve Government of Iran implemented an ambitious “tar- bond sales. The majority of bonds were bought by geted subsidy reform plan” in 2010,13 the benefits banks and financial institutions which are required did not come to full fruition due to shortcoming in to maintain a defined share of government bonds the design (e.g., lack of automatic price adjustment on loans. The high real negative interest rate (e.g., mechanisms) and implementation stages. The bur- –22 percent in September 2021) makes investment in den of implicit subsidies has only increased in re- these bonds less attractive for private investors thereby cent years, as high inflation reduces the real price restricting the depth of the market. The government, of the energy and leads to more consumption. The however, stopped holding auction of bonds since late resulting tight fiscal space has therefore come at September 2021 until mid-November 2021. the cost of the government being able to implement Urgent fiscal reforms, starting with the countercyclical fiscal policy especially during down- massive subsidies, are needed to rein in the turns such as the pandemic. widening fiscal deficit and the resulting infla- Iran’s comparatively low level of public debt tionary effects. Besides rationalizing expenditures and substantial oil wealth provides the country and proceeding with tax reforms, moving towards with some leeway in absorbing domestic and a gradual reduction in energy subsides is crucial. external shocks. Iran’s public debt-to GDP ratio According to the Parliament’s 2020/21 budget estimated at 52 percent in 2020/21 remains modest execution report, implicit subsidies in 2020/21 ac- counted for more than 45 percent of GDP (2.5 times of the budget). These subsidies were mainly due to 12 Iran ranks fourth in natural gas consumption in the natural gas (60 percent), which not only put a huge world after the US, Russia, and China (Statistica). The opportunity cost of this overconsumption has risen burden on government but has also led to over- further with the recent surge in global gas prices. consumption.12 The remaining implicit subsidies 13 This subsidy reform plan aimed to partially reduce were those for other petroleum products and avia- subsidies on energy which was supported with a tion fuel (25 percent), essential goods (13 percent) universal cash transfer program. 10 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS compared to MENA and developing country averages Inflationary Expectations Drove FIGURE 15 •  and predominantly consists of domestic debt.14 Higher Inflation… This has helped mitigate a larger potential impact 10 100 of economic downturns on fiscal accounts and 8 80 leaves space for government to respond to revenue Percent (y/y) shortfalls through further debt issuance. However, 6 60 Percent further issuance should be calibrated to avoid adding 4 40 to the challenges of existing debtors including 2 20 pension funds.15 Furthermore, Iran’s oil and gas endowment—fourth and second largest in the world, 0 0 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 respectively—leave options for the government to face shorter term challenges and revenue shortfalls. Inflation, m/m (LHS) Inflation, y/y (RHS) Core Inflation, m/m (LHS) Core inflation, y/y (RHS) Monetary Policy and Prices Source: SCI and Word Bank staff calculations. Inflation continued to surge in 8M-21/22 (Apr- …and as the Rial Depreciated FIGURE 16 •  Further in 2021/22 Nov 2021) due to inflationary expectations and cost-push factors. Consumer price inflation 350 10 (CPI) reached 43.3 percent in 8M-21/22 (y/y) as 300 8 Thousand IRR per 1 US$ monthly inflation continued to increase in November 250 Percent (m/m) 2021 (2.5 percent, m/m). A higher core inflation 200 6 rate since late-2020 signals the non-transitionary 150 4 and structural component of price increases 100 (Figure 15). In the absence of an effective nominal 2 50 anchor, inflation was driven by growing inflationary expectations which had been subdued after the US 0 0 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 presidential elections in November 2020 and the start of nuclear talks. This trend reversed after the Inflation, m/m (RHS) pause in nuclear talks in June 2021 following the Parallel market ER (LHS) change of government in Iran. NIMA ER (LHS) Subsidized/official ER (LHS) Speculations regarding possible break- throughs in CBI’s access to frozen assets led Source: CBI, SCI, and World Bank staff calculations. Note: NIMA, the Persian acronym for “integrated system of foreign exchange the rial through an initial wave of appreciation transactions”, is a foreign exchange (FX) auction system administered by the CBI for in 2021 but this trend reversed since May 2021. facilitating foreign currency exchange between exporters and importers. The rial appreciated by about 8 percent in Apr–May 2021, after progress in nuclear talks. However, this 14 Iran’s total external debt as of end-June 2021 was US$8.7 billion. trend reversed following the pause in negotiations 15 The low returns and arrears on government debt and increasing regional uncertainties which led the ri- taken on by pension funds have further undermined al to depreciate by over 18 percent in 8M-21/22 while their financial sustainability (see the IEM Spring 2017 the gap between the parallel market exchange rate special focus chapter on pensions) thereby increasing and NIMA rate widened.16 The rial had also previous- contingent liability risks for the government. ly depreciated by 65 percent in the parallel market in 16 Launched in April 2018, NIMA is a foreign exchange auction system administered by the CBI for facilitating 2020/21 (Figure 16). The decline in the value of the foreign currency exchange between exporters and currency drove up prices of imported final goods and importers. The other two exchange rates are the fixed services as well as goods with imported content (See subsidized rate for imports of essential goods and the Box 2 on the exchange rate pass through). parallel market rate for cash transactions. Recent Economic and Policy Developments 11 Food and Beverages Were the Main FIGURE 17 •  … while Producer Price Inflation FIGURE 18 •  Contributors to Inflation in 8M-21/22 also Peaked 80 40 30 80 Contribution to CPI, percentage points 25 60 30 60 Inflation y/y, percent 20 Percent (q/q) Percent (y/y) 40 20 15 40 18.4 10 20 10 20 7.5 5 4.8 2.8 2.8 2.4 0 0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 CPI Food & beverages Housing, water, electricity, & gas Transport Furniture & household equipment Clothing & footwear Health 2017/18 2018/19 2019/20 2020/21 2021 /22 Inflation, y/y (LHS) PPI Inflation, q/q (LHS) Contribution to headline CPI, pp (RHS) PPI Inflation, y/y (RHS) Source: SCI and World Bank staff calculations. Source: SCI and World Bank staff calculations. The authorities reduced the list of goods Producer prices recorded 58.9 percent in- eligible for receiving the subsidized exchange rate flation in Q2-21/22 (y/y) highlighting surging pro- for imports, but the allocated funds in 7M-21/22 duction costs as the rial depreciated (Figure 18). grew compared to the same period in 2020/21. The mining and agriculture producer prices experi- The list of essential goods eligible for receiving the enced even higher growth rates of 101.5 percent and subsidized exchange rate (IRR42,000 per US$1) for 77.7 percent during the same period (y/y). The indus- imports was reduced to 7 items (6 food commodities try and service sectors also recorded 62.3 percent plus medicine and medical devices), signaling a more and 47.8 percent, respectively. As a result, producer targeted stance in access to the cheaper exchange price inflation across almost all sectors registered a rate. However, the allocated funds at this rate in 7M- decade-high record. 21/22 (US$11.1 billion), more than the total allocation The growth of monetary aggregates accel- in 2021/22 (US$9.6 billion). While the subsidized erated sharply in H1-21/22, signaling inflation- exchange rate has mitigated some of the inflationary ary pressures. Broad money (M2) growth accelerat- pressures, the reduction in the list of subsidized goods ed by 17 percent y/y in H1-21/22, mainly due to a 13 could reduce the size of a future shock if these subsidies percent expansion in the monetary base (MB). The were to be reduced or phased out. driving force behind monetary aggregates’ expansion Similar to previous cycles of high inflation, was an increase in government financing operations headline CPI was led by higher food prices and through the banking system which led to a surge in rental costs (Figure 17). High food and housing CBI claims on government (Figure 19). An increase inflation disproportionately affects the lower deciles, in net foreign assets (NFA) also contributed to the MB as these items account for more than 75 percent of expansion as the CBI could not fully sterilize the im- the consumption basket of the bottom 40 percent pact of the funds due to the lack of access to its for- of the population, versus 51 percent for the highest eign reserves due to sanctions. M2 growth in 2020/21 income decile as defined by CBI. In addition, inflation recorded the highest rate in more than four decades in rural areas in 8M-21/22 was 4.7 percentage points (40.6 percent), mainly driven by an expansion of higher than in urban areas, showing higher pressures banking sector claims on the government and non- on the rural poor population. public sectors. This was in part due to the emergen- 12 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS FIGURE 19 • Higher Government Debt to the Bank Credit Growth Accelerated in FIGURE 20 •  Central Bank Drove Monetary 2020/21 Balance Growth in Q1-21/22 60 30 50 Contribution to MB q\q growth, 20 40 Percent of GDP percentage points 10 30 0 20 –10 10 –20 0 3M 6M 9M 12M3M 6M 9M 12M3M 6M 9M 12M 3M 6M 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 7M-21/22 2018/19 2019/20 2020/21 2021 /22 NFA Net claims on government Agriculture Manufacturing & Mining Claims on banks Other items net Construction & Housing Trade MB growth (q/q) Services Source: CBI and World Bank staff calculations. Source: CBI and World Bank staff calculations. cy COVID-19 loans which contributed to a rapid rise in 2020/21. The TSE index surged by over 300 in credit issued by the banking sector (14 percentage percent after a series of initial public offerings of points increase as a share of GDP) (Figure 20). The SOE shares in the bourse (partly for government expansionary monetary trend continued in 2021/22 financing purposes) and as trading restrictions on and banking system credit in nominal terms grew by SOE shares previously managed by the government 58.5 percent during 7M-21/22 (y/y). The banking sec- were removed, thereby drawing a large share of the tor faces deeper structural issues such as undercapi- population to the market.19 This surging trend was talization17 and other balance sheet imbalances (e.g., followed by a large correction, but the size of the index accumulation of illiquid assets including non-perform- remained well above its historical level reflecting the ing loans18 and claims on government). actual core market expansion and new demand for The large swings in inflationary expectations returns. The TSE experienced a more stable trend highlights the absence of a nominal anchor that in 8M-21/22, reflecting some development of the can control inflationary pressures. The authorities’ market, lower exchange rate volatility, and limited attempts in controlling the nominal exchange rate government initial public offerings of SOE shares as a means of tying down expectations has been (Figure 21). In line with the movement of exchange inconsistent with the government’s deficit financing rate and other financial assets, the stock market operations which have caused inflation, changed relative prices and ultimately led to depreciation of the currency. The recent introduction of inflation targeting 17 The capital adequacy ratios of most Iranian banks do not by CBI and the use of the nominal interest rate has meet the Basel requirements. also had limited effect in anchoring expectations due 18 Even though the non-performing loan ratio has declined to the low depth of the debt market which itself is during the last few years, mainly due to loan rollovers and furloughed loans. largely a reflection of real negative interest rates. 19 The number of Iranians having a trading code on the The Tehran Stock Exchange (TSE) main market increased from under 12 million (15 percent index experienced lower volatility in 2021/22. of the population) in April 2020 to over 20 million (25 The TSE underwent unprecedented fluctuations percent of the population) in October 2020. Recent Economic and Policy Developments 13 FIGURE 21 • TSE Underwent Lower Volatility in also experienced a downward trend in Q1-21/22 2021/22, Partly Reflecting Exchange with lower inflation expectations, before reversing in Rate Dynamics… Q2-21/22. 2,500 400 350 TSE TEDPIX Index (Thousands) External Sector IRR per 1 USD (Thousands) 2,000 300 1,500 250 The current account balance (CAB) turned positive 200 1,000 in Q1-21/22 as a surge in exports outweighed 150 the increase in imports. The recovery after the 100 500 pandemic led to a sharp increase in oil and non-oil 50 exports by 125 and 69 percent in Q1-21/22 (y/y), 0 0 respectively. Imports also increased by 42 percent 7/24/2019 9/24/2019 11/24/2019 1/24/2020 3/24/2020 5/24/2020 7/24/2020 9/24/2020 11/24/2020 1/24/2021 3/24/2021 5/24/2021 7/24/2021 9/24/2021 11/24/2021 in Q1-21/2 (y/y). The soaring exports and imports followed the sharp plunge in trade in 2020/21 due to the pandemic and continued sanctions. According Tehran Stock Exchange Market Index (LHS) to the US Energy Information Administration, Iran’s oil Parallel market exchange rate (RHS) exports fell to less than 0.4 mbpd in 2020, a historic Source: Tehran Stock Exchange (TSE), and media. low and down from over 2.5 mbpd in 2017. This led BOX 3 INFLATION AND EXCHANGE RATE DYNAMICS IN IRAN Despite a remarkable decline in inflation around the world over the past four decades, Iran has witnessed persistent high inflation averaging at over 20 percent. The high inflation rate has also been volatile and negatively impacted investment and growth. Part of this inflation dynamic is reflected in the strong correlation between exchange rate movement and consumer price inflation in Iran (Figure B3.1). The exchange rate pass-through (ERPT) measures the sensitivity of inflation to exchange rate fluctuations. Understanding the impact of exchange rate movements on prices is critical from a policy perspective to implement the appropriate monetary policy response to currency movements. Focusing on the period Q2-2002 to Q2-2021, the unconditional ERPT* in Iran was around 0.32. In other words, every 10 percent of depreciation materialized with a 3.2 percent increase in CPI inflation (contemporaneous, 3 months lag). A closer investigation of these dynamics necessitates an estimation of conditional ERPTs using other covarying structural variables. Here, the conditional ERPT for Iran is estimated using a Vector Auto-Regressive (VAR) estimation for three time-period: Sanction-I refers to the period of the first round of sanctions in Q1-2012 to Q2-2015 before the signing of the nuclear accord in 2015, known as the Joint Comprehensive Plan of Action (JCPOA). The second period (JCPOA) begins from Q3-2015 till the time that the US withdrawal from the agreement in Q1-2018, and the third period, Sanction-II, is the period after (Q2-2018 to Q2-2021). The GDP gap and broad money (M2) were use as other explanatory variables. Table B3.1 compares the estimated pass-throughs for different time periods. The estimation results indicate the ERPT was lower in the recent period of US sanctions (Sanction-II) despite an unprecedented depreciation of the Iranian currency. While a 10 percent depreciation of the Iranian currency is associated with about 2.7 percent inflation over the entire sample, this has reduced to 2 percent inflation during the recent sanction. The main reason behind this could be attributed to the introduction of the subsidized exchange rate in April 2018 for essential goods which resulted in a weaker co-movement of exchange rate and prices. In addition, financing a large portion of the budget deficit through bond issuance in recent years also contributed to lower pressure on the CBI balance sheet and reduced inflationary expectations. Figure B3.2 illustrates the impulse responses of CPI inflation to a one standard deviation shock to the nominal exchange rate in Iran for the entire sample period and Figure B3.3 illustrates it under the most recent period (Sanction-II). Considering the effect of the recent US sanctions dampen the impulse response function. The impact of an exchange rate shock on domestic price is over within two years, but it mostly felt in the first three quarters. a The unconditional ERPT defined as the ratio of the change in consumer prices divided by the depreciation of the nominal exchange rate in the previous quarter. (continued on next page) 14 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS BOX 3 INFLATION AND EXCHANGE RATE DYNAMICS IN IRAN (continued) A Strong Correlation between Fluctuations in the Exchange Rate and Inflation FIGURE B3.1 •  80 20 60 15 40 10 Percent Percent 20 5 0 0 –20 –5 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 2019Q4 2020Q2 2020Q4 2021Q2 Change in exchange rate, q/q (LHS) CPI inflation, q/q (RHS) Source: SCI, CBI, and World Bank staff calculations. TABLE B3.1 • Estimated Exchange Rate Pass-Through in Iran in Different Time Periods Entire Sample Sanction I JCOPA Sanction II (Q2-2002 to Q2-2021) (Q1-2012 to Q2-2015) (Q3-2015 to Q1-2018) (Q2-2018 to Q2-2021) No Control Variables 0.24 0.23 0.21 0.17 With Control Variables 0.27 0.26 0.23 0.20 Exchange Rate Shocks Led to FIGURE B3.2 •  …but Had a Lower Impact during FIGURE B3.3 •  Higher Inflation… the Latest Sanctions Period Impulse response to one standard deviation shock myirf1, dlexg, dlcpi in the nominal exchange rate (entire sample) 0.02 dlexg, dlcpi 0.02 0.01 0.01 0.00 0.00 –0.01 –0.01 0 5 10 15 0 5 10 15 Step Step 95% CI Orthogonalized irf 95% CI Orthogonalized irf Graphs by irfname, impulse variable, and response variable Source: World Bank staff estimates. Source: World Bank staff estimates. Recent Economic and Policy Developments 15 The CAB Registered a Surplus in FIGURE 22 •  FIGURE 23 • …as Oil Export Revenues Rebounded Q1-21/22… 125 35 80 25 75 Growth, percent (y/y) 50 15 Percent 25 US$ billion 5 20 –5 –10 –25 –15 –40 –75 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 –25 –70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2017/18 2018/19 2019/20 2020/21 2021 2017/18 2018/19 2019/20 2020/21 2021 /22 /22 CAB, US$ billion (LHS) Oil exports, % of goods exports Exports growth y/y, percent (RHS) Oil exports growth, nominal (y/y) Imports growth y/y, percent (RHS) Oil price, Iran Heavy, US$/bbl Source: CBI and World Bank staff calculations. Source: CBI, OPEC, and World Bank staff calculations. the CAB to turn negative in 2020/21 for the first time Import growth in H1-21/22 also surpassed in the past fifteen years, registering a US$0.7 billion the pre-pandemic level in H1-19/20. Iran imported deficit (Figure 22). US$23.1 billion worth of goods in H1-21/22 (37.6 per- Non-oil exports surged in H1-21/22, sur- cent growth, y/y), about 8.8 percent above its pre-pan- passing the pre-pandemic level. During H1-21/22, demic level at US$21.22 billion in H1-19/20. Top im- non-oil exports grew by 61 percent (y/y) reaching port partners include UAE (31.6 percent), China (21.6 US$21.8 billion (about 4 percent above the pre-crisis percent), Turkey (10.4 percent), Germany (4.5 percent), level of US$20.9 billion in H1-19/20). The large growth and Switzerland (3.9 percent) (Figure 25). The share of in non-oil exports was mainly a base effect resulting imports from UAE has increased substantially reach- from the impact of border closures at the onset of the ing 31.6 percent in H1-21/22, up from 17.8 percent COVID-19 in H1-20/21. Iran’s top five export destina- two years earlier in H1-19/20, and the country has re- tions remained the same, led by China (29.8 percent), placed China as the top exporter to Iran. Imports from Iraq (17.4 percent), United Arab Emirates (UAE) (10.1 UAE are predominantly reexports from other coun- percent), Turkey (10.5 percent), and Afghanistan (4.6 tries and consist of a range of consumer goods and percent). Non-oil exports to all destinations were below raw material. The recent rebound came after a recent their pre-crisis level in H1-19/20 except for China where easing of financial and logistic restrictions that UAE it increased significantly (27 percent compared to H1- had previously enforced against Iran allowing for the 19/20) thereby being the main driver of the increase restart of havaleh (hawala) transactions. Since April in total non-oil exports to above the pre-pandemic lev- 2021, India is no longer one of the top five main export- el (Figure 24). Liquefied natural gas, methanol, polyeth- ers to Iran partly as Iran’s accessible funds with Indian ylene, semi-finished iron products, iron ingots, and pro- banks were gradually depleted after India stopped im- pane were the top items in Iran’s non-oil export basket. porting Iranian oil due to US sanctions. Iran’s main im- In H1-21/22, petrochemical products and gas conden- ported goods in H1-21/22 were cellphones, corn, soy- sates accounted for over half of total non-oil exports. bean, sunflower seed oil, and soybean. 16 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS Non-oil Exports to Traditional FIGURE 24 •  …and UAE Replaced China as the FIGURE 25 •  Partners Surged in H1-21/22…. Largest Exporter to Iran 45 50 40 45 35 11, 26% 40 12.8, 29% 9, 26% 35 30 2.4, 6% 9, 26% 30 US$, billion US$, billion 25 5, 12% 2.1, 5% 2.3, 7% 3.7, 8% 1.6, 4% 2.5, 7% 25 2.1, 6% 20 4.5, 11% 5, 11% 4.4, 11% 4.7, 13% 6, 28% 20 6.5, 28% 0.9, 4% 15 1.5% 9, 22% 2.3, 11% 15 8.9, 20% 9.8, 25% 7.4, 21% 2.3, 11% 2.4, 10% 1.4% 10 10 3.8, 17% 7.3, 32% 5 9.5, 23% 9.1, 26 % 5 11.2, 26% 9.8, 25 % 6.5, 30% 5, 22% 0 0 2019/20 2020/21 H1-21/22 2019/20 2020/21 H1-21/22 China Iraq UAE China UAE India Turkey Turkey Afghanistan Other Germany Switzerland Other Source: Islamic Republic of Iran Customs Administration (IRICA) and World Bank staff Source: IRICA and World Bank staff calculations. calculations. Recent Economic and Policy Developments 17 2 OUTLOOK AND RISKS Outlook volume of oil exports from the current low base, which is constrained by ongoing sanctions, is expected to Iran’s economic outlook is affected by the only have a modest impact on the external account. COVID-19 pandemic and the demand prospects Non-oil exports are also expected to increase in line from main export partners. Domestically, the with a moderate pickup in demand from neighboring initial slow response with regards to COVID-19 countries, however, their contribution to exports is immunization in the face of the large Delta variant likely to remain below their full price competitiveness wave is expected to dampen growth due to the potential. This is largely due to difficulties facing scarring effects of the pandemic and lingering Iranian businesses in acquiring international banking threat of future waves of infection. Stricter COVID-19 and logistical services and their limited integration to containment measures aimed to contain the spread global and regional value chains. As such, the CAB is alongside shortfalls in attracting new investment, forecast to remain in a surplus of under 2 percent of due to negative real interest rates, will be additional GDP over the outlook years. headwinds to growth in the outlook. Globally, slower In the absence of a significant rebound in growth in major trade partners such as China, oil revenues in the medium term, the fiscal deficit together with ongoing US sanctions on exports is is projected to widen and raise financing needs. In also projected to weigh down on growth in both oil the absence of a significant easing of US sanctions on and non-oil sectors. As such, average GDP growth the oil sector, oil revenues are projected to remain in is projected to be modest, at under 3 percent per line with their current historic low share of government annum, in the medium term. revenues. Non-oil revenues are also forecast to only Higher oil prices are estimated to only grow slowly in real terms as the projected slow marginally improve Iran’s current account as economic recovery would limit the growth in the tax oil export volumes remain below their historical base. Wage bill and pensions expenditures, the main trend. Global oil prices are projected to improve from drivers of expenditures, are expected to grow steadily US$41 per barrel in 2020 to an average of US$70 per to partly offset the impact of high inflation. These barrel in 2021–23. However, the slow increase in the revenue and expenditure dynamics are expected to 19 widen the deficit keeping the fiscal balance at over growth and financing imports. The economy also 6 percent of GDP. To finance the growing deficit, the remains vulnerable, albeit less than in the past, to government is expected to continue maximizing bond future downturns in global oil prices. The mounting issuance, draw more heavily on NDFI reserves, and climate change challenges resulting in more severe monetize part of the fiscal deficit especially if planned water and energy shortages together with high sales of assets do not materialize. inflation could further increase pressures on the most Headline inflation is expected to remain vulnerable and add to social grievances. Upside high over the outlook period, driven by inflationary risks relate to the possibility of sanctions relief which expectations and government financing opera- could boost economic activity, as the economy has tions. In line with current uncertainties surrounding chronically operated below potential capacity. the path of the economy both due to domestic and Existing structural challenges in government external factors, and in the absence of a nominal deficit financing highlight the necessity of anchor, inflationary expectations are projected to be adopting a fiscal risk management strategy. While the main driver of prices and add to downward pres- government debt in Iran remains relatively modest sures on the value of the rial. These pressures are and dominated by domestic sources, the growing reinforced by the financing of the government deficit, debt has mainly come at the expense of the debtors which in the absence of substantial fiscal reforms or including pension funds and domestic banks with a significant recovery in oil revenues, could lead to implications for the rest of the economy. Similarly, the monetization of the deficit which would in turn add to government borrowing from banks has contributed to inflationary pressures. As such, headline inflation is the banks’ undercapitalization and their subsequent forecast to remain at over 40 percent on average in borrowing from the CBI. In other words, even in years the medium term. where the government has not borrowed directly from As with previous bouts of high inflation, the CBI, its financing operations have heightened households’ welfare will to be significantly im- banking sector risks, increased the monetary base pacted by higher consumer prices. The rising cost and led to inflation. Furthermore, the uncoordinated of living is expected to increase economic pressures and sudden sales of assets by overreliance on the on poor and vulnerable households disproportion- stock market will spillover risks to the market and ately and reduce the real value of wages and exist- heighten economic uncertainty while excessive ing government transfers. Policy response is expect- issuance of short-term debt will increase roll-over ed to be constrained by the limited fiscal space but risks. While the large negative real interest rate improved implementation of targeting of cash trans- makes these issuances attractive in the short run, it fers could help reduce mitigation costs. further weakens the balance sheets of banks who are required to keep a portfolio of these bonds due to the Risks and Opportunities lack of depth of the debt market. The government is also exposed to significant other contingent liabilities Major risks to Iran’s economic outlook relate to risks including guarantees to SOEs, and other public the course of the pandemic and the prospects and semi-public institutions. Thus, the projected fiscal of geopolitical developments. The emergence of outlook would be considerably worse should these more infectious and deadly new variants of COVID-19 structural fiscal risks materialize. If left unresolved, and subsequent containment measures would pose these challenges could significantly undermine fiscal a significant risk to the recovery in Iran’s economy and financial sector sustainability in coming years. until full vaccination of a large share of the population Iran also faces significant climate change is achieved. Trade disruptions and weaker demand challenges which if left unaddressed will have a from neighboring countries such as Afghanistan and dire impact on the economic and social fabric of Iraq, the main source of accessible foreign exchange the country. The recent unprecedent droughts reserves, would also prove as a major headwind for and desertification trend are likely to intensify 20 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS and pose significant risks to food security and to reduce the budget deficit including by increasing people’s livelihoods. Deforestation, under investment tax revenues and reducing subsidy transfers through in preserving water resources, and short-term rationalizing domestic energy prices. To avoid addi- agricultural policies have resulted in water shortages tional inflationary pressures the budget deficit would and soil degradation across the country. Recurring be financed by issuing government bonds without droughts will reduce hydropower energy generation impact on the central bank’s balance sheet. Monetary and intensify electricity shortages. Thus, bold reforms policy needs to be prudent and less accommodative in managing these climate and environmental change to rein in inflationary pressures. The most vulner- challenges are more crucial than ever. These include able should be protected by means-tested measures curbing the high intensity of energy usage which has including by strengthened and targeted social safety worsened due to large energy subsidies, reduce flaring nets. Finally, there is an urgent need for the govern- of associated gas, and invest in renewable energy ment to devise a comprehensive plan of action for generation.20 Similarly addressing the depleting transitioning away from fossil fuels as the global shift water resources requires better institutional and away from carbon will have serious implications for the water resource management strategies. Greening the country’s economic sustainability in the near future. manufacturing sector, which relies on older inefficient technologies, through investments and imposing environmental levies could pave the way for a more 20 Iran’s per capita energy use is almost twice as high sustainable development path. as China. While part of the resources is directly lost through flaring of associated gas, low prices have led Facing these challenges, the new govern- to overconsumption and lack of investment in improving ment is well placed to prepare and implement a energy efficiency. Iran ranks as the biggest subsidizer of comprehensive package of economic reforms. fossil fuels (IEA) and the third largest gas flaring country The most important immediate target of reforms is in the world (World Bank). Outlook and Risks 21 Selected Economic and Financial Indicators, 2018/19–2023/24 TABLE 1 •  2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Act. Act. Act. Est. Proj. Proj. Real sector (Annual percentage change, unless otherwise stated) Real GDP at market prices –6.0 –6.8 3.4 3.1 2.4 2.2 Real GDP at factor cost –5.4 –6.5 3.6 3.1 2.4 2.2 Real GDP per capita –7.3 –8.0 2.1 1.8 1.2 1.1 Real non-oil GDP –1.8 1.1 2.5 0.8 1.9 1.7 Total crude oil production (mbpd) 3.6 2.4 2.0 2.3 2.5 2.6 (GDP supply side components) Agriculture –0.9 8.8 4.5 1.6 2.1 4.0 Industry (including oil) –11.0 –15.9 8.4 3.6 3.5 3.4 Services –0.7 –0.5 –0.1 2.9 1.6 0.9 (GDP demand side components) Private consumption –2.6 –7.7 –0.4 2.1 1.8 1.5 Government consumption –2.9 –6.0 –2.3 2.4 1.7 1.5 Gross fixed capital formation –12.3 –5.9 2.5 1.2 2.1 2.7 Exports, goods and services –12.5 –29.9 –5.4 12.0 7.1 5.9 Imports, goods and services –29.5 –38.1 –29.2 9.8 4.8 3.9 Money and prices Oil price (US$/bbl) 68 61 41 70 74 65 CPI Inflation (p.a.) 31.1 41.3 36.4 42.9 41.6 40.3 Monetary base (MB) 24.2 32.8 30.1 n/a n/a n/a Broad money (M2) 23.1 31.3 40.6 n/a n/a n/a Banking system credit 40.4 39.9 54.1 n/a n/a n/a Nominal interest rate (percent) 19.7 18.9 19.8 n/a n/a n/a Nominal exchange rate, parallel market (IRR/USD) 103,378 129,185 228,809 n/a n/a n/a (Percent of GDP, unless otherwise stated) Investment & saving Gross capital formation 27.3 31.0 32.8 32.0 31.6 31.3 Gross national savings 36.4 32.5 32.5 33.4 33.1 33.0 Government finance Total revenues 15.4 10.8 8.0 8.8 9.5 9.7 Tax revenues 6.7 6.6 5.5 6.0 6.6 6.8 Total expenditures 17.1 15.9 14.8 16.1 16.4 16.6 Current expenditures 14.2 13.2 11.9 12.6 12.9 13.1 Net lending/borrowing (overall balance) –1.7 –5.0 –6.9 –7.3 –6.9 –6.8 (continued on next page) 22 IRAN ECONOMIC MONITOR: ADAPTING TO THE NEW NORMAL: A PROTRACTED PANDEMIC AND ONGOING SANCTIONS Selected Economic and Financial Indicators, 2018/19–2023/24 (continued) TABLE 1 •  2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Act. Act. Act. Est. Proj. Proj. Gross Public Debt 38.5 48.0 52.0 53.7 53.2 52.6 External sector Current account balance 9.1 1.5 –0.3 1.4 1.5 1.7 Population and labor market Population (million) 81.8 82.9 84.0 85.0 86.0 87.0 Participation rate (percent) 44.5 44.1 41.3 n/a n/a n/a Unemployment rate (percent) 12.2 10.7 9.6 n/a n/a n/a Memorandum Items: Nominal GDP (IRR billion) 19,128,840 24,412,570 35,084,726 49,427,479 69,284,161 96,970,731 Source: Iranian authorities and World Bank staff estimates and projections. Outlook and Risks 23 1818 H Street, NW Washington, DC 20433