IRAN ECONOMIC MONITOR Sustaining Growth Amid Rising Geopolitical Tensions Spring 2024 Iran Economic Monitor Sustaining Growth Amid Rising Geopolitical Tensions With a Special Focus Recent Poverty and Inequality Trends in Iran (2020–2022) Spring 2024 Middle East and North Africa Region © 2024 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 conclu- sions 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi ‫ چکیده‌ی مدیریتی‬. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv 1. Recent Economic and Policy Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Output and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Labor Market and Jobs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Public Sector Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Monetary Policy and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. Outlook, Risks, and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Risks and Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Special Focus: Recent Poverty and Inequality Trends in Iran 2020/21–2022/23 . . . . . . . . . . . . . . . 23 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 List of Figures Figure 1 GDP Continued its Growth in 9M-23/24… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 …Driven by the Expansion in the Oil Sector and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 The Income Gap between Iran and Peer Groups Widening Due to a Decade of Stagnation in Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 4 Tight Oil Market and a More Relaxed Implementation of Sanctions Impacted the Country’s Oil Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 5 …and Manufacturing Production Growth Weakened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 6 Consumption and Exports Were the Main Drivers of GDP Growth on the Demand Side in 9M-23/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 7 Employment Reached the Highest Level after the Pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 iii Figure 8 The Unemployment Rate Reached a Record Low, but Labor Force Participation Remained Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 9 Job Creation Has Remained Insufficient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 10 The Birth Rate Has Dropped Significantly… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 11 …Leading to a Shift in the Age Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 12 Oil Revenues Failed to Meet the Budget Target in 2023/24... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 13 …the Government Reduced Expenditures to Narrow the Fiscal Deficit as a Share of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 14 High Inflation and Improved Oil Revenue Enabled the Government to Partially Settle its Domestic Debt in 2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 15 Inflation Decelerated in 2023/24… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 16 ...as the Rial Stabilized Relative to the Previous Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 17 Food Prices and Housing Expenditures Were the Main Driving Force of Inflation in 2023/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 18 Monetary Base and Liquidity Growth have Decelerated and the Negative Real Interest Rate Moderated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Figure 19 M0 Growth Was Driven by Rising Net Claims on Government in 9M-23/24 . . . . . . . . . . . . . . . 12 Figure 20 Tighter Monetary Policy Led Credit Allocated to the Real Economy to Decline as a Share of GDP in 2023/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 21 The Stock Market Started Strongly in 2023/24, Before Stagnating Again with Reemerging Market Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 22 The CAB Contracted Due to a Decline in Oil and Oil Product Prices and Higher Imports… 14 Figure 23 …while the Capital Account Registered a Larger Deficit in 9M-23/24… . . . . . . . . . . . . . . . . . . . 14 Figure 24 Lower Non-Oil Export Prices Have Widened the Non-Oil Trade Deficit . . . . . . . . . . . . . . . . . . . . 14 Figure 25 China Remains the Top Importer of Iran’s Non-Oil Exports… . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 26 …while More than Half of Imports are Sourced from the UAE and China . . . . . . . . . . . . . . . . . .15 Figure 27 Poverty Rates, 2012/13–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Figure 28 Headcount Poverty Rates at US$3.65 and US$6.85 2017 PPP National . . . . . . . . . . . . . . . . . . 24 Figure 29 GINI Index, National, 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 30 Growth and Redistribution Effects on Poverty Reduction, 2020/21–2022/23 . . . . . . . . . . . . . 25 Figure 31 Growth Incidence Curves 2011/12–2020/21 and 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . 25 Figure 32 GDP Growth Rates and Poverty Rates in Iran, 2020–2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 33 Evolution of Social Transfers, 2018/19–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Figure 34 Decomposition of the Drivers of Poverty, 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 35 Headcount Poverty Rates at US$6.85 2017 PPP, by Rural/Urban Areas, 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 36 GINI Index, by Rural/Urban Areas, 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Figure 37 Headcount Poverty Rates at US$6.85 2017 PPP, by Region and Rural/Urban Areas, 2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 38 Headcount Poverty Rates at US$6.85 2017 PPP, by Province, 2022/23 . . . . . . . . . . . . . . . . . . 28 Figure 39 Composition of Household Income from Social Transfers, by Quintile . . . . . . . . . . . . . . . . . . . . 29 Figure 40 Value of Cash Top-Up, 2020/21–2022/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 iv IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS List of Tables Table 1 The Budget Law for 2024/25 Signals a Tighter Fiscal Stance . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Table 2 Iran: Selected Economic and Financial Indicators, 2020/21–2026/27 . . . . . . . . . . . . . . . . . . . 20 List of Boxes Box 1 Recent Subsidy and Transfer Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Box 2 Scenario Impact of the Recent Conflict in the Middle East on Iran’s Economy . . . . . . . . . . . . .18 Box 3 Updated Methodology for Iran Poverty Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30  v ABBREVIATIONS AND ACRONYMS CAB Current account balance m/m Month-on-month CAR Capital adequacy ratio mm Millimeters CBI Central Bank of Iran NDFI National Development Fund of Iran Corona Virus Disease 2019 COVID-19 NIMA Unified system of foreign exchange (Novel Coronavirus) transactions (Persian acronym) CPI Consumer price inflation NPL Non-performing loan bbl Barrel of crude oil OPEC Organization of Petroleum Exporting ER Exchange rate Countries FATF Financial Action Task Force p.a. Per annum GDP Gross domestic product PBO Plan and Budget Organization IEM Iran Economic Monitor pp Percentage point IPI Industrial Production Index PRC Parliament Research Center IRICA Islamic Republic of Iran’s Customs RHS Right-hand-side Administration q/q Quarter-on-quarter IRR Iranian Rial SCI Statistical Centre of Iran ITS Information and telecommunication SCO Shanghai Cooperation Organization services TEDPIX Tehran Stock Exchange main index LHS Left-hand-side TSE Tehran Stock Exchange M0 Monetary Base US United States of America M2 Broad Money US$ United States Dollar mbpd Million barrels per day WAP Working age population MENA Middle East and North Africa y/y Year-on-year vii PREFACE T he Iran Economic Monitor (IEM) provides an Borgne (Practice Manager, EMNMT), and Norbert update on key economic developments and Fiess (Lead economist, EMNDR). The special focus policies. It examines these economic devel- chapter on the recent poverty and inequality trends opments and policies in a longer-term and global was prepared by Eiman Osman (Young Profes- context and assesses their implications for the out- sional, EMNPV) and Erwin Knippenberg (Economist, look for the country. The IEM’s coverage ranges EMNPV) under the supervision of Salman Zaidi from the macro-economy to financial markets to (Practice Manager, EMNPV). The team is grateful to indicators of human welfare and development. It is the Government of Iran and the United Nations Resi- intended for a wide audience, including policy mak- dent Coordinator Office in Iran for their contributions ers, business leaders, financial market participants, to this publication. and the community of analysts and professionals The findings, interpretations, and conclusions engaged on Iran. expressed in this Monitor are those of World Bank The Iran Economic Monitor is a product of staff and do not necessarily reflect the views of the the World Bank’s Global Practice for Macroeco- Executive Board of the World Bank or the govern- nomics, Trade and Investment (MTI) team within the ments they represent. Global Practice Group for Equitable Growth, Finance For questions and comments on the content of and Innovation (EFI). The eleventh issue of the IEM this publication, please contact Majid Kazemi (mka- was prepared by Majid Kazemi (Economist, Task zemi@worldbank.org) or Eric Le Borgne (eleborgne@ Team Leader, EMNMT) and Razieh Zahedi (Con- worldbank.org). sultant, EMNMT) under the general guidance of The data cut-off date for this report was May Jean-Christophe Carret (Regional Director), Eric Le 27, 2024. ix EXECUTIVE SUMMARY I ran’s economy is growing for a fourth con- ulation participates in the labor market, with notably secutive year aided by the recovery in the oil low female participation at 14.2 percent. The low eco- sector and despite ongoing economic sanc- nomic participation rate is driven by lack of jobs, skills tions. Real Gross Domestic Product (GDP) growth mismatch, and barriers to entry in certain professions. accelerated to 5 percent year-over-year (y/y) between Unemployment rates vary across subgroups, with April and December 2023, which corresponds with women, youth, and university graduates experienc- the first nine months of the Iranian year of 2023/24 ing significantly higher unemployment rates. At the (9M-23/24), driven by the oil sector and services. same time, the emigration of skilled workers creates The oil sector, accounting for 8.6 percent of GDP in labor shortages in various sectors, such as IT, teach- the period, expanded by 16.3 percent (y/y) fueled by ing, nursing, and surgery. The looming demographic a tighter global oil market and improved oil exports shift related to the aging of the population poses new despite sanctions. The non-oil sector also grew by challenges for the labor market, productive sectors, 3.5 percent (y/y), supported by domestic demand and the pensions and social protection system in the and exports to selected neighbors. However, eco- medium term. nomic imbalances from price and policy distortions, Lower-than-planned government reve- the economic cost of ongoing sanctions, and height- nues in 2023/24 resulted in a reprioritization in ened geopolitical uncertainty weigh on prospects for expenditures. In 2023/24, only 73 percent of bud- sustainable and more broad-based growth. geted revenues are estimated to have been collected, The economic rebound has improved primarily since only 55 percent of the planned oil rev- employment outcomes, but labor market chal- enues are estimated to have materialized. Besides lenges remain. In 2023/24 employment surpassed ambitious export volumes envisioned in the budget, the pre-pandemic level, growing by 3.3 percent. This substantial discounts on Iranian oil export prices brought the unemployment rate to a record low of depressed oil revenues. In contrast, tax revenues 8.1 percent. Over the last few years, the labor-inten- reached 90 percent of their intended target, driven sive agricultural sector has suffered job losses due to by direct tax revenues, particularly from income and drought and water shortages; the adverse labor mar- corporate taxes, and despite a significant shortfall ket impact was offset by expansions in the industrial in import taxes due to limits on automobile imports. and service sectors. Despite a growing working-age The revenue shortfall led the government to reduce population, only 41.3 percent of the working-age pop- expenditures. As assets sales and privatization fell xi significantly short of targets, to cover the budget defi- increased earnings from wages and self-employment cit (estimated at 1.9 percent of GDP), the government in the non-oil sector contributed to the decline in pov- resorted to financing from the National Development erty. Social programs, including cash transfers and Fund and borrowing from the banking system. pensions, played a significant role in poverty reduc- A decline in oil prices and higher imports tion. While the real value of regular cash-transfers has narrowed the current account surplus in 2023/24 eroded with inflation, these have been supplemented despite an expansion in export volumes. Lower with a series of top-ups since 2019. However, regional oil and petrochemicals prices led goods exports to disparities persist, and poverty in rural areas remains edge down by 0.4 percent (y/y) in nominal terms in more than twice as high as in urban areas. 9M-23/24. This, together with 10.9 percent (y/y) higher GDP growth is forecast to moderate to an imports, more than halved the current account surplus annual average of 2.8 percent during 2024/25 to 1.6 percent of GDP (US$6.3 billion). This trend con- to 2026/27. Weaker global demand, sanctions, tinued into the second half of the year, leading to non-oil energy shortages, liquidity constraints, declining cap- trade deficit of about 4 percent of GDP (US$16.9 bil- ital stock, and geopolitical tensions contribute to the lion) in 2023/24. The greater concentration of trade to growth outlook. GDP in 2024/25 is now forecast to the top 3 key trading partners makes external accounts grow at a more moderate rate due to the projected even more susceptible to terms of trade shocks and slower growth in government expenditures and the the demand of key partners. Recent efforts including base effect of the larger oil GDP growth in 2023/24. membership in BRICS (the intergovernmental organi- While recent government plans to consolidate the zation originally comprising Brazil, Russia, India, China budget in 2024/25 help to improve the fiscal out- and South Africa) and Shanghai Cooperation Organi- look, fiscal pressures are forecast to persist, resulting zation (SCO) aim to promote trade but have had limited in a fiscal deficit, compounded by off-budget expen- impact due to non-membership in Financial Action ditures. Inflation projections have also marginally Task Force (FATF) and ongoing sanctions. improved but are still expected to remain above 30 Consumer price inflation (CPI) remains percent annually, fueled by the government budget elevated but closely impacted by inflation- deficit financing operations and the impact of geo- ary expectations of geopolitical developments political tensions. The current account surplus is reflected in the exchange market. Headline and projected to gradually decrease, influenced by a pro- core CPI averaged 40.7 percent and 40.8 percent in jected decline in oil prices. Barriers to non-oil export 2023/24, respectively. High inflation has been primar- promotion, including restricted access the interna- ily driven by food prices and housing costs. Lower tional banking system and product markets for both global commodity prices, attempts towards tightening sourcing intermediate material and as export desti- monetary policy, and moderating inflationary expecta- nations, lack of integration in supply chain networks, tions from limited progress in negotiations with the US tariffs, and limited scope of export diversification con- contributed to inflation easing from 55.5 percent (y/y) strain non-oil export growth potential. in April 2023 to 31 percent (y/y) in May 2024. The economic outlook is subject to signif- Recent trends in Iran show progress in icant risks related to economic, climate change, reducing poverty and improving income inequal- and geopolitical developments. A sharper than ity, driven by inclusive growth and supplemental anticipated decline in global demand and oil prices cash transfers. Between 2020/21 and 2022/23, pov- would adversely affect economic growth and fur- erty rates as measured at US$6.85 a day decreased ther limit the fiscal space needed for pro-growth and by 7.4 percentage points, from 29.1 percent to 21.9 social protection measures. The growing concen- percent. 6.1 million Iranians were lifted above the pov- tration of trade with limited trading partners such erty line. Using the lower-middle income poverty line as China, exposes the economy to fluctuations in of US$3.65 a day, poverty declined from 6.1 percent to these partners’ economic prospects. More frequent 3.8 percent. Inclusive consumption growth, driven by extreme weather events threaten agricultural produc- xii IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS tion and employment and pose a risk to food security involve Iran, suggest it could lead to a 7 percent GDP and livelihoods. The intensification of economic sanc- contraction with significant impact on fiscal and exter- tions, significantly impacting trade with neighbors and nal balances, even if the shock is limited in scope existing trade partners, would significantly weigh on and restricted to 2024/25. Conversely, the removal or growth and exports. Over the last year, risks to Iran’s partial waiver of sanctions would significantly boost economy from the potential repercussions of the esca- both oil and non-oil growth. Export diversification, lation of conflict in the Middle East have increased improved economic integration, and inflow of foreign significantly. Scenario simulations of an expansion investments could help facilitate technology transfer of the conflict in the Middle East, that would directly and create new growth opportunities. Executive Summary xiii ‫چکیده‌ی مدیریتی‬ ‫آمــوزش عالــی بســیار باالتــر اســت‪ .‬همچنیــن مهاجــرت نیــروی کار‬ ‫اقتصــاد ایــران در راســتای بهبــود بخــش نفــت و بــا وجــود تــداوم‬ ‫ماهــر ســبب کمبــود نیــروی کار در بخش‌هــای مختلــف‪ ،‬ماننــد‬ ‫تحریم‌هــای اقتصــادی در حــال رشــد بــرای چهارمیــن ســال پیاپــی‬ ‫تکنولــوژی اطالعــات‪ ،‬آمــوزش‪ ،‬پرســتاری و جراحــی شــده اســت‪ .‬تغییــر‬ ‫اســت‪ .‬رشــد واقعــی تولیــد ناخالــص داخلــی در نــه ماهــه نخســت ســال‬ ‫ســاختار جمعیتــی ناشــی از پیــر شــدن جمعیــت در میان‌مــدت ســبب‬ ‫‪( 1402‬نســبت بــه مــدت مشــابه ســال گذشــته) به‌واســطه رشــد بخــش‬ ‫بــروز چالش‌هــای جدیــدی در بــازار کار‪ ،‬بخش‌هــای مولــد و نظــام‬ ‫نفــت و خدمــات بــه ‪ 5‬درصــد رســید‪ .‬بخــش نفــت کــه ‪ 8/6‬درصــد تولیــد‬ ‫بازنشســتگی و تأمیــن اجتامعــی خواهــد شــد‪.‬‬ ‫ناخالــص داخلــی ایــن دوره را تشــکیل می‌دهــد‪ ،‬به‌می ـزان ‪ 16/3‬درصــد‬ ‫کاهــش درآمدهــای دولتــی در مقایســه بــا ســطح مــورد‬ ‫(ســال بــه ســال) رشــد یافتــه اســت کــه دلیــل آن کاهــش عرضــه جهانــی‬ ‫انتظــار در ســال ‪ 1402‬ســبب تغییــر در اولویت‌بنــدی هزینه‌هــا شــده‬ ‫نفــت و افزایــش میـزان صــادرات نفــت‪ ،‬بــا وجــود تحریــم‪ ،‬اســت‪ .‬رشــد‬ ‫اســت‪ .‬طبــق برآوردهــا‪ ،‬در ســال ‪ ،1402‬فقــط ‪ 73‬درصــد از درآمدهــای‬ ‫ســال بــه ســال بخــش غیرنفتــی نیــز بــر اثــر تقاضــای داخلــی و صــادرات‬ ‫بودجـه‌ای محقــق شــده اســت‪ .‬دلیــل عمــده ایــن مســئله آن اســت کــه‬ ‫بــه برخــی همســایگان بــه ‪ 3/5‬درصــد (ســال بــه ســال) رســیده اســت‪.‬‬ ‫طبــق برآوردهــا‪ ،‬فقــط ‪ 55‬درصــد از درآمدهــای مــورد انتظــار بخــش‬ ‫البتــه ناترازی‌هــای اقتصــادی ناشــی از دخالــت در قیمت‌گــذاری و‬ ‫نفــت محقــق شــده اســت‪ .‬عــاوه بــر پیش‌بینــی درآمــد صادراتــی‬ ‫سیاس ـت‌های اقتصــادی‪ ،‬هزینــه اقتصــادی تــداوم تحریم‌هــا و تشــدید‬ ‫بلندپروازانــه در ســند بودجــه‪ ،‬تخفیف‌هــای قابــل توجــه در قیمــت‬ ‫نااطمینانی‌هــای ژئوپلتیکــی باعــث شــده اســت ابهاماتــی در زمینــه‬ ‫نفــت صادراتــی ایــران نیــز ســبب کاهــش درآمدهــای نفتــی شــده‬ ‫چش ـم‌انداز رشــد پایــدار و گســرده ایجــاد شــود‪.‬‬ ‫اســت‪ .‬در مقابــل‪ ،‬درآمدهــای مالیاتــی بــه ‪ 90‬درصــد هــدف تعیین‌شــده‬ ‫جهــش اقتصــادی ســبب بهبــود آمــار اشــتغال شــده اســت‬ ‫رســیده اســت‪ .‬ایــن دســتاورد را می‌تــوان ناشــی از درآمدهــای مالیاتــی‬ ‫ولــی همچنــان چالش‌هایــی در بــازار کار وجــود دارد‪ .‬ســطح اشــتغال‬ ‫مســتقیم‪ ،‬به‌ویــژه مالیــات بــر درآمــد و مالیــات‌ بــر رشکت‌هــا دانســت‪.‬‬ ‫در ســال ‪ 1402‬بــا رشــد ‪ 3/3‬درصــدی‪ ،‬از ســطح مربــوط بــه دوره‬ ‫البتــه رقــم مالیــات بــر واردات‪ ،‬بــه دلیــل محدودیــت واردات خــودرو‪،‬‬ ‫پیــش از همه‌گیــری پیشــی گرفــت‪ .‬بدین‌ترتیــب‪ ،‬نــرخ بیــکاری بــه‬ ‫کاهــش یافتــه اســت‪ .‬کاهــش درآمدهــا ســبب شــد کــه دولــت مخــارج‬ ‫رقــم بی‌ســابقه ‪ 8/1‬درصــد رســید‪ .‬طــی چنــد ســال گذشــته‪ ،‬بخــش‬ ‫خــود را کاهــش دهــد‪ .‬از‌آنجا‌کــه درآمــد ناشــی از فــروش امــوال و‬ ‫کشــاورزی (بــا وابســتگی بــاال بــه نیــروی کار) بــه دلیــل خشکســالی‬ ‫خصوصی‌ســازی بســیار کمــر از اهــداف تعییــن شــده بــود‪ ،‬دولــت‬ ‫و کمبــود منابــع آبــی بــا افــت فرصت‌هــای شــغلی روبــرو بــوده‬ ‫بـرای جـران کــری بودجــه (کــه در حــدود ‪ 1/9‬درصــد تولیــد ناخالــص‬ ‫اســت‪ .‬ایــن تأثیــر نامطلــوب بــر بــازار کار در اثــر رشــد بخش‌هــای‬ ‫داخلــی تخمیــن زده مــی شــود) بــه تأمیــن مالــی از «صنــدوق توســعه‬ ‫صنعــت و خدمــات ج ـران شــده اســت‪ .‬بــا وجــود رشــد جمعیــت در‬ ‫ملــی» و اســتقراض از نظــام بانکــی متوســل شــد‪.‬‬ ‫ســن کار تنهــا ‪ 41/3‬درصــد افــراد در ســن کار در بــازار کار حضــور‬ ‫کاهــش قیمــت نفــت و افزایــش واردات ســبب کاهــش مــازاد‬ ‫دارنــد‪ .‬در ایــن بیــن‪ ،‬نــرخ مشــارکت ‪ 14/2‬درصــدی زنــان بــه می ـزان‬ ‫حســاب جــاری در ســال ‪ 1402‬بــا وجــود افزایــش حجــم صــادرات‬ ‫قابــل توجهــی پاییــن اســت‪ .‬کاهــش نــرخ مشــارکت اقتصــادی ناشــی از‬ ‫شــد‪ .‬در نــه ماهــه نخســت ســال ‪ ،1402‬کاهــش قیمــت نفــت و‬ ‫کمبــود فرصت‌هــای شــغلی‪ ،‬ناهمخوانــی مهارت‌هــا‪ ،‬و موانــع ورود بــه‬ ‫فرآورده‌هــای پرتوشــیمی باعــث کاهــش جزیــی ارزش اســمی صــادرات‬ ‫مشــاغل خــاص اســت‪ .‬نــرخ بیــکاری در زیرگروه‌هــای مختلــف فــرق‬ ‫کاالهــا به‌می ـزان ‪ 0/4‬درصــد (ســال بــه ســال) شــد‪ .‬ایــن وضعیــت در‬ ‫می‌کنــد‪ .‬نــرخ بیــکاری در بیــن زنــان‪ ،‬جوانــان و دانش‌آموختــگان‬ ‫‪xv‬‬ ‫نقدینگــی‪ ،‬کاهــش انباشــت رسمایــه و تنش‌هــای ژئوپلتیکــی بــر‬ ‫کنــار افزایــش ‪ 10/9‬درصــدی (ســال بــه ســال) واردات در رقــم مــازاد‬ ‫چش ـم‌انداز رشــد اقتصــادی تأثیــر می‌گــذارد‪ .‬پیش‌بینــی می‌شــود کــه‬ ‫حســاب جــاری را تقریبـاً نصــف کــرد و بــه ‪ 1/6‬درصــد تولیــد ناخالــص‬ ‫تولیــد ناخالــص داخلــی در ســال ‪ ،1403‬بــه دلیــل کاهــش تخمینــی رشــد‬ ‫داخلــی (‪ 6/3‬میلیــارد دالر) رســاند‪ .‬ایــن رونــد در نیمــه دوم ســال نیــز‬ ‫هزینه‌هــای دولــت و کاهــش تأثیــر رشــد تولیــد ناخالــص داخلــی نفتــی‬ ‫ادامــه یافــت و ســبب کاهــش تجــارت غیرنفتــی به‌میــزان ‪ 4‬درصــد‬ ‫در ســال ‪ 1402‬بــه نــرخ متعادل‌تــری برســد‪ .‬بــا وجــود برنامه‌هــای‬ ‫تولیــد ناخالــص داخلــی (‪ 16/9‬میلیــارد دالر) در ســال ‪ 1402‬شــد‪ .‬بــا‬ ‫اخیــر دولــت ب ـرای بودجــه انقباضــی ســال ‪ 1403‬و بهبــود چش ـم‌انداز‬ ‫مترکــز بیشــر تجــارت بــا ‪ 3‬رشیــک تجــاری اصلــی‪ ،‬حســاب‌های خارجــی‬ ‫بودجــه‌ای‪ ،‬پیش‌بینــی می‌شــود کــه فشــارهای بودجــه‌ای همچنــان‬ ‫در برابــر تکانه‌هــای تجــاری و تقاضــای رشکای اصلــی آســیب‌پذیرتر‬ ‫پابرجــا مبانــد و هم ـراه بــا مخــارج خــارج از بودجــه‪ ،‬کــری بودجــه‬ ‫می‌شــود‪ .‬اقدامــات اخیــر ازجملــه عضویــت در «بریکــس» (ســازمان‬ ‫تــداوم یابــد‪ .‬آمــار بــرآورد تــورم نیــز بهبــود اندکــی را نشــان می‌دهــد‬ ‫چنددولتــی بــا محوریــت برزیــل‪ ،‬روســیه‪ ،‬هنــد‪ ،‬چیــن و آفریقــای‬ ‫ولــی انتظــار مــی‌رود کــه نــرخ تــورم بــاالی ‪ 30‬درصــد باقــی مبانــد‪.‬‬ ‫جنوبــی) و عضویــت در «ســازمان همــکاری شــانگهای» (‪ )SCO‬بــا‬ ‫تامیــن مالــی کــری بودجــه و تأثیــر تنش‌هــای ژئوپلتیــک بــر ایــن‬ ‫هــدف تقویــت تجــارت صــورت گرفــت‪ ،‬ولــی بــه دلیــل عــدم عضویــت‬ ‫وضعیــت تأثیرگــذار خواهــد بــود‪ .‬پیش‌بینــی می‌شــود کــه مــازاد‬ ‫در «کارگــروه اقــدام مالــی» (‪ )FATF‬و تــداوم تحریم‌هــا تأثیــر‬ ‫حســاب جــاری بــر اثــر کاهــش تخمینــی قیمــت نفــت‪ ،‬به‌تدریــج‬ ‫محــدودی داشــته‌اند‪.‬‬ ‫کاهــش یابــد‪ .‬موانــع تقویــت صــادرات غیرنفتــی شــامل محدودیــت‬ ‫نــرخ تــورم شــاخص قیمــت مرصف‌کننــده همچنــان باالســت‬ ‫دسرتســی بــه شــبکه بانکــی بین‌املللــی و بازارهــای جهانــی هــم ب ـرای‬ ‫ولــی از انتظــارات تورمــی ناشــی از تحــوالت ژئوپلتیــک و بــازار ارز‬ ‫تأمیــن مــواد اولیــه و هــم ب ـرای شناســایی مقاصــد صادراتــی‪ ،‬فقــدان‬ ‫تأثیــر می‌پذیــرد‪ .‬میانگیــن نــرخ تــورم شــاخص قیمــت مرصف‌کننــده‬ ‫یکپارچگــی در شــبکه‌های زنجیــره تأمیــن‪ ،‬تعرفه‌هــا و گســره محــدود‬ ‫کل و هســته در ســال ‪ 1402‬به‌ترتیــب ‪ 40/7‬و ‪ 40/8‬بــوده اســت‪ .‬نــرخ‬ ‫تنــوع صادراتــی رشــد صــادرات غیرنفتــی بالقــوه را کاهــش می‌دهــد‪.‬‬ ‫تــورم بــاال عمدتــاً ناشــی از افزایــش قیمــت مــواد غذایــی و هزینــه‬ ‫چشــم‌انداز اقتصــادی از مخاطــرات مهــم مربــوط بــه‬ ‫اجــاره مســکن بــوده اســت‪ .‬کاهــش جهانــی قیمــت کاالهــا‪ ،‬تــاش بـرای‬ ‫اقتصــاد‪ ،‬تغییــرات اقلیمــی و تحــوالت ژئوپلتیکــی تأثیــر می‌پذیــرد‪.‬‬ ‫اتخــاذ سیاســت پولــی انقباضــی و تعدیــل انتظــارات تورمــی ناشــی‬ ‫کاهــش غیرمنتظــره تقاضــای جهانــی و کاهــش قیمــت نفــت بــر رشــد‬ ‫از پیرشفــت محــدود مذاک ـرات بــا آمریــکا ســبب کاهــش نــرخ تــورم‬ ‫اقتصــادی تأثیــر منفــی می‌گــذارد و فضــای بودجــه‌ای مــورد نیــاز‬ ‫نقطــه بــه نقطــه از ‪ 55/5‬درصــد در فروردیــن ‪ 1402‬بــه ‪ 31‬درصــد در‬ ‫ب ـرای ایجــاد رشــد و اقدامــات حامیــت اجتامعــی را محــدود می‌کنــد‪.‬‬ ‫اردیبهشــت ‪ 1403‬شــد‪.‬‬ ‫مترکــز روزافــزون تجــارت بــا رشکای تجــاری معــدود ماننــد چیــن‪،‬‬ ‫روندهــای اخیــر ای ـران حاکــی از پیرشفــت در زمینــه کاهــش‬ ‫اقتصــاد کشــور را در معــرض نوســانات ناشــی از رشایــط اقتصــادی ایــن‬ ‫فقــر و بهبــود نابرابــری درآمــدی بــر اثــر رشــد فراگیــر و پرداخــت‬ ‫وی ناگــوار بــر تولیــد‬ ‫رشکا ق ـرار داده اســت‪ .‬افزایــش رویدادهــای ج ـ ّ‬ ‫یارانــه نقــدی‪ ،‬اســت‪ .‬در فاصلــه ســال‌های ‪ 1399‬و ‪ ،1401‬نــرخ فقــر‬ ‫محصــوالت کشــاورزی و اشــتغال تأثیــر منفــی می‌گــذارد و امنیــت‬ ‫طبــق معیــار درآمــد روزانــه ‪ 6/85‬دالر به‌میــزان ‪ 7/4‬واحــد درصــد‬ ‫غذایــی و معیشــت مــردم را تهدیــد می‌کنــد‪ .‬شــدت گرفــن تحریم‌هــای‬ ‫کاهــش یافتــه و از ‪ 29/1‬درصــد بــه ‪ 21/9‬درصــد رســیده اســت‪ .‬یعنــی‬ ‫اقتصــادی تأثیــر چشــمگیری بــر تجــارت بــا کشــورهای همســایه و‬ ‫‪ 6/1‬میلیــون نفــر از مــردم ای ـران بــه بــاالی خطــر فقــر آمده‌انــد‪ .‬بــر‬ ‫رشکای تجــاری فعلــی می‌گــذارد و رونــد رشــد اقتصــادی و صــادرات‬ ‫اســاس خــط فقــر طبــق معیــار کشــورهای بــا درآمــد متوسـ ِ‬ ‫ـط پاییــنِ‬ ‫را مختــل می‌کنــد‪ .‬طــی ســال گذشــته‪ ،‬مخاطـرات تهدیدکننــده اقتصــاد‬ ‫‪ 3/65‬دالر در روز‪ ،‬نــرخ فقــر از ‪ 6/1‬درصــد بــه ‪ 3/8‬درصــد رســیده‬ ‫ایــران ناشــی از احتــال تشــدید درگیری‌هــا در خاورمیانــه افزایــش‬ ‫اســت‪ .‬رشــد کلــی مــرف بــر اثــر افزایــش درآمدهــای ناشــی از‬ ‫چشــمگیری یافتــه اســت‪ .‬شبیه‌ســازی ســناریوهای گســرش جنــگ در‬ ‫دســتمزد و خوداشــتغالی در بخــش غیرنفتــی‪ ،‬بــر کاهــش نــرخ فقــر‬ ‫خاورمیانــه کــه مســتقیامً ایــران را درگیــر کنــد‪ ،‬می‌توانــد منجــر بــه‬ ‫تأثیرگــذار بــوده اســت‪ .‬برنامه‌هــای اجتامعــی‪ ،‬شــامل یاران ـه‌ی نقــدی‬ ‫کاهــش ‪ 7‬درصــدی تولیــد ناخالــص داخلــی شــود وتأثیــر قابــل توجهــی‬ ‫و همســان ســازی حقــوق بازنشســتگان نقــش مهمــی در کاهــش فقــر‬ ‫بــر ت ـراز مالــی دولــت و ت ـراز خارجــی بگــذارد؛ حتــی اگــر ایــن تکان ـه‌‬ ‫داشــته اســت‪ .‬بــا وجــود کاهــش ارزش واقعــی یارانــه نقــدی بــر اثــر‬ ‫محــدود بــوده و منحــر بــه ســال ‪ 1403‬باشــد‪ .‬از ســوی دیگــر‪ ،‬حــذف‬ ‫تــورم‪ ،‬تعــدادی پرداخــت‌ تکمیلــی از ســال ‪ 1398‬آغــاز شــده اســت‪.‬‬ ‫کامــل یــا جزئــی تحریم‌هــا می‌توانــد زمینه‌ســاز افزایــش چشــمگیر‬ ‫البتــه نابرابری‌هــای منطقــه‌ای همچنــان وجــود دارد و نــرخ فقــر در‬ ‫رشــد بخــش نفتــی و غیرنفتــی باشــد‪ .‬متنوع‌ســازی صــادرات‪ ،‬تقویــت‬ ‫مناطــق روســتایی همچنــان حــدود دو برابــر مناطــق شــهری اســت‪.‬‬ ‫همبســتگی اقتصــادی‪ ،‬و ورود رسمایه‌گــذاری خارجــی می‌توانــد بــه‬ ‫پیش‌بینــی می‌شــود کــه رشــد تولیــد ناخالــص داخلــی در‬ ‫تســهیل رونــد انتقــال تکنولــوژی و ایجــاد فرصت‌هــای جدیــد بــرای‬ ‫بــازه ‪ 1403‬تــا ‪ ،1405‬بــه میانگیــن ســاالنه ‪ 2/8‬درصــد برســد‪ .‬کاهــش‬ ‫رشــد کمــک کنــد‪.‬‬ ‫میــزان تقاضــای جهانــی‪ ،‬تحریم‌هــا‪ ،‬کمبــود انــرژی‪ ،‬محدودیت‌هــای‬ ‫‪xvi‬‬ ‫‪IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS‬‬ 1 RECENT ECONOMIC AND POLICY DEVELOPMENTS Output and Demand expansion of its oil production. Iran recorded one of the highest increases in oil production among OPEC mem- Iran’s economy maintained a robust growth in bers in 2023, with average daily production rising by the first nine months of 2023/24 (9M-23/24)1, 300 thousand barrels to 2.855 million barrels per day driven by both oil and non-oil sectors. Real gross (mbpd) (Figure 4). Oil production continued its upward domestic product (GDP) grew by 5 percent year-on- trajectory reaching 3 mbpd in April 2024. As a result, year (y/y) in 9M-23/24 (Apr-Dec 2023). Similar to the Iran’s share in OPEC production rose from 8.9 percent upward trend in 2022/23, the oil sector experienced a in January 2023 to over 12.1 percent in April 2024, mak- strong rebound of 16.3 percent (y/y), partly attributed ing Iran as OPEC’s third-largest oil producer. Despite to the tighter global oil market conditions and more this recovery, oil production remains well below the pre- relaxed implementation of US sanctions (Figure 1). sanctions high of an average of 3.8 mbpd in 2017 and The non-oil sector grew by 3.5 percent (y/y), primarily the first half of 2018. Oil production expansion also fueled by expansions in services and manufacturing. faces limitations due to years of under-investment in the A moderate increase in rainfall combined with the oil and gas sector leading to a declining capital stock.3 government support, including an increase in guaran- Despite energy shortages and an uncertain teed prices of wheat, helped agricultural production investment climate, non-oil industries experienced to grow marginally (Figure 2). However, despite the a moderate expansion. During 9M-23/24, non-oil economic expansion over the last four years, Iran has yet to bridge the gap with its peer groups (Figure 3). 1 The Iranian calendar year begins on March 21 and ends In 2023/24, oil production surged by on March 20 of the following year. 2 Oil production data as per OPEC’s secondary sources. 17.2 percent (y/y), reaching the highest level since Official data on oil production and exports have not been the re-imposition of US sanctions in 2018.2 Iran’s published since the re-imposition of US sanctions in 2018. exemption from OPEC+ production quotas and a 3 Real net capital stock of the oil and gas sector in 2021/22 tighter oil market have provided an opportunity for the was 21.9 percent lower than its level a decade earlier. 1 FIGURE 1 • GDP Continued its Growth in …Driven by the Expansion in the Oil FIGURE 2 •  9M-23/24… Sector and Services 20 80 8 15 60 Contribution to y/y GDP growth, pp 10 40 4 Percent Percent 5 20 0 0 0 –4 –5 –20 –10 –40 –8 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 9M-23/24 –12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 GDP growth (LHS) Non-oil GDP growth (LHS) Oil Agriculture Non-oil industries Oil GDP growth (RHS) Services GDP at factor price Source: Central Bank of Iran (CBI) and World Bank staff calculations. Source: CBI and World Bank staff calculations. FIGURE 3 • The Income Gap between Iran and Tight Oil Market and a More Relaxed FIGURE 4 •  Peer Groups Widening Due to a Implementation of Sanctions Decade of Stagnation in Iran Impacted the Country’s Oil Production 20 4 140 GDP per capita, PPP (constant 2017 18 120 3 100 international thousnd$) 16 14 80 US$/bbl Mbpd 2 12 60 10 40 1 8 20 6 0 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2023 2024 Middle East & North Africa Low & middle income Iran Iran's oil production (LHS) Iran Heavy oil price (RHS) Upper middle income Middle income Brent oil price(RHS) Source: World Bank Open Data. Source: OPEC and World Bank Commodity Price Data. industries grew by 3.9 percent (y/y), driven primarily tor challenges persist, exacerbated by cash flow and by a 4.2 percent y/y growth rate in the manufacturing working capital shortages, as well as the absence of sector. The construction sector also saw a more mod- est expansion of 3.1 percent y/y. Despite this growth, 4 The Parliament Research Center (PRC) publishes the the industrial production index (IPI)4 of selected indus- IPI, covering over 302 industrial companies listed on the stock exchange that account for more than half of Iran’s tries in the stock market declined in the second half manufacturing production. of 2023/24 (H2-23/24), primarily due to a slowdown 5 Iranian automakers have faced persistent losses over in the automotive industry, which was the main driver the past five years. Three major car manufacturers of the IPI in the previous year (Figure 5).5 Non-oil sec- in the country have collectively incurred cumulative 2 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 5 • …and Manufacturing Production FIGURE 6 • Consumption and Exports Were the Growth Weakened Main Drivers of GDP Growth on the Demand Side in 9M-23/24 120 20 100 15 Contribution to y/y GDP growth, pp 80 Growth rate y/y, percent 60 10 40 5 20 0 0 –5 –20 –10 –40 –15 –30 –20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Q2 Q3 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Private consumption Gov. consumption Investment Chemical industries Industrial Production Index Exports Imports Inventory & SD GDP Automobile and parts Source: CBI and World Bank staff calculations. Source: Parliament Research Center (PRC). Note: SD refers to statistical discrepancy. bank facilities and insufficient foreign exchange allo- The agricultural sector exhibited a mod- cations. Supply chain disruptions for raw materials, est growth of 0.7 percent (y/y) in 9M-23/24, along with decreased customer purchasing power attributed to improved weather conditions. In the and reduced domestic and export demand, have hindered scaling production. FX policy and other reg- losses of IRR 1740 trillion in 9M-23/24, averaging IRR ulations have also impeded exports, while producers 500 million per vehicle due to subsidized pricing. Iran report a lack of skilled labor. Khodro reported losses of IRR 144 trillion and SAIPA Challenges such as limited financing and of IRR 47 trillion in H1-23/24, compared to IRR 200 tril- escalating production costs have hindered the lion and IRR 90 trillion in losses in 2022, respectively growth of the construction sector, which expanded (Donya-e-eqtesad and Parliament Research Center). by a modest 3.1 percent (y/y) in 9M-23/24. Growth Despite heavy import tariffs and a ban on foreign auto- mobile imports, restrictive pricing guidelines, obstacles was constrained partly due to a decrease in credit allo- in technology transfers, and corruption have resulted in cation to the sector, which fell to 5.6 percent of total low-quality and loss-making production. banking credits in 2023/24.6 Moreover, the prices of 6 The allocation of housing loans below the specified construction materials and land have skyrocketed by limit has led to some banks being penalized. Moreover, over 340 and 640 percent respectively over the past high mortgage costs and cumbersome procedures for five years, leading to a decade-long recession with a obtaining housing loans are additional demand side constraints. 38 percent decline in the sector. The surge in hous- 7 The average price of real estate in Tehran has surged ing prices has rendered homeownership unaffordable 14-fold over the past six years. In 2022/23, the cost of and driven up rental costs.7 Despite government ini- renting constituted 51 percent of average expenditure, tiatives aimed at revitalizing the construction sector, up from 47.9 percent in the previous year. According to a such as the target of constructing one million afford- study by the Statistical Center of Iran (SCI), the average able houses annually over four years, only about a waiting time for urban households to own a residen- tial unit was 34.5 years in 2017/18, but it has risen to quarter of this objective has been accomplished.8 The 47.7 years in 2021/22. Despite extended discussions sector challenges also reflect on the labor market as regarding the taxation of vacant properties, no progress the labor-intensive sector contributes to over 10 per- has been made on this front. cent to overall employment. 8 Tasnim. Recent Economic and Policy Developments 3 hydrological year 2022/23 (October 2022-September in machinery investment and a moderate increase in 2023), Iran experienced a 4 percent increase in rain- construction sector activity, while foreign investment fall, although it remained below the long-term average remains low at 1 percent of GDP. In recent years, by 14 percent. A 15 percent y/y decline in rainfall dur- overall gross fixed capital formation has matched ing October 2023 to March 2024 (25 percent decline depreciation costs, with some sectors experiencing to the long-term average), also indicates that the coverage below the depreciation cost. This trend country could be entering its fourth year of drought, raises concerns about potential adverse implications highlighting the nationwide water crisis. Dam inflows for future growth and development. have decreased by 12 percent compared to the pre- vious water year, while dam outflows have grown by 21 percent, resulting in a decline in dam capac- Labor Market and Jobs ity, indicating dams have reached less than half In line with the growth dynamics, employment is capacity.9 Years of drought have created conditions recovering to pre-pandemic levels. In 2023/24, where occasional heavy rainfall led to floods due to total employment grew by 3.3 percent, to reach the land’s reduced capacity to absorb moisture. The 37.9 percent of the working age population (Figure 7). sector faces challenges like water scarcity, extreme Over the last four years, most of the job creation was weather events, and high production costs, endan- due to expansions in the industrial and services sec- gering food security. tors, which experienced employment growth rates The service sector grew by 4 percent (y/y) of 6.3 percent and 4 percent, respectively. How- in 9M-23/24, primarily driven by the IT and gig ever, the agriculture sector employment declined economy. Over the past six years, the information by 18 percent (equivalent to 0.8 million jobs) due to and telecommunication services (ITS) sector has drought and water shortages leading to migration to emerged as a key driver in the service sector, con- urban areas. sistently maintaining an average annual real growth The unemployment rate registered a rate of 24 percent. However, this sector faces chal- record low, but labor market challenges remain. lenges related to a shortage of high-skilled labor and In 2023/24, the labor force participation rate slightly digital infrastructure limitations including the speed improved by 0.4 percent point and the unemploy- and stability of the internet.10 The ITS sector growth ment rate reached a record low of 8.1 percent. decelerated to its lowest rate in six years, in part due A record low unemployment rate was also driven by to a more restrictive regulatory climate and disrup- a reduction in the economically active population, tions to internet access after the street protests in as many long-term unemployed individuals stopped 2022/23. seeking work being discouraged from finding jobs On the expenditure side, exports and pri- (Figure 8). The working-age population has grown vate consumption were the main drivers of GDP growth in 9M-23/24. The private sector saw sub- stantial growth, expanding by 4.2 percent (y/y), 9 Iran Water Resource Management Company, weekly reports. following a robust 8.7 percent expansion in the previ- 10 In November 2023, Iran’s median mobile internet speed ous year. The expansion in private consumption can was recorded at 31.82 Mbps and fixed internet speed at be attributed to demand for inflation hedging through 12.76 Mbps, while global medians were 48.61 Mbps for the purchase of durable goods due to negative real mobile and 90.21 Mbps for fixed internet, with Iran hold- interest rates, heightened uncertainty, and rising ing the 75th position in median mobile internet speed inflationary expectations. Government consumption and slipping to 154th place for median fixed internet speed. According to the Electronic Commerce Associ- contracted by 1.6 percent, due to unrealized gov- ation report, a global index measuring internet access ernment revenue. Exports significantly expanded factors in 70 countries in 2023 revealed that Iran ranks by 17.9 percent (y/y) in 9M-23/24. Investment third worst, following China and Myanmar, in terms of grew by 4.5 percent, driven by a strong expansion free internet access. 4 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 7 • Employment Reached the Highest FIGURE 8 • The Unemployment Rate Reached Level after the Pandemic a Record Low, but Labor Force Participation Remained Low 30 48 14 25 46 12 20 Population, million 44 10 Percent Percent 15 42 8 10 40 6 5 38 4 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 0 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Services employment Industries employment Agriculture employment Active population Labor force participation rate (LHS) Unemployment rate (RHS) Source: Statistical Center of Iran (SCI) and World Bank staff calculations. Source: SCI and World Bank staff calculations. by 2.9 million people, while the active population has jobs has also contributed to the increasing emi- decreased by 0.5 million individuals compared to the gration of skilled workers. In recent years, Iran has pre-COVID era in 2019/20.11 In fact, in 2023/24, only witnessed a significant surge in emigration, with the 41.3 percent of the working age population partici- pated in the market, which is 2.8 percentage points FIGURE 9 • Job Creation Has Remained below the pre-pandemic level. In addition, unemploy- Insufficient ment varies significantly among different subgroups, 1500 with male unemployment at a record low of 6.6 per- 1000 cent in 2023/24, compared to 15 percent for females, 21.2 percent for youth, and 11.8 percent for university 500 Population, thousands graduates. The pandemic exacerbated pre-existing 0 gender disparities, with its disproportionate impact –500 on women. In 2023/24, male employment was 3.2 percent higher than pre-crisis levels, whereas female –1000 employment was lower by 9.6 percent. Underemploy- –1500 ment decreased by 1.3 pp (y/y) but remains high at 8.1 percent in 2023/24, further underscoring the –2000 2019/20 2020/21 2021/22 2022/23 2023/24 demand for jobs. Number of people entering working age population The labor market faces significant chal- Number of people entering labor market lenges, including low labor force participation Number of job created per year and inadequate job creation. These issues are Source: SCI and World Bank staff calculations. primarily attributed to insufficient jobs for its grow- ing working-age population (Figure 9), especially 11 The growth of the working-age population has been for women, youth, and university graduates. These uneven in Iran, with urban areas experiencing an challenges carry economic and social costs, includ- increase of 2.3 million, while rural areas have seen a ing reduced productivity, slower economic growth, decline of 0.2 million. This suggests a trend of migration and increased poverty and inequality. The lack of from rural to urban areas. Recent Economic and Policy Developments 5 FIGURE 10 • The Birth Rate Has Dropped …leading to a Shift in the Age FIGURE 11 •  Significantly… Structure 3.0 80+ 70–74 2.5 60–64 Registered births, million 2.0 50–54 Age 40–44 1.5 30–34 1.0 20–24 0.5 10–14 0–4 6 4 2 0 2 4 6 0 Population, million 1980/81 2010/11 1971/72 2001/02 1983/84 1989/90 2013/14 2019/20 1965/66 1968/69 1977/78 1974/75 1986/87 1995/96 1998/99 2007/08 1992/93 2004/05 2016/17 2022/23 Female population Male population Source: SCI and World Bank staff calculations. Source: SCI and World Bank staff calculations. Iran Migration Outlook report showing a doubling arising from the altered age structure, and fosters of Iranian migrants over three decades.12 This trend, stability, prosperity, and profound transformations in driven by financial pressures and a desire for oppor- social security and healthcare systems to support an tunities abroad, has led to approximately one million older population more than three times its current size Iranians migrating to the countries in the south of the in coming years. Persian Gulf seeking better job opportunities. How- ever, this presents challenges for Iranian employers, 12 Gallop polling in 2023 shows 61 percent of Iranians as skilled workers engage in unrecognized remote facing financial strain due to inflation, prompting a con- work abroad. Addressing the root causes of emigra- cerning trend. Over one-fourth are open to permanent tion and implementing effective policies to bolster migration, doubling since 2014. Among younger Irani- economic stability domestically will be vital in shaping ans aged 15 to 29, 43 percent express willingness to Iran’s future trajectory. relocate permanently, reflecting Iran’s socio-economic challenges and the need for policies supporting eco- Iran is confronting the emerging chal- nomic stability domestically. lenge of an aging population, impacting social 13 Statement by the Head of the Department of Interna- welfare, pensions, healthcare, labor force short- tional Specialized Agencies of the Ministry of Foreign ages, dissaving, and old-age income security. Affairs of the Islamic Republic of Iran at the fifty-seventh Rapid changes in the age structure, characterized session of the UN Commission on Population and Devel- by a significant decline in the birth rate, highlight new opment (April-May 2024). 14 Economic challenges accompanying these demo- challenges ahead (Figure 10). Despite recent govern- graphic shifts include a shrinking workforce, escalating ment initiatives aimed at boosting population growth healthcare expenditures, and changes in consumption through financial incentives and restrictions on abor- patterns. On the social front, there is an urgent need tion, total fertility rate is reported to have reached to explore the impact on family structures, caregiv- a record low of 1.6 in 2023 compared to 6.5 in the ing responsibilities, and intergenerational dynamics. 1980s.13 Additionally, the approaching retirement Additionally, the rising demand for geriatric health- care services and long-term care facilities must be of the baby boom generation from the 1980s com- addressed. A holistic strategy is essential to navigate pounds the challenges (Figure 11).14 Addressing these complex challenges and ensure the well-being these changing demographics requires a compre- of the population in the face of demographic transfor- hensive approach that considers the specific needs mations. 6 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 12 • Oil Revenues Failed to Meet the FIGURE 13 • …the Government Reduced Budget Target in 2023/24... Expenditures to Narrow the Fiscal Deficit as a Share of GDP 120 20 100 15 Percent of revenue realization 10 80 Percent of GDP 5 60 0 5 40 10 15 20 20 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24* 0 2020/21 2021/22 2017/18 2019/20 2016/17 2018/19 2023/24* 2022/23 Oil revenues Tax revenues Other revenues Current expenditures Tax revenue realization Oil revenue realization Capital expenditures Fiscal deficit Source: CBI, MoF, Parliament Research Center (PRC), and World Bank staff Source: CBI, MoF, and World Bank staff calculations. calculations. Note: *2023/24 data are annualized 7M-23/24 data except for tax revenues which is Note: 2023/24 oil revenues are annualized 7M-23/24 data. actual expenditures for the period. Public Sector Finance15 26 percent and wealth tax at 8 percent. Indirect taxes, consisting of sales and consumption taxes and import The government faced some revenue shortfalls taxes also experienced a notable increase, growing in 2023/24 as only an estimated 72.6 percent by 35.6 percent, albeit achieving 71.6 percent of the of planned revenues materialized. Despite higher planned budget target. However, the government’s oil export volumes, oil revenues in 2023/24 are esti- efforts to raise revenue through the sale of government mated to have fallen significantly short, meeting half assets fell well short of its ambitious target, achieving of their budget target, based on an assumed 1.5 mil- only 10 percent of the planned target in 7M-23/24. lion barrels per day of oil exports at US$85 per barrel In response to declining revenues, the gov- (Figure 12). This shortfall was mainly due to heav- ernment reduced expenditures and relied on its ily discounted oil export prices and overambitious strategic reserves to finance the deficit. In the oil export budget targets. Consequently, the govern- first seven months of 2023/24, 80 percent of gov- ment partly reduced spending to control the deficit.16 ernment expenditures for the period were executed. The budget deficit is estimated to have stabilized at Current expenditures were driven by rising wage bills 1.9 percent of GDP in 2023/24 as a result. and adjustments to pensions driven by high inflation Since 2018, budgetary tax revenues have and other transfers (see Box 1) (Figure 13). The net consistently met targets, in part aided by higher balance associated with the subsidy program, not inflation, but overall revenues still fell short. In 2023/24, tax revenues grew significantly by 51.7 per- 15 Latest official fiscal data available is for 2022/23. The cent in nominal terms. This surge was primarily driven information reported for subsequent years is primarily by a robust expansion in direct tax collections, which based on reports and interviews of authorities reported in the media. Tax revenue data for 2023/24 was shared exceeded the target by 9 percent despite an 18.8 by the authorities. percent shortfall in wealth taxes. Corporate tax con- 16 Based on the most recent data available, the realized tributed significantly to direct tax revenues, accounting capital expenditure was 21 percent of their total year for approximately two-thirds, followed by income tax at budget target in 4M-23/24. Recent Economic and Policy Developments 7 directly included in the budgetary central govern- tion of 1.35 mbpd of exports and a price of US$71/bbl.18 ment accounts, add to these fiscal pressures.17 Efforts Non-oil revenues are planned to grow by 40.4 percent, to finance the deficit through the sale of government mainly through higher taxes. Total expenditures will rise assets fell well short of its ambitious target. Even with by 21 percent, driven by current expenditures domi- full realization of government-issued bonds, the gov- ernment still faced challenges in servicing its existing 17 Article 14 of the annual budget stipulates key ceilings debt and financing the budget deficit. This led to the for the targeted subsidy program, including expected utilization of the National Development Fund of Iran revenues from sales of energy products, cash transfers, (NDFI) and borrowing from the banking system to support for government energy sector entities, and ini- tiatives aimed at curbing fuel consumption. The total cover the remaining budget deficit as privatization allocation for the 2023/24 amounted to approximately proceeds also fell short. 5 percent of the GDP. In practice, the plan’s budget The 2024/25 budget law reflects a more has often been in deficit. For instance, in 4M-23/24, 81 prudent fiscal stance with more restrained expen- percent of approved expenditures were utilized, while ditures and less ambitious revenue projections. The revenue realization stood at only 53 percent. total budget is planned to grow by 23 percent in nomi- 18 Foreign currency revenues and expenditures are now all denominated in euros instead of dollars. The implicit nal terms, significantly below the projected inflation rate exchange rate in the budget is IRR310,000/Euro (equiv- of 35.3 percent, indicating a contractionary fiscal pol- alent to IRR285,000/US$—the new subsidized rate for icy stance. Total revenues are projected to increase by imports of essential items), while the parallel exchange 25.6 percent, with oil revenues based on an assump- rate is around IRR580,000/US$. BOX 1  RECENT SUBSIDY AND TRANSFER MEASURES Amid external shocks and persistent inflation, the Government of Iran has implemented various policies to support the most vulnerable households. These measures include subsidized food and energy prices, the subsidized exchange rate for the import of essential goods, cash transfers (3.1 percent of GDP in 9M-23/24), healthcare and social security transfers, and public sector wage and pension increases. While these efforts have improved welfare, they have been largely ad-hoc and under-targeted, undermining their sustainability. Their significant fiscal cost has reinforced vulnerabilities, including via higher inflation due to deficit financing. Furthermore, these measures have contributed to over-consumption and misallocation of funds.a Cash transfers have provided robust support for the welfare of the poor (see the special focus chapter), albeit with a significant fiscal cost. The shift from broad subsidies to targeted cash transfers, along with subsequent adjustments to the social protection programs, reflects the government’s efforts to support vulnerable populations while grappling with economic challenges. High inflation eroded the value of cash transfers, the poor have increasingly depended on earnings from employment and self-employment, and more recently additional top-ups. These top-ups were initially introduced in 2019 when the government launched the Livelihood Support cash transfers to compensate for the gasoline price increase (Figure 38). The program was bolstered by the COVID-19 relief package in 2020 and further supported in 2022 to offset the elimination of exchange rate subsidies. These additional top-ups have served as a crucial safety net for vulnerable households, significantly contributing to the decline in poverty, particularly in 2022. A series of recent initiatives, including the phase out of the exchange rate subsidy and consolidation of cash transfers aim to improve the efficiency and sustainability of social policy. Following the reimposition of US sanctions in 2018, the government established a subsidized exchange rate for imports of essential goods and medicine, initially set at IRR42,000/US$. Subsequently, facing a surge in the free-market rate and limited foreign currency reserves, the government first narrowed the list of items and services benefiting from the preferred exchange rate. Ultimately, limited access to international reserves abroad, large demand, and other implementation challenges such as misallocation of funds, undermined the maintenance of the preferred rate. This then led to the elimination of the policy and the consolidation of all subsidies into a single monthly payment.b Under the new cash transfer scheme introduced in June 2022, individuals in the first to third deciles receive IRR4 million (US$14), while those in the fourth to ninth deciles receive IRR3 million (US$10.5) monthly, benefiting approximately 78 million people out of the total population of 85 million. However, due to fluctuations in the exchange rates, the government reinstated another subsidized exchange rate six months later, setting it at IRR285,000/US$. The government adjusted subsidies in September 2023, particularly targeting lower-income groups through electronic vouchers (“Kala Barg” plan). Initially envisioned to cover only the first three income deciles, the plan now encompasses the seven deciles, benefiting approximately 61 million people or about 75 percent of the population. Beneficiaries receive IRR1.2 million (US$4.2) monthly subsidy upon (continued on next page) 8 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS BOX 1  RECENT SUBSIDY AND TRANSFER MEASURES (continued) purchasing IRR2 million (US$7) worth of essential items from a specified basket, ensuring vital nutrients. Initial estimates suggest that more than 27 million people have registered for the Kala Barg plan. In February 2024, the government also introduced a temporary “Fajraneh” plan providing a temporary top-up to the Kala Barg plan. The plan was designed to run from February to April 2024, aiming to increase the consumption subsidies to IRR2.2 million (US$7.7) for households for the first to seven deciles, with no spending requirement to receive the additional incentive subsidy. According to the Minister of Cooperatives, Labor, and Social Welfare, the Fajraneh Plan has benefited 52 million individuals, representing 87 percent of the targeted population, with usage varying across income deciles.c Recent attempts towards streamlining of transfers are necessary steps for improving the effectiveness and sustainability of the transfer system. The consolidation of different initiatives and improved design of new measures, such as their time bound characteristic and more targeted nature, can help improve their impact and reduce their administrative burden. These initiatives, if broadened and deepened, including through strengthened targeting and incorporation of automatic adjustment mechanisms, could help provide a fairer distribution and create fiscal space for other pro-growth interventions. Extending the reform initiative as part of a broader reform package that includes other policy interventions can help build a stronger case for such reforms and help manage their political economy dimension. a For example, the resulting significant rise in domestic petroleum consumption and limited production capacity, has led to a decrease in exports, affecting revenue generation under Article 14. b In 2011, Iran embarked on an ambitious reform plan (Targeted Subsidies Reform), aiming to significantly reduce extensive indirect subsidies on energy products and replace them with universal cash transfers to the population (about 78 million people at the time). However, this policy faltered in implementation. Instead of aligning gasoline prices with international standards, the government fixed them at a higher Rial level, which, coupled with rial’s depreciation and a surge in global oil price, nullified the intended reforms within two years. Additionally, the direct cash transfer program, implemented alongside energy subsidies reform, saw its effectiveness wane over time due to a lack of inflation adjustment. The policy raised fiscal pressures which in turn further fueled inflation. Furthermore, the diminishing value of cash transfers over time, dropping from approximately US$45 in 2009 to under US$1 in 2023, led to public resistance to similar changes as witnessed with social grievances following the increase in gasoline prices in 2019. c In addition, under the supplementary scheme, known as the “Children’s Food Security Program,” each child under the age of 5 in households in the first 5 income deciles are entitled to receive IRR10 million, and IRR6 million in deciles six and seven. This is aimed at ensuring families have access to the necessary protein, vitamins, and energy for their children’s well-being. TABLE 1 • The Budget Law for 2024/25 Signals a Tighter Fiscal Stance 2023/24-Budget Law 2024/25-Budget Law (IRR Trillion) Percent of GDP (IRR Trillion) Percent of GDP (US$ billion)a Growth (%) Total revenues 17,863 12.3 22,429 11.4 78.7 25.6 Current revenues 10,541 7.2 15,983 8.2 56.1 51.6 Tax revenues 8,945 6.1 13,645 7.0 47.9 52.6 Other revenues 1,596 1.1 2,338 1.2 8.2 46.5 Disposal of non-financial assets 7,322 5.0 6,446 3.3 22.6 –12.0 Total expenditures 18,838 12.9 22,787 11.6 80.0 21.0 Current expenditures 15,088 10.4 18,787 9.6 65.9 24.5 Capital expenditures 3,750 2.6 4,000 2.0 14.0 6.7 Operational balance –4,547 –3.1 –2,804 –1.4 –9.8 –38.3 Budget balance –975 –0.7 –359 –0.2 –1.3 –63.2 Disposal of financial assets 2,960 2.0 3,192 1.6 11.2 7.8 Acquisition of financial assets 1,985 1.4 2,833 1.4 9.9 42.7 Net disposal of financial assets 975 0.7 359 0.2 1.3 –63.2 Government general resources 20,823 14.3 25,620 13.1 89.9 23.0 Targeted subsidy resources 6,598 4.5 7,588 3.9 26.6 15.0 Source: Parliament and World Bank staff calculations. Note: a Converted using the implicit exchange rate of IRR285,000 /USD. Recent Economic and Policy Developments 9 nated by the wage bill and pension expenditures, while FIGURE 14 • High Inflation and Improved Oil investment expenditures are to grow by 6.7 percent. As Revenue Enabled the Government to Partially Settle its Domestic Debt a result, the planned deficit of the operational balance in 2022/23 is expected to be curbed significantly by 38.3 per- cent, reducing the overall budget deficit to almost a 50 third of the previous year’s planned budget. Almost all 40 issued debt will be rolled over with new issuances and the remainder of financing needs are to be met with Percent of GDP 30 proceeds from privatization. The budget for targeted subsidy programs is to increase by 15 percent while 20 aiming to eliminate subsidies for top income deciles.19 10 Over the last two years, public debt as a per- centage of GDP declined to 29 percent in H1-23/24 0 due to high nominal GDP growth and negative real 2020/21 2021/22 2017/18 2019/20 2015/16 2016/17 2018/19 H1-23/24 2022/23 interest rates.20 However, government debt to the NDFI, primarily in dollar terms, is not included in these figures. The estimated debt to the NDFI is around US$100 bil- Public debt Central government debt SOE debt lion, equivalent to about 30 percent of GDP. This debt Source: Ministry of Economic Affairs and Finance (MoF) and World Bank staff has grown substantially due to a decline in government calculations. Note: Public debt is the sum of central government and SOE debt. This does not oil proceeds following US sanctions, with only 20 per- include liabilities to the NDFI. cent of oil revenue allocated to the NDFI instead of the intended 40 percent. Government-backed foreign cur- tively. High inflation is primarily attributed to food price rency denominated loans also remain unpaid, partly inflation, contributing to approximately one third of the due to exchange rate fluctuations. Withdrawals from the overall inflation rate, followed closely by housing costs NDFI for special permissions, such as COVID-19 relief (Figure 17). Higher inflation disproportionately affects and natural disasters, have impacted the fund’s finan- lower-income households as food and housing cial health. Total external debt in Iran remains small account for around 80 percent of their consumption at 1.9 percent of GDP in 2022/23, which shelters the economy from the direct impact of exchange rate fluc- 19 The budget underwent several revisions in the par- tuations and global interest rate spikes. liament. The changes proposed included raising the minimum wage and public sector salaries, adding pro- visions for housing sector funds, and reducing the Monetary Policy and Prices subsidized exchange rate allocation for imports. Fur- thermore, several adjustments to the tax system were Despite a moderating trend, consumer price infla- proposed, including revising taxation for mining com- tion (CPI) remained above 40 percent for the fifth panies, which were previously exempt from taxes, as consecutive year in 2023/24. Since the changes in well as raising the tax exemption threshold for busi- nesses in the upcoming year. Additionally, a proposed exchange rate subsidies announced in June 202221 Personal Income Tax (PIT) bill, centered on taxing total and the subsequent surge in inflation, inflation has income, is set to be implemented in the future. Retirees eased gradually, declining from 55.5 percent (y/y) in are anticipated to receive 90 percent of the salaries of April 2023 to 31 percent (y/y) in May 2024 (Figure 15). active employees within the next three years, reaching This trend was supported by recent monetary policy the threshold by the end of the third year. tightening (see below) and stabilization of the rial fol- 20 The Ministry of Finance initiated a program for the consolidation of public debt data in 2015 through the lowing some partial progress in negotiations with establishment of a dedicated unit. However, there remain the US and news about unfreezing of funds abroad discrepancies in estimates of public arrears between the (Figure 16). The headline and core inflation reached Ministry of Finance, the pension funds, and banks. 40.7 percent and 40.8 percent in 2023/24, respec- 21 See Iran Economic Monitor, Spring/Summer 2023. 10 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 15 • Inflation Decelerated in 2023/24… FIGURE 16 • ...as the Rial Stabilized Relative to the Previous Year 100 700 12 80 600 10 Thousand Rials per 1 US$ 500 8 60 400 Percent 6 300 40 4 200 100 2 20 0 0 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22 Feb-24 May-24 Feb-23 May-23 Aug-23 Nov-23 0 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Inflation, m/m (RHS) Parallel market ER (LHS) NIMA ER (LHS) Headline inflation, y/y Food price inflation, y/y Source: SCI, CBI, media and World Bank staff calculations. Core inflation, y/y Note: NIMA, the Persian acronym for “integrated system of foreign exchange transactions”, is a foreign exchange auction system administered by the CBI for Source: SCI and World Bank staff calculations. facilitating foreign currency exchange between exporters and importers. basket. Partial progress in nuclear negotiations and measures. These measures include restricting bank efforts to tighten monetary policy have contributed to balance sheet growth to a range of 1.5 to 2.5 percent, this trend. In a similar trend, producer price inflation increasing reserve requirements for riskier banks, also eased to 32.6 percent in 2023/24, the lowest rate and raising deposit and interbank interest rates. As a in over five years. result, broad money (M2) growth has decelerated to The rial has undergone a period of rela- 24.3 percent in 2023/24, down from 31.1 in 2022/23 tive stability in part by reinstating a new preferred (Figure 18). Base money (M0) growth also declined to exchange rate for essential goods but the par- 28.1 percent in 2023/24, down from 42.3 in 2022/23 allel market remains impacted by expectations. (Figure 19). However, these constraints on banks, Six months after the elimination of the subsidized along with government budget deficit financing and exchange rate in May 2022 (initially pegged to the directive lending initiatives, have led to increased bor- dollar at IRR42,000/US$ following the reimposition of rowing from CBI. High restrictions on banks have also US sanctions in 2018), the CBI introduced a new fixed led to a decline in the relative credit allocated to differ- rate of IRR285,000/US$ for the import of essential ent sectors (Figure 20).22 goods in December 2022 (see Box 1). The inclination The banking system continues to face to maintain a fixed exchange rate by direct interven- structural challenges and imbalances. The bank- tion in the market, while keeping the market for exports ing sector grapples with high levels of non-performing and imports at low levels, has widened the gap with loans (NPLs) and insufficient capital, over 70 per- the parallel market. The parallel market exchange rate cent of banks fail to meet the capital adequacy ratio continues to reflect supply and demand conditions and market sentiments, which after months of rela- 22 Liquidity constraints in the market, along with fluctua- tive stability surged by 19.3 percent between during tions in the exchange rate due to elevated inflationary expectations after the outbreak of conflict in the Middle January to May 2024 in line with rising geopolitical East, led to the issuance of a special depositary with a tensions and the upcoming US elections. high interest rate in January 2024. This resulted in the To curb inflation and stabilize the econ- average interest rate of Islamic Treasury Bills (Akhza) omy, the central bank implemented various reaching a historical high of 31 percent. Recent Economic and Policy Developments 11 FIGURE 17 • Food Prices and Housing FIGURE 18 • Monetary Base and Liquidity Expenditures Were the Main Driving Growth have Decelerated and Force of Inflation in 2023/24 the Negative Real Interest Rate Moderated 60 40 50 40 30 30 40 Contribution to CPI, pp Inflation y/y, percent 20 20 10 Percent 13.9 12.9 0 20 10 –10 –20 3.5 2.8 2.2 –30 0 0 –40 CPI Food Housing Transport Health Clothing May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-24 Mar-24 Jan-23 Mar-23 May-23 Jul-23 Nov-23 23-Sep Inflation, y/y (LHS) Contribution to headline CPI, pp (RHS) M0 growth rate M2 growth rate Real interest rate Source: SCI and World Bank staff calculations. Source: CBI and World Bank staff calculations. FIGURE 19 • M0 Growth Was Driven by Rising Net FIGURE 20 • Tighter Monetary Policy Led Credit Claims on Government in 9M-23/24 Allocated to the Real Economy to Decline as a Share of GDP in 2023/24 80 50 60 Contribution to M0 growth, pp 40 40 20 Percent of GDP 30 0 –20 20 –40 –60 10 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 9M-23/24 0 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Net Foreign Assets (NFA) Net claims on government Claims on banks Other items net Agriculture Manufacturing & Mining M0 growth Construction & Housing Trade Services Source: CBI and World Bank staff calculations. Source: CBI and World Bank staff calculations. (CAR) requirements and nearly half of them have a negative CAR.23 This poses a risk of bankruptcy, exac- 23 The reported average non-performing loan (NPL) ratio erbated by increased provision of directed credit by was 16.2 percent in 2021/22. However, this figure does not include rollover loans, a significant portion of out- the government. NPL accumulation and capital inad- standing loans. High NPLs in Iran stem from factors such equacy heighten the risk of bank failure, threatening as inadequate credit risk assessment, non-financial loan financial stability. While the central bank implements criteria, moral hazard in government-guaranteed proj- measures to mitigate risks, liquidity shortages persist, ects, and poor central bank supervision. 12 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 21 • The Stock Market Started Strongly export volumes, a decline in the oil product prices in 2023/24, Before Stagnating led total goods exports edged down by 0.4 percent Again with Reemerging Market (nominal, y/y) while imports expanded by 10.9 per- Uncertainties cent (nominal, y/y) in 9M-23/24, leading to more 2,600 than halving of the current account surplus to 1.6 per- 2,400 cent of GDP (US$6.3 billion). Despite only edging up 2,200 by 0.1 percent y/y, oil exports share in total exports TSE Index (thousands) reached 57.1 percent in 9M-23/24, the highest share 2,000 since the reimposition of US sanctions in 2018. Ser- 1,800 vices trade, skewed towards imports, also rebounded 1,600 by over 19.6 percent (y/y) (Figure 22). The current 1,400 account surplus was more than offset by the net cap- ital account deficit (US$20.2 billion), registering a 1,200 24.8 percent increase in net capital outflows in line 1,000 with the deficit of the last 8 years (Figure 23).26 4/1/22 5/1/22 6/1/22 7/1/22 8/1/22 9/1/22 10/1/22 11/1/22 12/1/22 1/1/24 2/1/24 3/1/24 4/1/24 5/1/24 1/1/23 2/1/23 3/1/23 4/1/23 5/1/23 6/1/23 7/1/23 8/1/23 9/1/23 10/1/23 11/1/23 12/1/23 Source: Tehran Stock Exchange (TSE). 24 The Central Bank’s program aims to revitalize and reform underperforming banks in two phases. The first phase focuses on revitalization, organization, and leading to withdrawal limits and higher deposit rates. reform, while the second phase involves halting oper- This restricts credit allocation. Resolving these issues ations and dissolving the financial institution if desired requires comprehensive solutions.24 results are not achieved. Currently, a reform program has been presented to eight banks, with ongoing monitoring The Iranian stock market in 2023/24 began and constraints implementation to address imbalance the year with considerable strength, driven by issues. Among them, three credit institutions are slated improved expectations before being impacted by for dissolution, with two already completed and the third rising market uncertainty with rising geopolitical set to dissolve soon as part of the banking network’s tensions. Initially, the market experienced a significant imbalance resolution program. rebound, primarily due to rising inflationary expec- 25 The Capital Market Stabilization Fund was established in 2015 and later operationalized in 2017 with the aim tations, depreciation of the rial, and bullish market of (1) maintaining conditions for fair market competition, sentiment. The re-escalation of security risks with the (2) preventing and/or containing market downturn con- conflict in the Middle East again weighed on market tagion during periods of economic and financial crisis, sentiment in the second half of 2023 (Figure 21). In (3) implementation of government policies in periods of response, the government injected IRR10 trillion (about crisis, and (4) protecting micro investors. The fund can US$17 million) from the National Development Fund of intervene in the stock market through direct asset trade and benefits from exemptions, including from taxes and Iran into the stock market “Capital Market Stabilization trade commission fees. The main investors of the fund Fund”.25 However, such interventions alone may not be are the Securities and Exchange Organization of Iran sufficient to maintain investor confidence in the long and the NDFI (IRNA). run. The market’s performance and firm profitability 26 Over the past seven years, Iran’s capital account bal- more broadly are also impacted by price controls, the ance has experienced consecutive deficits, which can role of public sector, and economic sanctions. be attributed in part to significant capital flight caused by economic uncertainty in the country. This trend indi- cates a lack of confidence in the Iranian economy and External Sector its investment opportunities, which has led investors to seek out more stable and predictable investment options abroad. Addressing the underlying causes of economic The decline in oil prices and higher imports nar- uncertainty in Iran, such as inflation, sanctions, and polit- rowed the current account balance (CAB) in ical instability, will be essential to reversing this trend and 2023/24. Despite an expansion in oil and non-oil attracting much-needed investment to the country. Recent Economic and Policy Developments 13 FIGURE 22 • The CAB Contracted Due to a FIGURE 23 • …while the Capital Account Decline in Oil and Oil Product Prices Registered a Larger Deficit in and Higher Imports… 9M-23/24 80 30 60 20 40 10 US$ billion US$ billion 20 0 0 –10 –20 –40 –20 –60 –30 2020/21 2020/21 2021/22 2022/23 9M-23/24 2019/20 2018/19 9M-23/24 2021/22 2022/23 2017/18 2019/20 2018/19 Goods account-oil Goods account-non-oil Services account Current account Net capital account Income and current transfer account Current account balance Net errors and omissions BOP (change in reserve assets) Source: CBI and World Bank staff calculations. Source: CBI and World Bank staff calculations. FIGURE 24 • Lower Non-Oil Export Prices Have The high oil content of non-crude oil Widened the Non-Oil Trade Deficit exports and limited processing of other exports 20 present a challenge to further export diversifi- cation and value-added generation. More than 16 50 percent of Iran’s non-oil exports in 2023/24 12 consisted of petrochemical products and gas con- densates. As a result, recent lower oil prices also US$ billion 8 impacted non-crude oil exports. More generally, 4 Iran’s non-oil exports mainly comprise raw and semi- 0 finished goods, yielding lower value-added returns –4 and increasing vulnerability to commodity price fluc- tuations. –8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Q2 Q3 Economic sanctions have concentrated 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 trade flows further. Iran’s top three trading part- Net non-oil trade balance Non-oil exports Non-oil imports ners in non-oil exports and imports accounted for 60 percent and 70 percent, respectively, highlighting Source: Islamic Republic of Iran’s Customs Administration (IRICA) and World Bank a high level of trade concentration and susceptibil- staff calculations. ity to shocks from these key partners (China, Iraq, UAE and Turkey) (Figure 25 and Figure 26). Approx- Lower oil prices also contributed to a larger imately 10 key trade partners contribute to roughly non-oil trade deficit in 2023/24. Import growth of 6.7 85 percent of Iran’s non-oil exports, while the shares percent compared to a decline in non-oil exports of 8.6 of other nations in these exports are relatively insig- percent, led to a widening of the non-oil trade deficit to nificant. about 4 percent of GDP (US$16.9 billion) (Figure 24). The government has pursued several ini- Prices were the main driver of trade dynamics as the tiatives to diversify trade partners, with limited total volume of exports and imports expanded by 9.8 impact due to its non-membership in FATF and percent and 4.4 percent, respectively. Major non-oil ongoing sanctions. Despite this, leveraging its geo- exports comprise oil products, while key imported political position could offer benefits as a gateway items include cereals and cell phones. and transit point for regional economic coopera- 14 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 25 • China Remains the Top Importer of FIGURE 26 • …while More than Half of Imports Iran’s Non-Oil Exports… are Sourced from the UAE and China 60 60 17.2, 27% 50 50 16.5, 27% 2.1, 3% 15.1, 28% 7.5, 11% 16.5, 31% 2.8, 4% 14.3, 29% 15.4, 31% 40 40 6, 10% 7.4, 14% 1.9, 3% 4, 8% 5.2, 9% US$ billion US$ billion 30 6, 12% 30 18.5, 28% 5.7, 10% 6.6, 13% 15.7, 26% 4.9, 10% 12.7, 24% 20 8.9, 18% 10.2, 19% 9, 19% 20 10 10 18.3, 30% 20.7, 31% 14.3, 29% 14.5, 27% 16.5, 31% 14, 28% 0 0 2021/22 2022/23 2023/24 2021/22 2022/23 2023/24 Others Turkey UAE Iraq China UAE China Turkey India Germany Other Source: IRICA and World Bank staff calculations. Source: IRICA and World Bank staff calculations. tion agreements such as BRICS and the Shanghai nominal anchor to control inflation expectations. How- Cooperation Organization (SCO). Membership in ever, in combination with strong long-term M2 growth BRICS could offer partial benefits, including poten- and persistent inflation, this leads to a decline in tial access to financial resources contingent on the the real exchange rate (i.e., effective exchange rate provision of financial resources in the currencies of overvaluation), negatively affecting net exports. Con- member countries.27 Acceptance of FATF conven- versely, in times of low oil prices or intensification of tions and efforts to alleviate sanctions could facilitate sanctions, the central bank’s reduced control over the economic integration in regional and international foreign exchange market results in currency deprecia- agreements, thereby accelerating Iran’s economic tion, often marked by spikes.28 development and optimizing economic opportuni- ties. Positioned strategically as a key transportation route, Iran holds significance in the East-West cor- ridor supporting the Belt and Road Initiative and the North-South Transportation Corridor, requiring 27 BRICS, an intergovernmental organization consisting of further development of customs facilities, infrastruc- Brazil, Russia, India, China, and South Africa, originated ture, logistics, and other prerequisites for attracting in 2010 with the inclusion of South Africa into its precur- foreign investment. sor, BRIC. At the 15th BRICS Summit in August 2023, it The limited growth in non-oil trade and declared the invitation of Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates to join the increased concentration reflects the dual impact organization. of US sanctions and trade policy. Sanctions have 28 On the import side, heavily depreciated exchange rates imposed constraints due to banking and financial lead to the allocation of subsidized rates, depleting restrictions, limiting trade scope and technology the central bank’s limited foreign reserves and dem- transfers, increasing trade costs, and impacting com- onstrating limited efficacy in preventing inflation. petitiveness. High tariff and non-tariff barriers have Regarding exports, challenges such as increased costs due to imported raw materials and sanctions on bank- also negatively impacted productivity and innovation. ing transactions, unfavorable business conditions, and Additionally, exchange rate (ER) policy plays a cru- government policies restricting exports collectively cial role. When oil revenues are high, ER policy mainly undermine the country’s commercial competitiveness, focuses on stabilizing the nominal ER to provide a hindering efforts to enhance export capabilities. Recent Economic and Policy Developments 15 2 OUTLOOK, RISKS, AND OPPORTUNITIES G DP growth is forecast to maintain a mod- to mitigate high inflation and rising living costs, are est pace in the medium term. GDP in expected to gradually widen the fiscal deficit. 2024/25 is now forecast to grow at a more High inflation and sluggish job creation are moderate rate due to the projected slower growth expected to negatively impact households’ wel- in government expenditures and the base effect of fare. While subdued inflationary expectations and larger than anticipated growth in 2023/24. The ini- reduced currency pressures would alleviate inflation- tial boost in oil production and exports in 2023/24 ary pressures, a growing budget deficit is forecast to is projected to significantly moderate in subsequent keep inflation above 30 percent in the medium term. years with weaker global demand, including China’s The challenge of job creation persists across various economic slowdown; this will also spillover into the sectors, hindered by economic volatility, insufficient non-oil sector. Non-oil GDP is expected to remain con- non-oil growth and labor market rigidities. The private strained due to sanctions, energy shortages, liquidity sector will continue to grapple with macroeconomic constraints, underinvestment, and economic uncer- uncertainties and an uncertain investment climate, fac- tainty. Domestic consumption is forecast to weaken tors that are anticipated to reduce household welfare as the purchasing power of households is expected and disposable income. While government transfers to continue to decline with prolonged high inflation. can provide some relief, they come at a fiscal cost that Despite plans to consolidate the bud- may exacerbate inflationary pressures and reduce the get in 2024/25, fiscal pressures are forecast to fiscal space needed for pro-growth investments. persist, leading to a fiscal deficit that is further Poverty is projected to decrease, albeit at a compounded by off-budget expenditures. The fis- slower pace. Poverty at the US$6.85 line is expected cal deficit is projected to average around 2.3 percent to drop by a further 3 percentage points over the next of GDP throughout the projected period (2024/25– three years, but poverty at the US$3.65 percentage 2026/27), due to rising expenditures and limited line will decrease only slightly. Building on the last two growth in oil revenue. Increased government expendi- years of inclusive growth by improving the effective- tures, particularly for pension payments and transfers ness of social protection measures will help ensure 17 the trend of poverty reduction continues. Further con- economic sanctions, and the conflict in the solidation of cash transfers and enhanced targeting of Middle East. A decline in oil prices resulting from transfers would help improve their effect on reducing reduced global demand would adversely affect inequality and manage their fiscal cost. economic prospects. Growing economic ties with The current account surplus is forecast to China makes the economy susceptible to fluctua- gradually narrow, reaching 2.2 percent of GDP by tions in China’s economy. More frequent extreme 2026/27. This decline is primarily attributed to a pro- weather events threaten agricultural production jected decline in oil prices linked to subdued global and employment, posing risks to food security and demand and more specifically China’s economic livelihoods. Intensified economic sanctions, espe- slowdown, as well as the expiry of OPEC+ production cially impacting trade with neighboring and existing cuts in 2024. Iran’s exports, both oil and non-oil, will trade partners, would significantly weigh on growth. also be impacted by lower energy prices and inten- A potential expansion of the conflict in the Middle sified competition from other major exporters in key East that would directly involve Iran would have pro- international markets. found implications for the economy and the region (see Box 2). Conversely, the removal or partial waiver of sanctions would significantly boost both Risks and Opportunities oil and non-oil growth. Enhanced economic inte- gration and investments with neighboring countries Risks to the economic outlook arise from could generate new growth opportunities. global oil market dynamics, climate change, BOX 2  SCENARIO IMPACT OF THE RECENT CONFLICT IN THE MIDDLE EAST ON IRAN’S ECONOMY The recent regional security ramifications of the conflict in the Middle East centered in Gaza have heightened economic risks for Iran. The consequences of a full-scale war would be profound for Iran, considering the country’s current situation, amplified by existing challenges and ongoing economic sanctions. This box provides a scenario of the potential impact of conflict materializing in 2024/25. The actual consequences would depend on the scale, duration, and specific developments during the conflict. Table B2.1 presents an initial assessment of the economic consequences of the conflict relying on the downside oil scenario of the recent World Bank Commodity Market Outlooka and a specific scenario of shock to Iran’s economy. The baseline scenario considers a minimal impact of the conflict on Iran’s economy, presuming no direct involvement from Iran. The downside scenario assumes an extended conflict with Iran’s direct involvement, resulting in a substantial disruption to Iran’s oil export volumes, an increase in oil prices but with heavier discounts, and a negative shock to the non-oil sector. Depending on the scale of the conflict for Iran, the negative impact on GDP growth can be as high as 10 percentage points in 2024/25, primarily through the oil shock channel. Additionally, conflict would disrupt economic activities, leading to reduced production, decreased consumer spending, and diminished investments due to heightened uncertainties. Furthermore, physical and human capital damages would impede the recovery of economic activities in the post-conflict period. The resulting depreciation of the domestic currency would also fuel an inflationary spiral. In the downside scenario, the fiscal account would be heavily strained with the budget deficit estimated to exceed 6.2 percent of GDP in 2024/25. This would be driven by a 22 percent decline in oil revenues, reduced tax revenues stemming from economic disruptions in trade, and infrastructure damage. In addition, Iran’s government may need to allocate a significant portion of its budget to fund defense and security measures, diverting resources from other critical sectors. On the external account, the conflict would indicate a substantial impact, with reduced oil and non-oil exports causing the current account to fall into a projected deficit of 2.6 percent of GDP in 2024/25. Iran’s oil exports could face severe repercussions from an expanded conflict, although this may be partly offset by the impact on oil prices. Additionally, intensified sanctions and disruptions in trade routes, consequently affecting supply chains, could lead to delays and increased costs for businesses, impacting both imports and exports. (continued on next page) 18 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS BOX 2  SCENARIO IMPACT OF THE RECENT CONFLICT IN THE MIDDLE EAST ON IRAN’S ECONOMY (cont.) TABLE B2.1 • The Impact of Gaza Conflict on Iran’s Economy under Difference Scenarios 2024/25 2025/26 Baseline Downside Baseline Downside (Percentage change unless otherwise noted) Oil Price (US$/bbl) 81.0 157.0 78.0 78.0 Oil Exports (mbpd) 1.3 0.5 1.4 1.0 Oil GDP 5.0 –22.1 5.0 17.0 Non-oil GDP 3.0 –5.3 2.5 3.3 GDP 3.2 –6.9 2.7 4.9 Budget Deficit (Percent of GDP) –2.1 –6.2 –2.3 –2.7 CAB (Percent of GDP) 2.7 –2.6 2.3 –0.8 CPI Inflation 35.3 58.0 32.0 43.4 FIGURE B2.1 • The Impact of the Conflict on FIGURE B2.2 • …and Would Reflect on the GDP Growth Could Be Significant Budget Deficit and CAB 6 4 3 4 2 1 2 Percent of GDP 0 0 –1 Percent –2 –2 –3 –4 –4 –5 –6 –6 –7 Baseline Downside Baseline Downside –8 2023/24 2024/25 2025/26 2026/27 Budget Deficit CAB Baseline Downside 2024/25 2025/26 Source: World Bank staff calculations. Source: World Bank staff calculations. a The CMO evaluated the Middle East tension based on four scenarios: a baseline scenario with very limited impact of the war, a low disruption scenario with a 0.5–2 million barrels per day (mbpd) decline in global oil supply and a 3–13 percent increase in oil prices, a medium disruption scenario with a 3–5 mbpd decline in global oil supply and a 21–35 percent increase in oil prices, and a large disruption scenario with a projected 6–8 mbpd disruption in oil supply and a 50–75 percent increase in oil prices. Outlook, Risks, and Opportunities 19 TABLE 2 • Iran: Selected Economic and Financial Indicators, 2020/21–2026/27 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 Act. Act. Act. Est. Proj. Proj. Proj. Real sector (Annual percentage change, unless otherwise stated)  Real GDP at market prices 3.3 4.7 3.8 5.0 3.2 2.7 2.4 Real GDP at factor cost 4.1 4.4 4.0 5.0 3.2 2.7 2.4 Real GDP per capita 2.5 4.0 3.0 4.2 2.5 2.1 1.8 Real non–oil GDP 3.6 3.9 3.5 3.8 3.0 2.5 2.2 Real oil GDP 9.6 10.1 10.0 17.1 5.0 5.0 5.0 Total crude oil production (mbpd) 2.0 2.5 2.6 3.0 3.2 3.3 3.5 (GDP supply side components) Agriculture 3.2 –2.6 1.1 1.0 0.9 0.8 0.8 Industry (including oil) 7.8 3.2 7.4 8.8 4.9 3.7 3.7 Services 2.2 6.5 2.7 3.4 2.6 2.3 2.0 (GDP demand side components) Private consumption 0.5 3.9 8.7 3.3 2.4 2.1 1.8 Government consumption –0.9 8.3 –3.6 0.5 1.9 2.1 2.2 Gross fixed capital formation 3.2 0.0 6.7 5.9 4.4 4.2 3.1 Exports, goods and services –12.8 5.2 8.2 15.4 7.1 5.2 5.2 Imports, goods and services –29.7 24.1 7.5 1.6 1.8 2.1 2.1 Money and prices Oil price (US$/bbl) 61 41 99.8 82.6 81.0 78.0 77.0 CPI Inflation (p.a.) 47.1 46.2 46.5 40.7 35.3 32.0 30.5 Monetary base (MB) 30.1 31.6 42.3 28.1 n/a n/a n/a Broad money (M2) 40.6 39 31.1 24.3 n/a n/a n/a Banking system credit 94.8 56.3 49.9 52.9 n/a n/a n/a Nominal interest rate (percent) 17.5 19.6 21.2 23.6 n/a n/a n/a Nominal exchange rate, parallel market (IRR/US$) 228,872 259,476 334,103 516,731 n/a n/a n/a (Percent of GDP, unless otherwise stated) Investment & saving Gross capital formation 42.2 39.5 38.0 36.4 35.3 34.8 34.2 Gross national savings 42 42.6 41.4 39.3 38.0 37.1 36.4 Government finance Total revenues 7.8 11.0 11.7 11.8 11.8 11.8 11.9 Tax revenues 5.1 4.9 5.1 5.2 5.2 5.3 5.3 Total expenditures 13 14.2 13.6 13.7 13.9 14.1 14.3 Current expenditures 11.1 12.1 10.6 11.0 11.2 11.4 11.6 (continued on next page) 20 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS TABLE 2 • Iran: Selected Economic and Financial Indicators, 2020/21–2026/27 (continued) 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 Act. Act. Act. Est. Proj. Proj. Proj. Net lending/borrowing (overall balance) –5.2 –3.2 –2.2 –1.9 –2.1 –2.3 –2.4 External sector Current account balance –0.3 3.1 3.4 2.9 2.7 2.3 2.2 Population and labor market Population (million) 83.4 84.1 84.7 85.3 85.9 86.5 86.6 Participation rate (percent) 41.3 40.9 40.9 41.3 n/a n/a n/a Unemployment rate (percent) 9.6 9.2 9.0 8.1 n/a n/a n/a Memorandum Items: Nominal GDP (IRR Trillion) 40,791 66,775 104,350 145,559 195,935 258,979 339,963 Source: Iranian authorities and World Bank staff estimates and projections. Outlook, Risks, and Opportunities 21 SPECIAL FOCUS: RECENT POVERTY AND INEQUALITY TRENDS IN IRAN 2020/21–2022/23 R ecent trends in Iran show progress in reduc- This Special Focus builds on the World ing poverty and improving income inequality. Bank’s latest Iran Poverty Diagnostic: Poverty Between 2020/21 and 2022/23, poverty and Shared Prosperity , which covered 2011/12 rates as measured at US$6.85 a day decreased to 2020/21 (World Bank, 2023). The report doc- by 7.4 percentage points, lifting approximately 6.1 umented a significant rise in poverty during this million Iranians above the poverty line.29 Using the period. Earnings volatility was a key factor influenc- lower-middle income poverty line of US$3.65 a day, ing poverty with social protection programs providing poverty declined from 6.05 percent to 3.8 percent. essential support during times of economic down- Income inequality also improved slightly, declining turn. However, the diminishing real value of social from 35.8 to 34.8, as measured by the Gini index. transfers, especially for the lower-income deciles, Inclusive consumption growth, driven by increased forced a greater dependence on wages and self- earnings from wages and self-employment, con- tributed to the decline in poverty levels. Social programs, including temporary cash transfers and 29 The welfare estimates are calculated using the recent pensions, played a significant role in poverty reduc- guidelines in the updated methodological note for pov- erty measurement for Iran. This methodology takes into tion, particularly in 2022/23. However, regional account spatial and temporal price differences, inflation, disparities persist, with rural areas and the Southeast and other relevant factors to ensure accurate welfare region experiencing higher poverty rates compared comparisons. For more detailed information on the to urban centers. methodology, please refer to Box 1 in the document. 23 FIGURE 27 • Poverty Rates, 2012/13–2022/23 them publicly available. With more recent household 35 survey data now available, the team has extended the time series analysis for Iran to also include 2020– 30 2022, a period during which Iran’s economy has 25 seen a resurgence in growth and corresponding pov- Poverty rate, percent erty reduction. 20 15 Poverty and Inequality in Iran for 10 2020/21–2022/23 5 0 New household survey data reveal notable reduc- 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 tions in poverty levels. The economic rebound in 2020/21–2022/23 has led to a significant decline in poverty (Figure 27). Poverty in 2022/23 was 21.9 per- USD 3.65 PPP USD 6.85 PPP cent, nearing levels seen in 2018/19. Source: WBG updated poverty estimates. Figure 27 Poverty rates, 2012/13–2022/23 and Figure 28 highlight the significant shift in poverty rates and income inequality over this period. By the employment, which did not keep pace with escalating end of 2022, the percentage of individuals living below needs. During this period, an additional 9.5 million fell the upper-middle income country poverty threshold into poverty—set at US$6.85 per day in 2017 purchas- of US$6.85 per day had decreased by a cumulative ing power parity terms—and the poverty rate rose 7.4 percentage points, with approximately 6.1 million from 19.7 percent in 2011 to 29.1 percent in 2020. Iranians rising above the poverty line. For the lower- Iran is the only country in the Middle East and North middle income poverty line of US$3.65, there was a Africa region that collects high quality household modest decline of 2.25 percentage points over two budget survey data on an annual basis and makes years, which equates to about 0.8 million Iranians FIGURE 28 • Headcount Poverty Rates at FIGURE 29 • GINI Index, National, 2020/21– US$3.65 and US$6.85 2017 PPP 2022/23 National 35.8 29.29 24.82 35.5 21.92 Percent 6.05 34.8 4.99 3.80 2020/21 2021/22 2022/23 $3.65 $6.85 2020 2021 2022 Source: World Bank staff estimates based on HIES 2020/21–2022/23. Source: World Bank staff estimates based on HIES 2020/21–2022/23. 24 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 30 • Growth and Redistribution Effects FIGURE 31 • Growth Incidence Curves 2011/12– on Poverty Reduction, 2020/21– 2020/21 and 2020/21–2022/23 2022/23 12 0 0.30 10 –1 0.75 1.19 Avg. Annualized Growth (%) –2 8 Change in Poverty Level 2.15 –3 2.90 6 –4 4.17 4 4.47 –5 2 –6 6.18 –7 0 7.37 –8 –2 2020/21–2021/22 2021/22–2022/23 2020/21–2022/23 0 20 40 60 80 100 Change in poverty Attributable to Growth Attributable to Redistribution 2011/12–2020/21 2020/21–2022/23 Source: World Bank staff estimates based on HIES 2020/21–2022/23. Source: World Bank staff estimates based on HIES 2020/21–2022/23. Note: A growth incidence curve shows the annualized change in consumption for all Note: A growth incidence curve shows the annualized change in consumption for all households, from the poorest to the richest. A flat slope means that households all households, from the poorest to the richest. A flat slope means that households all experience the same rate of consumption change. A downward slope means that poor experience the same rate of consumption change. A downward slope means that poor households increase their consumption more rapidly than rich households or decrease households increase their consumption more rapidly than rich households or decrease it at a lower rate, and vice versa. it at a lower rate, and vice versa. escaping poverty.30 Income inequality, as measured of the bottom 40 percent. This was primarily due to a by the Gini index, also declined from 35.8 to 34.8. proportionally larger increase in consumption among This is a slight improvement compared to the previous the poorest deciles. Such shifts in per capita con- decade, which saw a marginal rise in income inequal- sumption across the distribution align with a trend ity, with the Gini index increasing from 35.5 in 2011 to towards reduced inequality within the country. 36.7 in 2020. The recent dynamics of poverty were driven primarily by inclusive consumption growth. Explaining Welfare Changes from Between 2020 and 2022, the decrease in poverty lev- 2020/21 to 2022/23 els in Iran was largely due to a significant uptick in Iran’s macroeconomic trends and poverty levels consumption growth (Figure 30). Income redistribu- have been closely aligned in recent years. As illus- tion from the richest to the poorest contributed only trated in Figure 32, there is a correlation between the marginally to poverty reduction. Growth incidence real GDP growth rates (including both oil and non-oil curves, illustrated in Figure 31, display the real per sectors) and the poverty rates, using the $6.85 2017 capita expenditure growth rates across the entire pop- ulation distribution for two key periods: 2011–2020 and 2020–2022. From 2011 to 2020 the poorest 30 In 2021 Iran was reclassified from an upper-middle segments of the population were hit hardest during income to a lower-middle income country. For the pur- recessions and gained the least during periods of poses of comparability, this report includes poverty economic growth (World Bank 2023),31 this pattern estimates for both country groupings. 31 Poverty numbers in this note are different from the shifted in the subsequent period from 2020 to 2022. 2023 Iran Poverty Assessment; here we used Pur- In this latter period, the entire population experienced chasing Power Parity (PPP) of the Gregorian year positive consumption growth, but the increase in con- (January-December), while the Poverty Assessment sumption for the top 60 percent was outpaced by that used PPP of Persian year (April–March). Special Focus: Recent Poverty and Inequality Trends in Iran 2020/21–2022/23 25 FIGURE 32 • GDP Growth Rates and Poverty oil GDP, further underscoring the positive impact of Rates in Iran, 2020–2022 economic growth on poverty reduction in Iran. 15 35 Increase in earnings from wages, self- employment, and a surge in one-time social 29.3 30 transfers, are contributors to the recent decline 24.8 in poverty levels. As confirmed in the recent poverty 25 10 GDP Grwoth Rate 21.9 diagnosis for Iran, income volatility is a key determi- Poverty Rate 20 nant of poverty fluctuations. The drop in poverty from 4.4 3.7 4.0 15 2020 to 2021 is primarily attributed to the increased 3.4 3.6 5 3.2 earnings from wages, self-employment, and pensions 10 (Figure 34 Decomposition of the drivers of pov- 5 erty, 2020/21–2022/23).In the following period of 2021–2022, cash transfer top-ups were the main fac- 0 0 2020/21 2021/22 2022/23 tor to push poverty down. These additional transfers GDP per capita growth rate Non-oil GDP per capita growth rate account for a 3.6 percentage point decrease in pov- Poverty ($6.85) erty; without them, the poverty rate would barely have Source: World Bank staff estimates based on HIES 2020/21–2022/23. budged. This observed increase in the data likely reflects the additional cash top-up the government FIGURE 33 • Evolution of Social Transfers, paid to poor Iranian households. This measure was 2018/19–2022/23 taken to cushion the effects of discontinuing the “pre- ferred” exchange rate of IRR42,000/US$, which was 100% 90% previously used to stabilize import costs for essential 80% goods, including food items, medicine, and medical 70% equipment. 60% Percent 50% 40% Spatial Disparities 30% 20% Despite the decline in poverty, there are signifi- 10% cant disparities that continue to exist within the 0% country. Rural regions and the Southeast of Iran 2018/19-Q1 2018/19-Q2 2018/19-Q3 2018/19-Q4 2019/20-Q1 2019/20-Q2 2019/20-Q3 2019/20-Q4 2020/21-Q1 2020/21-Q2 2020/21-Q3 2020/21-Q4 2021/22-Q1 2021/22-Q2 2021/22-Q3 2021/22-Q4 2022/23-Q1 2022/23-Q2 2022/23-Q3 2022/23-Q4 experience a disproportionately high prevalence of poverty. The majority of Iran’s impoverished popu- Pension Temporary cash transfers, lation resides in rural areas, where poverty rates are Regular Cash Transfers scholarships and charity markedly higher than in urban centers, as shown in Source: Author’s calculations based on HIES 2020/21–2022/23. Figure 35. While more than one-third of the rural pop- a For reporting purposes, the Statistics Center of Iran (SCI) has a standalone category for recording regular cash-transfers; and records one-time top-ups to its cash transfer ulation is classified as poor in 2022/23, the area has under a separate category that includes ‘welfare, scholarships, and charity”. This is experienced a substantial decline in poverty, with an evidenced by the surge in recipients of such payments starting in 2019, when the first top-ups were provided. 11-percentage point decrease between 2020/21 to 2022/23. In urban areas, poverty has also decreased, with a 6-percentage point drop during the same PPP benchmark for poverty. Notably, there was a sig- period. In terms of income inequality, urban regions nificant reduction in poverty during 2021/22, which have observed a downward trend, suggesting a slight corresponded with a 4.4 percent increase in real GDP improvement. In contrast, rural areas have seen a per capita. This trend of declining poverty continued slight uptick in inequality. into 2022/23, a period that saw a 4 percent rise in real This disparity is particularly pronounced GDP per capita and a 3.2 percent growth in the non- in the Southeastern provinces, where poverty 26 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 34 • Decomposition of the Drivers of Poverty, 2020/21–2022/23 0.01 1.24 1.40 0.61 0.19 –0.22 Percent Change In Poverty Rate –2.78 –3.61 –1.17 - 0.75 –1.44 –0.11 2020/21–2021/22 2021/22–2022/23 Remittances –0.16 0.09 Assets –0.08 –0.75 Own Production –0.11 0.01 Regular Cash Transfers 1.24 1.40 Pension –1.44 0.19 Temporary Cash Transfers, 0.61 –3.61 Scholarships and Charity Self employed –1.17 0.14 Wage –2.78 –0.22 Source: Author’s calculations based on HIES 2020/21–2022/23. Note: results derived from Shapely decomposition as recommended by (Azevedo, Sanfelice and Nguyen, 2012). FIGURE 35 • Headcount Poverty Rates at FIGURE 36 • GINI Index, by Rural/urban Areas, US$6.85 2017 PPP, by Rural/urban 2020/21–2022/23 Areas, 2020/21–2022/23 35.5 35.2 46.8 35.0 34.8 40.4 34.5 34.3 35.5 34.0 Percent 33.5 23.6 19.9 33.1 33.0 33.1 17.7 32.8 32.5 32.0 31.5 2020/21 2021/22 2022/23 2020/21 2021/22 2022/23 Rural Urban Rural Urban Source: Author’s calculations based on HIES 2020/21–2022/23. Source: Author’s calculations based on HIES 2020/21–2022/23. is deeply entrenched. Sistan and Baluchestan, for cent recorded in 2020, the current rate remains example, have the highest poverty rates, with nearly alarmingly high and substantially exceeds the national two-thirds of its residents living in poverty in 2022. average. Similarly in Kerman, where 40 percent of Although this represents a decrease from the 70 per- the population is poor. In contrast, the poverty rate is Special Focus: Recent Poverty and Inequality Trends in Iran 2020/21–2022/23 27 FIGURE 37 • Headcount Poverty Rates at FIGURE 38 • Headcount Poverty Rates at US$6.85 2017 PPP, by Region and US$6.85 2017 PPP, by Province, Rural/urban Areas, 2022/23 2022/23 70 60 50 40 Percent 30 20 10 0 Tehran Metro Caspian Northwest Northeast Central Southeast Persian Gulf Zagros National Rural Urban Source: World Bank staff estimates based on HIES 2022/23. Source: World Bank staff estimates based on HIES 2022/23. Note: Provinces are grouped in the following regions: Tehran metro (Urban parts of Note: Provinces are grouped in the following regions: Tehran metro (Urban parts of Tehran and Alborz); Caspian (Golestan, Gilan, Mazandaran); Northwest (East and Tehran and Alborz); Caspian (Golestan, Gilan, Mazandaran); Northwest (East and West Azarbaijan, Zanjan, Ardebil); Northeast (Khorasan Razavi, Semnan, North and West Azarbaijan, Zanjan, Ardebil); Northeast (Khorasan Razavi, Semnan, North and South Khorasan); Central (Rural parts of Tehran and Alborz, Qom, Qazvin, Markazi, South Khorasan); Central (Rural parts of Tehran and Alborz, Qom, Qazvin, Markazi, Fars, Isfahan); Southeast (Kerman, Sistan , Yazd); Persian Gulf (Khuzestan, Bushehr, Fars, Isfahan); Southeast (Kerman, Sistan , Yazd); Persian Gulf (Khuzestan, Bushehr, Hormozgan); Zagros (Kermanshah, Kurdestan, Hamadan, Bakhtiari, Lorestan, Ilam, Hormozgan); Zagros (Kermanshah, Kurdestan, Hamadan, Bakhtiari, Lorestan, Ilam, Kohkiloyeh). Kohkiloyeh). 13 percent in Tehran, the capital, and below 8 percent ient, adapting to maintain support for the population. in the least poor provinces of Isfahan, Mazandaran, This adaptability was further evidenced during the and Markazi. From 2020 to 2022, nearly all provinces COVID-19 pandemic when the government rolled out saw a reduction in poverty rates, with the exception of a substantial rescue package to bolster households Ardebil province, which experienced a slight increase and businesses. (World Bank, 2023) of approximately 3 percentage points. The Iranian government has sustained its efforts to provide additional cash-transfer top-ups. The household survey delineates three categories Role of Social Programs of social transfers: regular cash transfers, pensions, and a miscellaneous group that encompasses tem- Iran’s social welfare system has seen a significant porary cash transfers, scholarships, and charitable transformation. The 2011 Targeted Subsidy Reform contributions. The temporary cash top-ups, initiated in was a pivotal change, transitioning from broad subsi- dies to targeted cash transfers, which initially helped reduce poverty. However, the program’s effectiveness 32 The value of the cash transfer is estimated to be of US$6 was challenged by persistent sanctions and rising per person in 2019, a fall from an equivalent of US$40 in inflation, which diminished the purchasing power of 2011, according to UNICEF. the cash transfers32. In response, the government 33 This additional payment was directed at the lowest 70 per- adjusted the program to better target those in need, cent of households by income. Families with only one member were granted a monthly sum of 555,000 rials, particularly with the Livelihood Support cash trans- equivalent to roughly US$20 in terms of purchasing fers introduced alongside the 201933 gasoline subsidy power parity. For households with more than one mem- cuts. The social safety net in Iran, which includes cash ber, the amount increased incrementally, with a cap at transfers and a pension system, has proven resil- families of five members. (World Bank, 2023). 28 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS FIGURE 39 • Composition of Household Income from Social Transfers, by Quintile 1 1 2 1 0 3 1 1 3 4 2 1 3 2 5 1 5 5 3 2 6 7 4 3 Percent 9 6 27 5 27 8 12 24 9 22 23 21 18 19 17 12 13 12 9 7 7 Poorest 2nd 3rd 4th Richest Poorest 2nd 3rd 4th Richest Poorest 2nd 3rd 4th Richest quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile quintile 2020/21 2021/22 2022/23 Pension Temporary cash transfers, scholarships and charity Regular Cash Transfers Source: Author’s calculations based on HIES 2022/23. 2019 to mitigate the impact of escalating gas prices, (4,200 toman) per US$ for imports of basic goods such were rapidly expanded to most of the population, as wheat and medicine, which was significantly lower with 87 percent of households reporting receipt in than the free-market rate ranging from IRR120,000 to 2022/23. Pension receipt has remained stable from IRR300,000. Facing foreign currency shortages, in 2020/21 to 2022/23, while the uptake of regular cash 2022 the government discontinued the “preferred” transfers has been consistently high, albeit with a rate for certain food items and instead provided cash marginal decline in 2022/23, but their real value has top-ups to alleviate potential welfare losses. The gov- continued to erode with inflation. ernment projected that this measure would result in a Regarding the utilization of social pro- savings of 9 billion dollars. grams, wealthier households predominantly depend on pensions, whereas poorer ones lean FIGURE 40 • Value of Cash Top-Up, 2020/21– on cash transfers. The upper two consumption quin- 2022/23 tiles are more reliant on pensions, which are adjusted for inflation, thus preserving their purchasing power 9,000,000 (World Bank, 2023). Conversely, the lower two quin- 8,000,000 tiles are more dependent on cash transfers. Notably, 7,000,000 in 2022, an increased number of poor households 6,000,000 relied on temporary cash transfers, significantly con- 5,000,000 IRR tributing to poverty decline that year. 4,000,000 The top-up transfer values experienced an upsurge in 2022/23. Although there was a nominal 3,000,000 decline in the additional top-up due to inflation in the 2,000,000 2021/22 period, the subsequent year saw the amount 1,000,000 nearly double. This increase was in line with the govern- 0 ment’s compensatory payments following the removal 2020/21 2021/22 2022/23 of the “preferred” exchange rate. In the wake of the US Poorest quintile 2nd quintile 3rd quintile 4th quintile Richest quintile sanctions reinstated in 2018, the Iranian government established a “preferred” exchange rate of IRR42,000 Source: World Bank staff estimates based on HIES 2022/23. Special Focus: Recent Poverty and Inequality Trends in Iran 2020/21–2022/23 29 BOX 3 UPDATED METHODOLOGY FOR IRAN POVERTY MEASUREMENT The poverty numbers in this note are different from those reported in previous IEMs. In previous notes, poverty was measured using the upper-middle-income international poverty line of US$5.50, expressed in terms of 2011 Purchasing Power Parity (PPP). The updated methodology by Amendola et al. (2023a) is based on the World Bank’s 2022 Guidelines for constructing consumption aggregates.a Welfare is estimated using household expenditure per capita, which is adjusted for inflation to account for price differences over time and across various regions. The poverty threshold, which is the minimum income level below which an individual is considered poor, is determined using two international benchmarks: the lower-middle-income poverty line at US$3.65 and the upper-middle-income poverty line at US$6.85, both expressed in terms of Purchasing Power Parity (PPP) .b Population sampling weights, included in the raw data made publicly available by SCI, ensure the poverty estimates are representative at the national, urban/rural and provincial level. The methodology followed four principles of comprehensiveness, relevance, representativeness, and market price valuation. It included all monetary expenditures on goods and services consumed, excluding expenditures for financial assets, loan repayments, and infrequent and exceptional expenditures. Health expenditures were included in the aggregate. It also involved a harmonization and validation process to ensure comparability over time and transparency in the inclusion or exclusion choices made for each elementary consumption item. Durable goods were mostly excluded due to the lack of information necessary for the computation of consumption flow estimates, with some semi-durables being included in the aggregate (example includes desktop fans, mobile air conditioners, and electric iron). The methodology maintained a conservative approach with extreme values. Outliers were found to not significantly affect poverty estimates and inequality trends, and thus were not trimmed. Spatial and temporal deflators were applied to account for differences in price levels. The methodology involved adjusting for spatial and temporal price differences, using sampling weights and price deflation to correct for inflation and ensure accurate welfare comparisons. One significant change was the revision of the spatial deflation approach, moving from a multiple index approach to a single index deflator. Overall, the new consumption aggregate followed similar trend patterns as the previous one, with the difference in levels being driven by the inclusion of health expenditure. (Amendola, et al., 2023). FIGURE B3.1 • Comparison of Poverty Trends at Lower and Upper Middle Income Poverty Line, 2011/12–2020/21 Lower-middle Income Countries Poverty Line Upper-middle Income Countries Poverty Line 7 30 6 25 Poverty rate, Percent Poverty rate, Percent 5 20 4 15 3 10 2 1 5 0 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2017PPP, $3.65 old 2017PPP, $3.65 new 2017PPP, $6.85 old 2017PPP, $6.85 new Source: Amendola, et al. (2023). a As detailed by Mancini and Vecchi (2022). b Starting 2021, the World Bank has classified Iran as a lower-middle income country. To account for the new classification, both lines will be used simultaneously. 30 IRAN ECONOMIC MONITOR: SUSTAINING GROWTH AMID RISING GEOPOLITICAL TENSIONS References Azevedo, J. P., Sanfelice, V., & Nguyen, M. C. (2012). Shapley Decomposition by Components of a Amendola, N., Mancini, G., Redaelli, S., Vecchi, G. Welfare Aggregate. Retrieved from https://mp​ (2023). Price adjustments and poverty mea- ra.ub.uni-muenchen.de/85584/. surement. World Development Indicators. The Mancini,G., Vecchi,G.(2022). On the Construction of World Bank Group. https://documents1.world​ a Consumption Aggregate for Inequality and bank.org/curated/en/099311104272341601​ Poverty Analysis. Washington, D.C. : World /pdf/IDU06af3b51809e4e049840b03f03e26a​ Bank Group. http://documents.worldbank.org​ 6c1f357.pdf. /curated/en/099225003092220001. ______. (2023a). Welfare trends in the Islamic Repub- World Bank. (2023). Iran Poverty Diagnostic : Pov- lic of Iran 2011/12–2020/21. Methodological erty and Shared Prosperity. Washington, D.C.: note on the construction of the consumption World Bank Group. Retrieved from https://do​ aggregate and estimation of poverty trends. cumentsinternal.worldbank.org/search/3419​ [Unpublished manuscript]. 2394. Special Focus: Recent Poverty and Inequality Trends in Iran 2020/21–2022/23 31 1818 H Street, NW Washington, DC 20433