World Bank Study Says Iran Facing Serious Economic Risks
Iran’s economy is facing significant medium-term internal and external risks, the World Bank’s Iran Economic Monitor (IEM) said in its latest report this month.
Iran’s economy is facing significant medium-term internal and external risks, the World Bank’s Iran Economic Monitor (IEM) said in its latest report this month.
While domestically, “there is a risk of escalating social tensions and strikes in manufacturing,” externally, Iran faces “the possibility of an even weaker global demand for oil, a sharper decline in oil prices, and the intensification of US sanctions.”
The chances for more US sanctions, however, are low, as the Biden administration this month agreed to release around $9 billion of Iran’s frozen funds in Iraq and South Korea in a hostage release deal. The administration has not announced any new sanctions in the past 80 days, despite no change in Tehran’s foreign policy and regional behavior.
The IEM report says that less sanctions enforcement is one of the factors that can lower the mid-term risks to Iran’s economy, coupled with higher oil prices and more trade with China, which is its main oil customer.
“On the upside, a partial waiver of sanctions, or stronger ties with neighboring countries and China, could provide a boost to oil and non-oil growth,” the World Bank group said.
This assessment by the IEM was reflected in what the head of Iran’s Budget and Planning Organization, Davoud Manzour, stated on Sunday. “The difficult conditions imposed by sanctions as an external factor have cast a shadow over Iran’s economy,” he conceded.
“Ongoing economic sanctions, slowing global demand, and energy shortages drive the economic outlook. GDP growth is projected to remain modest in the medium term, with both oil and non-oil GDP underperforming due to ongoing sanctions and years of underinvestment,” the World Bank study pinpointed.
Although international organizations collect most of their data on Iran from government sources, which are often contradictory and less than reliable, but the IEM report overall did capture the serious weaknesses in the country’s governing and economic management systems.
Iran must undertake significant reforms to deal with multiple crises it faces, the IEM argued. “To ensure a sustainable growth rate in the face of multiple crises, significant reforms are necessary, including those on the fiscal side and the banking sector,” the report covering the spring and summer period concluded.
The report emphasized that the Islamic Republic needs structural fiscal reforms to balance expenditures with government revenues, specially amid continuing sanctions that directly impact the oil-dependent economy.
While the centralized and mostly government-controlled economy has muddled through with oil-export revenues for four decades, but structural issues have added up and made matters worse when in the past decade oil sanctions have reduced the government’s leeway to stay afloat.
The report, addressing these structural issues also mentioned the fragile banking system, mostly controlled by the government. “The banking system faces multiple and longstanding challenges including negative capital adequacy ratio and high non-performing loans.”
Iran International reported August 22, that Iran’s central bank has decided to dissolve several non-liable banks and savings and loan institutions. These institutions present an extra risk for a government that already relies on printing money to pay its bills. But dissolving a few banks or merging them with others does not solve the structural problems in the banking system, including political interference and opaque operations.
“Addressing these challenges requires enhanced bank supervision, the implementation of international regulations and best practices for asset classification, liquidity management, and internal controls,” the IEM added.
According to Rouydad24, Khatami made this assertion during a meeting with former Islamist political prisoners. He added that "with this system of government, Islam, Iran and the Iranian people are likely to sustain irreparable losses."
Khatami advised Iran's reformists to "stand by the people and try to understand their problems and simultaneously convey to the government that it is treating the people poorly."
Praising the Iranian middle class as the driving force of the country, Khatami noted that the current government has pushed the middle class into the underprivileged strata of the society. He further mentioned that a portion of the Iranian middle class has emigrated, while those who remain are grappling with various issues.
Expressing his frustration, Khatami stated, "The people are not slaves. Entrust political power to someone capable of addressing people's needs and responding to their demands. And if you plan to exert force openly, do not do so in the name of Islam." This marks one of Khatami's harshest criticisms of the system's inefficiency.
Khatami also remarked that the Islamic Revolution aimed to establish a republic akin to those in the rest of the world, aiming to eliminate backwardness, exploitation, and colonialism. These were the people's demands since the 1906 constitutional revolution, he noted. Khatami further added that the people would not have voted for the Islamic Republic in 1979 had they known this system would reject their vote, rule, and parliament.
Regarding the Iranian rulers' interpretation of Islam, Khatami stated it is incompatible with democracy and has led to various inefficiencies. He elaborated, "The Assembly of Experts was designed to appoint and dismiss the Supreme Leader and oversee their performance, and the Guardian Council was established to safeguard against misuse of people's votes. However, they were not meant to make decisions for the people."
Khatami clarified that he is not against the Islamic Revolution or the Islamic Republic but reiterated that the latter should rectify itself to become a government that promotes welfare and justice. He underscored that Iran currently lacks "good governance."
Meanwhile, in an interview with Agahi Now magazine, the former leader of Iran's Reform Front Behzad Nabavi also expressed his support for the regime by stating "We do not intend to destroy the structure of the regime. He added that Khatami speaks about politics based on contemporary requirements, while noting, "I expressed different views and faced harsh criticism from the public." He mentioned that during last year's protests, people no longer even listened to former Prime Minister Mir Hossein Mousavi, who was once revered.
Millions of disgruntled Iranians who protest in the streets or form “the silent majority” have lost trust in the regime as a whole, including reformists who are still loyal to the system after trying for more than a quarter of a century to make it more rational and democratic.
Although the interview was also published by several online media outlets, portions that were missed or deliberately overlooked by Iranian websites emerged on social media. According to some social media accounts, Nabavi criticized the election of Azar Mansouri, a woman, as the leader of the Reform Front stating, "Electing a woman to this position is unlikely to attract young Iranians to the reform camp.”
Referring to the impact of the 2022 protests on reformists, Nabavi said, "During the protests, some reformists concluded that the situation was evolving and attempted to prepare themselves for the next step by critiquing the system. However, he noted, "No one listens to reformists anymore, even those who have novel ideas."