Iran flag Iran: Economic and Political Overview

The economic context of Iran

Economic Indicators

Iran's economy is characterized by its reliance on hydrocarbon resources, a vibrant agricultural sector, and a diverse service industry. Additionally, the manufacturing and financial services sectors notably feature significant state involvement. External shocks, such as sanctions and commodity price fluctuations, led to a decade-long stagnation that concluded in 2019/20. However, in recent years, Iran's economy has begun to recover, buoyed by a resurgence in services after the pandemic, heightened activity in the oil sector, and adaptive policy measures. Economic resilience has been demonstrated in response to sanctions, including exchange rate adjustments that enhanced the competitiveness of domestically produced goods in international markets. According to IMF projections, Iran’s GDP grew 5.4% in 2023 thanks to a higher-than-expected increase in the country’s oil production. For 2024 and 2025, the IMF forecasts growth at 2.5% and 2%, respectively.

The decline in revenues as a result of US sanctions has prompted the government of Iran to satisfy its financing needs through extensive debt issuance and the sale of assets on the stock market. Elevated oil prices, driven by a global demand rebound and the Ukraine conflict, have boosted oil export revenues. However, the surge in commodity prices, particularly for food items, has substantially raised the import bill. This escalation added strain to government finances, especially considering that direct food price subsidies amounted to 5% of GDP even before the recent price surge. The current account balance is expected to sustain a surplus in the forecast period, bolstered by increased oil prices and non-oil exports. However, the surplus may be constrained by a more expensive import bill resulting from higher import prices. Despite the gradual rise in oil exports positively impacting the fiscal balance, the budget deficit is anticipated to persist above pre-sanctions levels, according to the World Bank. Meanwhile, public debt declined to 30.6% of GDP in 2023 (from 34.1% one year earlier) and is expected to follow a downward trend. Inflation stood above 45% in 2023 but should gradually decline amid lower food prices, resulting in a slight acceleration in household consumption.

Iran's unemployment rate reached 9.4% in 2023. The IMF estimates that the rate will remain relatively stable in 2024 (9.6%) and in 2025 (9.8%). The number of people no longer actively seeking work is increasing. Years of recession and high inflation have severely challenged household livelihoods and halted the poverty reduction trend. According to official figures released by the Interior Ministry, around 60% of Iranians live below the relative poverty line. According to a report published by ILNA in February 2023, one-third of the country’s population is now living in extreme poverty, after the number almost doubled in one year from 2020 to 2021. The country’s GDP per capita (PPP) was estimated at USD 18,261 in 2022 by the World Bank.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 346.48366.44386.22401.19416.55
GDP (Constant Prices, Annual % Change) 3.83.02.52.02.0
GDP per Capita (USD) 4,0434,2344,4184,5444,671
General Government Gross Debt (in % of GDP) 34.130.630.532.233.8
Inflation Rate (%) n/a47.032.525.025.0
Unemployment Rate (% of the Labour Force) 9.39.49.69.89.8
Current Account (billions USD) 14.4312.5914.1613.1412.08
Current Account (in % of GDP) 4.23.43.73.32.9

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Iran has a labor force of 28.6 million out of its 87.9 million population. Agriculture contributes 12.8% of the GDP, employing 15% of the active population (World Bank, latest data available). Only 9.7% of the land is arable and despite its importance to the economy and food security, the sector faces challenges such as water scarcity and limited access to modern technologies, impacting productivity and efficiency. The main crops are pistachios (world's largest producer), wheat, rice, oranges, tea, and cotton. In 2023, Iran's wheat production surged by 6%, elevating the Islamic Republic to the 14th position among global wheat producers, as per the United States Department of Agriculture (USDA), with Iranian farmers achieving a production of 14 million tons of wheat during the 2023 crop year.

The industrial sector employs 34% of the workforce and contributes 39.9% of the GDP (World Bank). Iran's industry is spearheaded by the hydrocarbon industry as the country is rich in mineral resources, mainly oil (3rd largest proved crude oil reserves in the world) and gas (2nd place in reserves in the world), copper, lead, zinc, etc. In 2023, Iran's daily oil production reached 2.99 million barrels, marking an increase of 440,000 barrels compared to 2022, as reported by the International Energy Agency, while exports reached a five-year high. The textile industry is the second most important after the oil sector. Other major industries include sugar refining, food-processing, petrochemicals, cement, and construction. Traditional handicrafts, such as carpet weaving and ceramics manufacturing, silk, and jewelry are also vital to the economy. The manufacturing sector as a whole is estimated to account for one-fifth of GDP.

The services sector contributes to 45% of the GDP and employs 51% of the workforce (World Bank). The expansion of urban areas has fostered the growth of the service sector. Significant service industries encompass public services, which encompass education, commerce, personal services, professional services, and tourism, which is growing despite U.S. sanctions: in 2023, 5.4 million foreign tourists visited Iran (+52% year-on-year).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 16.3 34.4 49.4
Value Added (in % of GDP) 12.5 40.2 46.9
Value Added (Annual % Change) 1.4 4.4 2.1

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
47,2/100
World Rank:
168
Regional Rank:
14

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
3.58/10
World Rank:
79/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Finance and Economic Affairs
Ministry of Industry, Mine & Trade
Ministry of Cooperatives, Labour and Social Welfare
Statistical Office
Statistical Center of Iran
Iran Statistical Society
Central Bank
Central Bank of Iran
Stock Exchange
Tehran Stock Exchange
Economic Portals
Pars Times
 

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Latest Update: April 2024