Declining Economic Growth and Foreign Investments in Iran – World Bank

The latest report by the World Bank on Iran’s economic growth in recent years shows serious effects of the global slowdown and the severe economic sanctions on the Iranian economy. The Central Bank of Iran, which normally publishes the growth rates for the country, has in the past three years declined to do so. According to the World Bank, the growth rate in 2010 is estimated at 1.5%, in 2009 at 1.4%, and in 2008 at 2.3%; the signs of an economic stagnation.

The Bank’s world economic outlook report released this week also predicts continued decline of foreign investments in Iran. The volume of direct foreign investment for 2011 is estimated at $1.2 billion, in 2010 at $2.9 billion, and in 2009 at $3.2 billion; a dramatic 67% decline in foreign investments in a span of two years.

The subsidy reforms undertaken by the government in the past two months are designed to cut the government’s expenditure by some $80 billion in their first year (although this estimate looks increasingly unrealistic and the real savings could be half that). The government is also planning to hand out some $29 billion in cash each year to the individuals affected by the removal of government subsidies. The rising oil prices, expected to hit $100 a barrel, are expected to provide the cash necessary to continue the handouts. In light of the World Bank’s data on the economic stagnation of the country, the real necessity for removals of government subsidies becomes even more clear.