The Iranian economy has faced serious challenges in the final months of 1403, challenges rooted in structural factors and recent developments. High inflation, devaluation of the national currency, and economic recession are among the issues that have directly affected people’s purchasing power. In this regard, we sat down with Sohrab Delangizan, a full professor of economics at Razi University in Kermanshah, to discuss the root causes of Iran’s economic problems. In addition to teaching at the university, he is a member of the Iranian Economists Association and the president of the Business Management Association in Kermanshah. This university professor, while explaining the reasons for the economic downturn in recent years, says about the future of Iran’s economy: A 20% increase in salaries will not solve the problem, but it will actually limit the household consumption basket and lead to the impoverishment of salaried classes. He also confirms the impact of international sanctions on the country’s economy

In the following, you will read a description of the peace talks with this university professor.

What is your overall assessment of Iran’s economic situation in the year 1403? What were the most significant economic trends that affected people’s lives this year?

The year 1403 can be considered a year of severe economic recession and income inequality. Although official statistics report a growth of about 2 to 3 percent, this growth is not visible in people’s lives. Many people, especially wage earners and salary earners, have faced a decrease in purchasing power and a decline in their standard of living. Meanwhile, certain sectors of the economy, such as large petrochemical companies, steel mills, refineries, and state-owned factories that are dependent on exports, have seen an improvement in their situation due to the increase in exchange rates. Severe fluctuations in the exchange rate and gold were also among the influential factors on Iran’s economy in 1403. The exchange rate increased from around 50,000 to over 90,000 tomans, which resulted in severe inflation. As a result, many people turned to buying foreign currency and gold or taking out loans to protect their assets. This trend, along with an increase in basic expenses such as

Inflation in Iran is still high. In your opinion, what are the most important internal and external factors that have contributed to this situation?

Inflation in Iran is the result of several internal and external factors that are simultaneously influential. The most important of these factors are:

1- Government budget deficit and structural inefficiencies: Due to its inability to finance its expenses through stable sources of income such as taxes, the government is forced to borrow from the central bank and the banking system. This leads to an increase in liquidity and ultimately inflation.

2- Inefficiency in the banking system and its impact on the production sector: Due to sanctions and lack of access to advanced technologies and necessary investments, the country’s production sector is facing a decline in productivity and an increase in costs. This inefficiency is compensated through bank loans, but ultimately leads to an increase in liquidity and inflation.

3- Sharp increase in exchange rate: Iran’s economy’s dependence on the dollar and rapid changes in the exchange rate is one of the most important factors stimulating inflation. The increase in the exchange rate raises the cost of imports and directly affects the prices of goods and services.

4- Economic rents and unfair distribution of resources: A part of the country’s economy is controlled by special groups and state-owned companies that benefit from special privileges such as access to cheap resources, energy subsidies, and monopolies. This leads to an increase in class inequality and a decrease in real wages.

5- Foreign Sanctions and Trade Restrictions: International sanctions have separated Iran’s economy from many global markets and have led to an increase in trade costs, a decrease in investment, and severe economic fluctuations.

Overall, the combination of these factors has caused inflation to remain high in the Iranian economy and there is no positive outlook for controlling it in the short term.

How do you evaluate the government’s policies in controlling liquidity, exchange rates, and inflation? Have these policies been properly implemented?

The reality is that the government lacks sufficient motivation to implement monetary control policies. In past years, when there was a need for monetary control, the government has not taken effective action, as its economic survival is dependent on cash flow. If the government wants to control cash flow, it will face serious challenges in securing financial resources. The country’s management structure is also inefficient in this regard. Many managers and ministers are not only lacking the necessary expertise in relevant areas, but are appointed based on political, security, or ideological affiliations. These individuals are transferred from one position to another without showing acceptable performance. This process exacerbates the inefficiency of the system and leads to an increase in cash flow and inflation, ultimately reducing people’s purchasing power. On the other hand, the main burden of government financing falls on fixed-income groups, such as employees and workers. These groups not only pay taxes, but also bear the costs of incorrect economic policies. While many large companies and factories are exempt from paying taxes

Given the decrease in purchasing power of the people, the middle and lower classes have suffered the most. In your opinion, what actions can be taken to improve the livelihood of these social classes?

The first and most important action of the government should be to increase salaries in proportion to the inflation rate. Contrary to some claims, increasing the wages of employees and workers is not inflationary, but rather, it stimulates production and reduces overall costs of the economy by increasing purchasing power. A major portion of inflation is caused by inefficiency in supply and low production scale. When there is not enough demand, fixed production costs increase and the final prices of goods rise. Therefore, increasing the income of the middle and lower classes leads to an increase in demand, a decrease in fixed production costs, and ultimately a reduction in inflation. In addition to increasing salaries, the government should implement targeted support programs. In advanced countries, supportive subsidies and aid packages are provided to needy households during crises. For example, during the COVID-19 crisis, many countries provided food and financial packages to citizens to prevent a sharp decline in their standard of living. Iran should also incorporate such models into its policies. Some may argue

As we approach the new year, the increase in prices of essential goods and household items is noticeable. What factors contribute to this price increase and is there a solution to control it?

The increase in prices on the eve of Norouz is a phenomenon that has been consistently repeated in the Iranian economy. This increase is mainly due to the growth in demand for goods such as nuts, clothing, and travel expenses. Although this issue is predictable from an economic perspective, it is expected that businesses will adhere to professional ethics during this period and refrain from unreasonable price increases. Of course, controlling this price increase in the short term may be possible through limited monitoring and cultural measures, but at a macro level, it is considered a structural issue. If the price increase is caused by the exploitation of certain individuals or groups, it must be dealt with legally. However, if the price increase occurs at the overall market level, we will need macroeconomic policies to adjust it.

How do you evaluate this year’s Eid night market? Has the decrease in people’s purchasing power had a significant impact on the prosperity of this market?

This year’s Eid night market has experienced a more noticeable recession compared to previous years. The decrease in people’s purchasing power, along with widespread economic problems, has caused both households and businesses to face financial difficulties. Therefore, the economic boom in this market has been very limited and has seen a significant decline compared to previous years.

One of the fundamental problems is the lack of proportionality between salaries and living expenses. Will increasing wages next year help improve the situation or will inflation neutralize it?

In the proposed budget for the upcoming year, a 20% increase in government employee salaries has been considered, but this is while the official inflation rate is at least 32% and the real inflation rate is estimated to be even higher. The increase in the exchange rate has directly affected the purchasing power of the people and has worsened the situation. Therefore, a 20% increase in salaries will not only solve the problem, but will actually limit the household consumption basket and lead to the impoverishment of salary-earning classes. If this trend continues, inefficiency in various sectors such as education, health, and public services will worsen. Real wage increases should be proportionate to the inflation rate and the devaluation of the national currency in order to have a positive impact on the overall welfare level.

Given the current situation, how do you see the economic outlook of Iran in the coming year? Is it possible to overcome the inflation recession?

Considering that the budget for the next year has doubled and reached 11,000 billion tomans from 5,000 billion tomans, it is predicted that next year will be an inflationary year. This increase in the budget will most likely be compensated through budget cuts and printing money, which in turn will lead to an increase in liquidity and inflation. In addition, structural problems in the Iranian economy, such as inefficiency in management, economic corruption, and lack of utilization of skilled labor, still persist. As a result, the 3% economic growth experienced this year will most likely decrease and fall below 2% in the next year. Therefore, it can be predicted that next year will be a year of severe inflationary recession, where the housing market will continue to be in recession, the car market will grow less than the inflation rate, and the stock market will not experience much growth.

To what extent have sanctions and foreign policies affected the economic situation of the country and the daily lives of people? Are there any ways to reduce the impact of these sanctions?

Sanctions have undoubtedly had a serious impact on the economy of Iran, but the main problem with the Iranian economy lies in its internal inefficiencies. Systemic corruption, unfair allocation of resources, and misguided economic policies have caused more harm to the country’s economy than sanctions. While lifting sanctions may alleviate some economic pressure, without structural reforms in economic policies and governance, the fundamental problems of the Iranian economy will persist. Reforms in economic structures and transparency in the financial and administrative systems can play a crucial role in mitigating the effects of sanctions.

In order to improve the economic conditions, what structural reforms need to take place in Iran’s economic policies and governance system? Is it possible to have economic reforms without political reforms?

In order to improve the economic conditions, several fundamental reforms must take place in the structure of Iran’s economic governance.

1- Peace with international markets: Establishing sustainable economic relationships with other countries, in a way that enables the utilization of business and investment opportunities.

2- Elimination of economic and administrative discrimination: Transparency in the economic system and removal of special privileges for specific groups, in order to increase economic justice.

3- Proper Governance: Appointing competent and efficient managers instead of nepotistic and political appointments.

4- Reforming the tax system and budgets: Preventing budget deficits and providing government finances through sustainable methods, not through printing money.

5- Supporting domestic production: Strengthening the manufacturing sector and creating incentives to increase efficiency in domestic industries.

However, it must be noted that economic reforms are not possible without political reforms. Economic policies will only be successful when there is a transparent, efficient, and accountable system of governance. As long as the country’s macro policies are based on the interests of special groups and non-transparent decision-making, any economic reform will face failure.

Thank you for the opportunity you have given us to use the peace line.