There is no doubt that the current coronavirus crisis will undermine the Iranian economy and lead to a major contraction in the country’s gross domestic product. Some early estimates project a contraction of up to 3%, though it is too early to offer a reliable assessment. The Iranian government has already announced a number of measures to support vulnerable social classes as well as businesses that will be hit hard by the current economic downturn. Yet with the government itself heavily burdened by budget deficits, external sanctions, mismanagement as well as a collapse in the global oil price — what impact will these measures have?
Evidently, the very first challenge in designing and implementing the right stimulus to Iranian businesses is the fact that the government itself is the largest economic player in the country as opposed to being the regulator of economic sectors. This means that direct stimuli such as bailouts will mainly refer to major state or semi-state companies and defeat the actual purpose.
Consequently, the focus of the government is elsewhere. It has identified a number of sectors to which some financial assistance will be offered, though the actual support remains ambiguous. According to the Central Bank of Iran, all commercial banks in the country have been instructed to extend low interest loans to the 10 business categories that are most affected by the COVID-19 virus outbreak, i.e., restaurants, shops selling dried nuts, confectionary and similar products, tour and travel agencies, hotels and hospitality firms, transportation companies, airlines, textile companies, manufacturers of leather products, sports and entertainment centers, and event organizers.
At the same time, Ebrahim Dorosti, deputy head of the Chamber of Guilds, believes that the government should not only focus on specific sectors and should offer stimuli to all businesses. Dorosti also predicts that the main economic fallout of the current crisis will be visible in three months.
In the midst of this debate, the government’s main focus is on limiting the economic impact on lower income classes. Details of the government’s measures were published on March 16, and there is no sign of easing the pressure on businesses. The key actions include:
One-time cash handout to lower income classes within the next four months. According to the vice president and head of the Management and Planning Organization, Mohammad-Bagher Nobakht, the government has identified those recipients of cash handouts who have no other income and will boost their income through supplementary cash transfers.
Additionally, retail sector workers and street vendors who have lost their jobs as a result of the crisis will receive an interest-free loan of 20 million rials (about $474 at the official exchange rate). The loan will be repaid over 30 months and it is estimated that about 4 million citizens would receive this grant.
Empowerment of single mothers through specific workshops to align the capabilities of single mothers with the existing needs in the job market. This will not translate into immediate financial support, but potentially improve the chances of the target persons to secure sustainable jobs.
Another plan is to increase the salaries of civil servants by 50% in the new Iranian year; ordinary civil servants are among the poorer sections of society and increasing their salary at above the inflation rate will increase their purchasing power and ability to observe measures to stop the spread of the virus.
The concentration on poverty reduction may be related to the acknowledgement that the virus is mainly hitting the poorer social classes. Indeed, the main warning came from a former economic adviser to President Hassan Rouhani, Masoud Nili, who cautioned that the poor could “become the epicenter of contracting and spreading the disease.”
It is clear from the above plans that the focus is on containing the spread of the virus as opposed to sustaining the country’s economy. In other words, COVID-19 is being treated as a public health crisis as opposed to an economic disaster.
In the meantime, the Ministry of Economic Affairs and Finance has focused its activities on operational issues such as speeding up the customs processes for items needed in the health-care sector as opposed to paying attention to the needs of businesses.
No matter which dimension the government wishes to prioritize, the core issue will be government finances. There will be a vicious cycle in the Iranian economy that will intensify, i.e., lower business activity will lead to lower tax revenues for the government that in turn will increase the budget deficit and government borrowing amplified by the additional expenses related to cash transfers. The inflationary impacts will put further pressure on the government’s financial position and on the economy as a whole.
These circumstances explain why Tehran decided to apply for a $5 billion International Monetary Fund (IMF) loan for the first time since the 1979 Islamic Revolution.
At the same time, a number of political stakeholders believe that it was a mistake to apply for an IMF loan. There are both political as well as financial aspects that make the decision controversial. On a political level, forces opposed to the Rouhani administration have criticized that the government would have needed the Majles approval prior to applying for the loan. However, the key criticism is that it would have been better to produce a more accurate financial assessment of the crisis before reaching out to the IMF. In any case, it is unlikely that this loan would be granted to Tehran, partly due to the IMF rules and partly due to Washington using its influence in the IMF to block the Iranian application.
Considering that the crisis has made new approaches possible, it should also be noted that new guidelines oblige the government to involve and empower civil society institutions to help in the process of poverty eradication.
The policies and decisions of the past few years had alienated the country’s civil society groups, which are now trying to overcome the distrust that clearly prevails between the state and civil society.
At the same time, the calamity is so enormous that new levels of solidarity can be recognized. For example, the so-called Nafas (Breath) Campaign — a coalition of nongovernmental organizations, businesses and chambers of commerce — has not only facilitated the production and importation of needed goods and services, but has also constructed a specialized clinic to treat patients. Furthermore, in an interesting move, the Farabourse, the smaller securities exchange in Tehran, introduced certificates for crowdfunding in order to mobilize resources to fight the coronavirus outbreak. The funds generated would be used to procure needed medical devices and products to support the efforts to contain the crisis.
The positive attitude of civil society is also complemented by some constructive views encouraging the business community. In fact, some business leaders have highlighted that the current circumstances are compelling the business community to take a leap toward digitalization. Though there are major cultural and infrastructure obstacles to achieve proper digitalization, some important steps are being made in the fields of e-government, e-learning and e-working.
All in all, the country’s economy will take a massive hit by the public health crisis, but Iran has shown an amazing resilience toward such crises. Indeed, one reason why the Iranian economy will be able to move out of this calamity more efficiently than other nations, is the fact that it is a crisis-ridden economy, i.e., people and businesses have the ability to adapt quickly and make the most out of critical situations. Many international leaders have compared the current conditions to a war situation and Iran is one of the few countries in the world that endured a devastating war in recent history and managed to reconstruct the country out of its own resources. Furthermore, the sense of solidarity among Iranians inside and outside the country is high — a phenomenon that will help repair the deep damage caused by this crisis.
Thus, if the state as a whole does not limit the space for civil society and professionals inside and outside the country, a new potential will emerge that will not only overcome the COVID-19 crisis but also generate new economic impetus.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
