Economy

Why Iran’s Economy Has Not Collapsed

Published

5 years ago

January 16, 2020

Cars drive through a busy road in Tehran last July. Manufacturing accounts for about a fifth of overall employment in Iran, including automobiles, metals and plastics.

Since 2017, the Trump administration has placed layers of tough sanctions on Iran in an effort to deprive the regime of financial resources and force it to negotiate a new nuclear deal.

Secretary of State Mike Pompeo said in a recent speech that the administration’s strategy of “maximum pressure” aims to cut off 80% of Iran’s oil revenues and “President Rouhani himself said that we have denied the Iranian regime some $200 billion in lost foreign income and investment as a result of our activities.”

Yet Iran’s economy has not collapsed.

“I think the predictions of a quick economic collapse were too optimistic,” says Djavad Salehi-Isfahani, an economics professor at Virginia Tech specializing in the Iranian economy. Despite the Trump administration’s crushing sanctions, “They showed a misunderstanding of the level of complexity of Iran’s economy and how good they are or how experienced they are with resisting sanctions.”

To be sure, the increasing sanctions since 2017 have hit Iran’s economy hard.

“Unemployment is high, inflation is high. They’re running out of foreign exchange,” says Salehi-Isfahani. “The economy is not in good shape at all.”

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Iranians shop in the Tajrish Bazaar in Tehran in November.

But over the past four decades, Iran has had a lot of experience with sanctions and has learned to withstand their impact, he says. And it’s no different this time.

Both the World Bank and the International Monetary Fund estimate Iran’s GDP is on track to decline by roughly 9% this year. (Iran’s own estimates are lower, Salehi-Isfahani says). Compare that to the 1970s and late 1980s, when the U.S. imposed sanctions after Americans were held hostage at the U.S. embassy in Tehran — at that time, Iran’s GDP per capita dropped by 50%, according to Salehi-Isfahani.

The World Bank and IMF estimates of economic decline take into account a sharp drop in Iran’s oil exports. Before the U.S. pulled out of the 2015 nuclear deal in May 2018, Iran was exporting about 2 million barrels of crude oil a day. Now it’s estimated that Iran exports between 300,000 and 500,000 barrels daily, most of that to China, says Esfandyar Batmanghelidj, the founder of Bourse and Bazaar, an organization that tracks developments in Iran’s economy.

But Iran isn’t solely reliant on oil, Batmanghelidj notes.

“The Iranian economy is a very diverse economy and manufacturing is really one of the most important areas,” he says. “Currently, manufacturing accounts for about one-fifth of overall employment in the country.”

Batmanghelidj says that includes automobiles, metals and plastics. The U.S. sanctions make it difficult for Iranian businesses to access goods needed to make the products, and it’s tough to find customers abroad because there’s fear the Trump administration will also slap secondary sanctions on any company doing business with Iran.

But some Iranian manufacturers can stay afloat because of informal payment systems that don’t rely on banks to get money in and out of the country, Batmanghelidj says. Also, certain goods are not affected by secondary sanctions.

“They’re really basic goods, like food products or like consumer products, including things like household products, like detergent or shampoo,” he says.

Suzanne Maloney, an Iran specialist at the Brookings Institution, says Iran also has “well integrated” relations with regional partners, through which it can barter, trade or use other types of arrangements to maintain some economic activity.

“The Iranians really do have alternative industries to fall back on and a significant domestic capacity, as well as the ability to leverage their relationships with several of their neighboring states to try to muddle through economic adversity,” she says. “Countries like Iraq and Afghanistan, some of the Central Asian republics and of course, Syria, elsewhere across the region — it does have a reach that goes beyond that of the U.S. Treasury Department.”

A shortage of imported goods has helped spur domestic production, Salehi-Isfahani says. That, in turn, has helped create more employment for Iranians.

But it’s hard to gauge how much patience the Iranian population has. Forty years ago, he says, Iranians were willing to put up with hardships caused by U.S. sanctions. Now they are protesting in the streets.

“As we have noticed in the last few months,” he says, “that tolerance isn’t there. To what extent the government can maintain public order in the face of this 10 to 20% decline in living standards, I don’t know.”

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

1 week ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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