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

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

2 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

3 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

Published

3 days ago

September 10, 2024

Anne Joseph

HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

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