Iran Economic Monitor Weathering Economic Challenges Special Focus Topic: Understanding the latest poverty trends in Iran (2009–2016) Fall 2018 Middle East and North Africa Region M cro conomics, Tr d Inv stm nt Iran Economic Monitor Weathering Economic Challenges Fall 2018 Special Focus Topic: Understanding the latest poverty trends in Iran (2009–2016) M cro conomics, Tr d Inv stm nt Cover photo: The Meidan Emam in Esfahan, also known as Naghsh-e Jahan. Courtesy of Faya Hayati. Publication design by The Word Express, Inc. TABLE OF CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Chapter 1  Recent Economic and Policy Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Output and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 External Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Exchange Rate, Inflation, and Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Public Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Jobs and Labor Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Chapter 2  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 . . . . . 31 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Stylized facts on poverty and inequality in Iran for 2009–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Explaining welfare changes in 2009–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Profile of poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 List of Figures Figure 1: Real GDP Growth and Production Side Components (Percentage Points) . . . . . . . . . . . . . . 1 Figure 2: Average GDP Growth vs Main Comparator Groups (%), 2012–2017 . . . . . . . . . . . . . . . . . . . .2 Figure 3: Non-Oil GDP Growth vs Main Comparator Groups (%), 2008–2017 . . . . . . . . . . . . . . . . . . . . 3 Figure 4: Iran’s Electricity Generation and Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 5: Contribution of Expenditure Side Components to GDP Growth (Percentage Point) . . . . . . .4 Figure 6: Current Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 7: Global Oil Prices & Iran’s Oil Production Levels (2010–2018, Monthly) . . . . . . . . . . . . . . . . . 6 Figure 8: Non-Oil Trade Balance (% of GDP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 9: Top Non-Oil Export Items (% of Total Non-Oil Exports) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 10: Iran’s Oil Exports by Region (% of Total Oil Exports) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 11: Iran’s Oil Export Destinations (% of Total Oil Exports) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 12: Iran’s Export Destinations of Goods (March Quarter, % of Total Global Exports) . . . . . . . . . 8 Figure 13: Iran’s Main Imports (% of Total Global Imports) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 iii Figure 14: Iran’s Main Import Partners (March Quarter, % of Total Global Imports) . . . . . . . . . . . . . . . . .9 Figure 15: Official and Market Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Figure 16: Depreciation of the Rial and other Currencies vs the USD, % . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 17: Inflation (%, YOY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 18: CPI Inflation Subcomponents in July 2018 (%, YOY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 19: CPI Consumption Weights by Decile (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 20: Tehran Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 21: General Government Balance (% of Nominal GDP), 2008–2017 . . . . . . . . . . . . . . . . . . . . . .17 Figure 22: General Government Revenues (% of Nominal GDP), 2008–2017 . . . . . . . . . . . . . . . . . . . . 17 Figure 23: Debt Issuance as a Share of Government Revenues (Including Disposal of Financial Assets) (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 24: General Government Revenue (% of Nominal GDP): 2016–2017 vs. Nominal GDP Per Capita (USD): 2016–2017 in Oil Exporter Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 25: General Government Taxes on International Trade and Transactions (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Figure 26: General Government Taxes on Goods and Services (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Figure 27: General Government Taxes on Income, Profits, and Capital Gains (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Figure 28: General Government Taxes on Income, Profits, and Capital Gains, Payable by Corporations (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 29: General Government Taxes on Income, Profits, and Capital Gains, Payable by Individuals (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Figure 30: General Government Revenue, Other (% of Nominal GDP) (2000–2017) . . . . . . . . . . . . . . 21 Figure 31: Recent Trend in Selected Labor Market Indicators (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 32: Unemployment by Gender (%), 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 33: Youth Unemployment by Gender (%), 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 34: Female Labor Force Participation Level and Change in Iran and the World* . . . . . . . . . . . 24 Figure 35: Iran’s Exports of Crude Oil and Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Figure 36: Impact of Sanctions in 2012/13 on GDP Growth and Oil Exports Compare with Projections in 2017/18 and Beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Figure 37: GDP Growth and Inflation Prospect of Iran and the World (%) . . . . . . . . . . . . . . . . . . . . . . . .28 Figure 38: Average Annualized GDP Per Capita Growth Rates During 2009–2016 and GDP Per Capita (2011 PPP) in 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Figure 39: Annual GDP Per Capita Growth Rates in Iran and Selected Comparators (%), 2009–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Figure 40: Poverty Rate ($5.5 2011 PPP Line) and Gini Coefficient in Iran, 2009–2016 . . . . . . . . . . . .33 Figure 41: Headcount Poverty Rates at $5.5 2011 PPP by Rural/Urban Areas, 2009–2016 . . . . . . . .33 Figure 42: Distribution of Poor Population Across Rural/urban Areas at $5.5 2011 PPP Poverty Line, 2009–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 43: Growth Incidence Curve Showing Annualized Real Expenditure Per Capita Growth Rates by Percentiles, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Figure 44: Poverty Rates in Iran and Selected Comparators at $5.5 2011 PPP Daily Poverty Line Circa 2014, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Figure 45: The Gini Coefficient in Iran and Selected Comparators Circa 2014 . . . . . . . . . . . . . . . . . . . 36 Figure 46: GDP Growth Rates and Poverty Rates in Iran, 2009–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .36 iv IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES Figure 47: Sources of Income Poverty Changes at $5.5 2011 PPP Poverty Line, 2009–2012, Percentage Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Figure 48: Sources of Income Poverty Changes at $5.5 2011 PPP Poverty Line, 2012–2016, Percentage Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Figure 49: Sources of Income Inequality Changes Measured by Gini, 2009–2012 . . . . . . . . . . . . . . . .38 Figure 50: Sources of Income Inequality Changes Measured by Gini, 2012–2016 . . . . . . . . . . . . . . . .39 Figure 51: Headcount Poverty Rates in Iran by Provinces in 2016 at $5.5 2011 PPP Poverty Line, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Figure 52: Headcount Poverty Rates at $5.5 2011 PPP Poverty Line in Iran by Provinces in 2016 and Different Provincial Level Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Figure 53: Headcount Poverty Rates in Iran at $5.5 2011 PPP Poverty Line by Household Demographic Characteristics in 2016, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Figure 54: Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Labor Force Status in 2009, 2012, and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Figure 55: Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Employment Sector in 2009, 2012, and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Figure 56: Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Education Level in 2009, 2012, and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Figure 57: Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Occupation Status in 2009, 2012, and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Figure 58: Enrollment in Educational Institutions in 2009, 2012, and 2016 for Children Age 7–19 by Expenditure Per Capita Quintiles, % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Figure 59: Enrollment in Educational Institutions in 2016 for Children Age 7–19 by Age and Poorest and Richest Expenditure Per Capita Quintiles, % . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Figure A1: Poverty Headcount Rates at $5.5 2011 PPP Poverty Line Using Expenditure and Income Per Capita Welfare Aggregates Across Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Figure A2: Gini Index Line Using Expenditure and Income Per Capita Welfare Aggregates Across Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 List of Tables Table 1: Islamic Republic of Iran: Selected Macroeconomic Indicators (2015–2018) . . . . . . . . . . . . .5 Table 2: Central Government Budget in 2017/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Table B1.a: Banking System Credit by Sector, 2012/13–2017/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Table B1.b: Banking System Credit by Sector and Type of Bank, 2017/18 . . . . . . . . . . . . . . . . . . . . . . . .15 Table B1.c: Banking System Credit by Sector and Purpose, 2017/18 . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Table B2.a: Composition of Government Tax Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Table 3: Headcount Poverty Rates at $5.5 2011 PPP by Nine Regions in 2016 . . . . . . . . . . . . . . . . . 40 List of Boxes Box 1: Recent Credit Growth in Iran’s Banking System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Box 2: Benchmarking Iran’s Government Revenue Collection to Other Comparators . . . . . . . . . .19 Box A1 : Measuring International Poverty Rates in Iran . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table of Contents v PREFACE T he Iran Economic Monitor provides an update (Economist), Matthew Wai-Poi (Senior Economist), on key economic developments and policies Mohammad-Hadi Mostafavi (Consultant) and Djavad over the past 12 months. It examines these Salehi-Isfahani (Consultant) under the guidance economic developments and policies in a longer-term of Benu Bidani (Global Practice Manager). Kamer and global context, and assesses their implications Karakurum-Ozdemir (Senior Economist), Syed Mehdi for the outlook for the country. Its coverage has Hassan (Lead Financial Sector Specialist) and Janet ranged from the macro-economy to financial markets Minatelli (Senior Country Officer) provided helpful to indicators of human welfare and development. It is comments. intended for a wide audience, including policy makers, Muna Abeid Salim (Senior Program Assistant) business leaders, financial market participants, and print-produced the report. The team is grateful to the community of analysts and professionals engaged the Government of Iran for its contributions to this on Iran. publication. The Iran Economic Monitor is a product of the The findings, interpretations, and conclusions World Bank’s Global Practice for Macroeconomics, expressed in this Monitor are those of World Bank Trade and Investment team. This fifth issue was staff and do not necessarily reflect the views of the prepared by Faya Hayati (Economist, Task Team Executive Board of the World Bank or the governments Leader), Majid Kazemi (Economist) and Maria they represent. Reinholdt Anderson (Consultant), under the general For questions and comments on the content guidance of Kevin Carey (Global Practice Manager) of this publication, please contact Faya Hayati and Saroj Kumar Jha (Regional Director). The Special (fhayati@worldbank.org) or Majid Kazemi (mkazemi@ Focus Section was written by a Poverty and Equity worldbank.org). Questions from the media can be Global Practice team consisting of Aziz Atamanov addressed to Mona Ziade (mziade@worldbank.org). vii EXECUTIVE SUMMARY I ranʼs GDP growth in 2017/18 The Government's prudent management of eased considerably as the effect of large fiscal buffers will help Iran to deal with the surge in oil revenues in the previous year rising inflation rate and depreciating currency, dissipated. against a backdrop of a persistent high After undergoing an oil-based bounce in the unemployment rate, which is expected to economy in 2016/17, the economy registered a increase pressure on peopleʼs livelihoods. The 3.8 percent growth in 2017/18 with the parallel exchange rate market experienced large overwhelming majority of growth coming from the depreciation since late December 2017 due to various non-oil sectors. More than half of the growth can be factors including high growth in liquidity, limited attributed to services which grew by 4.4 percent. Oil, correspondent banking relations with foreign banks agriculture and services sectors are now back and other external factors. The authorities’ attempts to above the levels of activity they were prior to ease the downward pressure on the rial through sanctions in 2012. But there was not a strong unification of the official and parallel market exchange bounce back in the past two years for key rates in early April 2018 along with restrictions on sectors such as construction and trade, restaurant foreign exchange transactions was short-lived as and hotel services following the stagnation in growth the currency’s value fell to less than a half against during the period of sanctions. The oil and gas the dollar in unofficial exchanges in August 2018. sector witnessed a growth of 0.9 percent. This depreciation also led to a surge in prices, with Limited by the (Organization of inflation tripling in the last 4 month to 24.2 percent year the Petroleum Exporting Countries) OPEC+ on year—a four year high (and reaching 31 percent in quota for the agreed period, increasing September). Housing prices in Tehran increased by production capacity or maintaining current almost 37 percent in Spring 2018 compared to the production levels in the coming years would same period a year earlier and rents were 27 require a substantial increase in investments percent higher. Unemployment remains high at 12.1 in the sector. However, the reintroduction of percent, and has worsened in recent years, especially sanctions on the oil and gas sector in November amongst the youth and educated population as labor 2018 by the United States (US) will mean the force participation continues to rise (40.3 percent in issue of export payments rather than investment 2017/18). needs will come to the fore. ix The special focus chapter of this issue of the Iran . Economic Monitor (IEM) shows high inflation was the key factor in the increase in poverty between 2012 to 2016 and given the recent surge in prices and rents, low-income households are expected to face mounting pressures. Historically, the social protection and cash transfer scheme were highly effective in Iran in combating poverty and decreasing inequality, and the governments' healthy fiscal buffers helps Iran to be well- placed to introduce counter-cyclical measures to boost economic activity and provide additional support to vulnerable households. In the medium term, the economy is projected to once again experience an episode of stagflation as oil exports and inflation are expected to return to 2012/13 and 2013/14 levels. The reintroduction of oil sanctions by the US in November 2018 is assumed to reduce oil exports by 50 percent. In the absence of information on expected oil purchases from Iran after November 2018, the working level assumption is that of a return of oil export levels to those of 2012 and 2013 when sanctions were similarly introduced on Iran’s oil and gas sectors. Other restrictions on trade and Foreign Direct Investment (FDI) along with the historically strong interdependence between oil and non-oil sectors is expected to lead to a reduction in the non-oil economy. Overall GDP is projected to contract by 1.6 percent in 2018/19 and again by 3.7 percent the following year which suggests Iran will be one of a few countries in the 2018–2020 period that are projected to experience a period of economic recession and rising prices—stagflation. The government balances are also expected to deteriorate as oil revenues, which account for more than 40 percent of central government revenues are cut. Continued downward pressure on the exchange rate and inflation back above 30 percent are also projected in the coming years which further lead x IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES 1 RECENT ECONOMIC AND POLICY DEVELOPMENTS Output and Demand still remains below other comparator groups including the average growth rates of oil Economic growth slowed to 3.8 percent in exporters, Middle-East and North Africa (MNA), 2017/18 as the one-off effect of increase in oil upper middle-income countries and Organization production dissipated. GDP growth declined from for Economic Cooperation and Development a recent record high of 13.4 percent in 2016/17 to 3.8 (OECD) (Figure 2). Agriculture growth slowed percent in the year ending March 2018. The growth down to 3.2 percent in 2017/18, services performance remains above the previous 10-year contributed the most to overall growth accounting annualized average growth rate of 2.1 percent. for 2.1 percentage points (Figure 1), more than Despite the strong rebound in the previous two years half of which was due to the transport, storage and (2016 and 2017), average growth in the past six years real estate sector. Previously when sanctions were introduced, these service sectors grew strongly FIGURE 1 • Real GDP Growth and Production Side Components (Percentage Points) 15 10 5 0 –5 –10 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Oil and Gas Agriculture Industry Services* GDP Growth at Factor Cost, % Source: Central Bank of Iran (CBI) data and World Bank staff calculations. Note: *Services less imputed bank service charges 1 FIGURE 2 • Average GDP Growth vs Main Comparator Groups (%), 2012–2017 Real GDP (annual growth) 10 8 6 4 2.6 2.9 2.9 3.4 2.2 1.6 2 0 –2 –4 Iran, Islamic Rep. Oil Exporter MNA Upper Middle Income OECD Emerging & Developing 2012–2015 2016–2017 2012–2017 Source : Source: Find My Friends tool using International Monetary Fund (IMF) World Economic Outlook (WEO) data. despite large decreases in overall GDP growth as sanctions on the economy (Figure 3). During the there was a shift of liquid assets towards real estate sanctions period (2012-15), non-oil GDP growth was and firms began to build up inventories. Real GDP close to zero percent over the 4 years and has since growth in the March quarter of 2018 reveals an rebounded to average close to 4 percent per year in easing of growth at 2.7 percent year on year and the past two years. Compared to Iran’s comparators June quarter 2018 growth slowing further to 1.8 and in the latter period, its non-oil GDP growth percent year over year (0.7 percent non-oil GDP is close to 4 percentage points higher than the growth) down from 4.6 percent a year earlier (4.3 average of other oil exporting economies and triple the non-oil GDP growth). The downward trend is likely MNA and upper middle-income countries’ average. to continue throughout 2018 as the impact of Figure 3 also shows the dependence of the non-oil exchange rates and inflation that occurred since sector on the oil sector for oil exporters as the March become reflected in economic activity. lower prices in 2016 and 2017 have led to More than ninety percent of overall negative growth on average for oil exporters. growth in 2017/18 relied on non-oil Crude oil production in 2017/18 and early production. Non-oil GDP growth in 2017/18 2018/19 remained relatively stable in line with the increased to 4.6 percent compared to 3.3 agreed OPEC+ production quota. Official percent in the previous year. With oil production government data indicate that oil production remaining constant, 3.5 percentage points out of compared to the previous year has slightly 3.7 percent overall growth (at factor cost) was due to declined to 3.8 million barrels per day (mbpd) in Q1 the non-oil sectors. The industries sector grew by 2018/19. Exports of oil and petroleum products 5.1 percent, substantially higher than the year before however was slightly higher than the previous year (2.2 percent) driven by the first growth in the average, though it slightly declined below the 2.3 construction sector since 2011/12 but still mbpd mark in the second half of 2017/18. remains less than two third of the levels in 2011/12. According to the authorities, oil production levels as Historically, there have been recent as mid-August 2018 has largely been strong spillovers of oil sector growth to maintained at previous levels despite the the non-oil sectors. Iran’s non-oil GDP growth prospective restrictions that are to be placed on rebounded strongly following the lifting of the countries importing oil from Iran. 2 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 3 • Non-Oil GDP Growth vs Main Comparator Groups (%), 2008–2017 8 7 6 5 4 3 2 1 0 –1 Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income 2008–2011 2012–2015 2016–2017 Source: Find My Friends tool using IMF WEO data. Published reports indicate that several oil expenditures continued to grow by just under 4 importing countries have begun finding alternative percent in 2017/18 marking the fifth consecutive suppliers and cutting imports in June and July 2018 .1 year of expansion since the change of government Electricity production peaked in 2017/18 in 2013/14. The sum of statistical discrepancy and growing by more than 8 percent but spare inventories2 similar to 2016/17, contributed almost 3 capacity declined. Power cuts in the summer period percentage points to overall GDP growth which may in Tehran and other parts of the country illustrate be an indication of stock building ahead of anticipated a narrowing spare electricity generation capacity uncertainties in the near future. (Figure 4) . The problem is more acute in peak After investment registered a positive consumption periods which along with an increase albeit moderate growth in 2017/18, the busi- in exports of electricity highlights a greater need for ness climate in 2018 has increasingly been additional investment in the electricity sector . On the demand side, policies to reduce energy intensity of the Iranian economy will also need to be considered . 1 See, “India cuts Iranian oil imports in June ahead of Iran’s energy intensity has been steadily increasing in U.S. sanctions” https://in.reuters.com/article/india- iran-oil/india-cuts-iranian-oil-imports-in-june-ahead-of- contrast to most countries in the world that have been u-s-sanctions-idINKBN1K10CV, “South Korea’s Iran reducing their energy intensity . oil imports may fall to 3-year low in Sept, hopes for The composition of GDP on the expenditure U.S. sanctions waiver—sources” https://www.reuters. side also reflects the levelling of oil exports com/article/us-southkorea-iran-oil/south-koreas-iran- following the large increase in the previous year. oil-imports-may-fall-to-3-year-low-in-sept-hopes-for-u-s- Net exports contracted 3 percent in 2017/18 following sanctions-waiver-sources-idUSKBN1JS14B, “UPDATE 1-Japan’s last imports of Iranian oil could be in Oct- the 64 percent increase in the previous year as oil industry body” https://uk.reuters.com/article/oil-iran- exports volumes remained at similar levels and a strong japan/update-1-japans-last-imports-of-iranian-oil-could- surge in imports . Total consumption growth eased to be-in-oct-industry-body-idUKL4N1UF2L5. 2 .8 percent and private consumption is now back 2 For 2017/18, the CBI has only reported the inventory above 2011/12 level for the first time . Real government values together with statistical discrepancy. RECENT ECONOMIC AND POLICY DEVELOPMENTS 3 FIGURE 4 • Iran’s Electricity Generation and Consumption 400,000 4 300,000 3 200,000 2 100,000 1 0 0 1963/64 1965/66 1967/68 1969/70 1971/72 1973/74 1975/76 1977/78 1979/80 1981/82 1983/84 1985/86 1987/88 1989/90 1991/92 1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14 2015/16 2017/18 Electricity Generation, GWh (LHS) Electricity Consumption, GWh (LHS) Spare Capacity to Consumption Ratio, % (RHS) Source: Based on data from the Ministry of Energy. Note: Gigawatt Hours (GWh) FIGURE 5 • Contribution of Expenditure Side Components to GDP Growth (Percentage Point) 20 10 0 –10 –20 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Private Consumption Gov. Consumption Invest. Export Import Inventory & Stat. Disc. GDP Growth, % Source: Based on CBI data. influenced by external factors. Gross fixed capital of investment projects by large European companies formation grew by 1.4 percent in 2017/18. Foreign di- have been either suspended or canceled.3 rect investment in 2018 is expected to have a down- ward trend compared to the previous two years after 3 These include Total’s operations in the South Pars Gas new US sanctions were introduced in early August Field’s US$4.8 billion consortium, PSA, Renault and 2018. Faced with a decision between continuing busi- Daimler’s joint ventures in the country’s auto sector and ness with Iran or access to the US market, a number Britain’s Quercus solar plant project. 4 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES TABLE 1 • Islamic Republic of Iran: Selected Macroeconomic Indicators (2015–2018) (% change unless stated otherwise) 2015/16 2016/17 2017/18 2018/19F Real GDP, at factor cost (2011 = 100) –1.6 12.5 3.7 –1.6 Agriculture 4.6 4.2 3.2 3.5 Industry –1.4 24.7 3.1 –7 Services –2.3 3.6 4.5 2.9 Real non-oil GDP, at factor cost (2011 = 100) –3.1 3.3 4.6 n.a. Real GDP, at market prices (2011 = 100) –1.3 13.4 3.8 –1.5 Private Consumption –3.5 3.8 2.5 –0.6 Government Consumption 4.8 3.7 3.8 –1.7 Gross Fixed Capital Investment –12 –3.7 1.4 –1.5 Exports, Goods and Services 12.1 41.3 1.8 –11.9 Imports, Goods and Services –20.2 6.1 13.4 –27.1 Prices Inflation (Consumer Price Index) 11.9 9.0 9.6 23.8 Current Account Balance (% of GDP) 2.3 3.9 3.5 0.6 Fiscal Balance (% of GDP) –1.7 –2.2 –1.8 –4.7 Source: CBI data and World Bank staff calculations. External Position oil export growth rose (from –6 .6 percent to 11 .5 percent, nominal) . Roughly 85 percent of Iran’s After an initial rebound in its current account imports remain in capital and intermediate goods . surplus in 2016/17, following the slump in Non-oil trade data for the first four months 2015/16, the surplus deteriorated again in of 2018/19 showed some improvements. In the 2017/18. The current account surplus fell from 3 .9 first four months of the current fiscal year non-oil percent of GDP in 2016/17 to 3 .5 percent of GDP exports grew by 14 .7 percent, year over year, most in 2017/18, as Iran’s oil production initially slowed likely as a result of the depreciation of the exchange in 2018 . Real export growth of goods and services rate . A breakdown of exports shows that the majority was 1 .8 percent in 2017/18, down from 41 .3 percent, of growth came from manufacturing, agricultural while real import growth was 13 .4 percent in 2017/18 . products and carpet exports . However, exports of Iran’s non-oil exports have risen in recent years from gas condensates, accounting for around 12 percent 6 percent of GDP in 2012/13 to 10 percent of GDP of the non-oil export basket, declined by around 16 in 2017/18 . In 2017/18, non-oil exports constituted percent compared to the first four months of 2017/18 . 33 percent of Iran’s total exports, compared to 38 The other major component of non-oil exports, percent in 2015 . Imports are predominately non-oil petrochemicals, only grew by 0 .9 percent . Imports and have been increasing in recent years . Iran’s trade contracted by around 4 percent, year over year, which balance (as a share of GDP) remained historically low can mostly be attributed to the import ban placed . in 2017/18, due to strong imports growth (Figure 6) . The share of oil in total value of exports has Growth in non-oil imports in 2017/18 slowed (from fluctuated in the recent years. Oil exports constituted 20 .3 percent to 17 .1 percent, nominal), while non- about 80 percent of exports between 2010/11 and RECENT ECONOMIC AND POLICY DEVELOPMENTS 5 FIGURE 6 • Current Account 160 12 140 10 120 8 100 Billion US$ % of GDP 80 6 60 4 40 2 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Current Account Balance (% of GDP) (RHS) Exports (fob) Imports (fob) Source: CBI. 2012 and dropped to a low of 51 percent in 2015, fruits), plastic material and organic chemicals. In before climbing back up when oil prices recovered and 2016/17, agricultural goods accounted for roughly sanctions were removed to 67 percent in 2017/18. 15 percent of non-oil good exports and industrial The majority of Iran’s recent non-oil exports goods accounting for the 82 percent (Figure 9). have consisted of agricultural and manufactured Regarding services, Iran’s exports have been largest goods. Iran’s main non-oil exports included agricultural in construction, transportation, and travel services. and traditional goods (specifically fresh and dried Exports of transportation (freight and passenger) FIGURE 7 • Global Oil Prices & Iran’s Oil Production Levels (2010–2018, Monthly) 120 5,000 Iran’s Crude Oil Including Lease Condensate 4,500 100 Cushing, OK WTI Spot Price FOB 4,000 80 3,500 (USD per Barrel) (1,000 bbl/d) 3,000 60 2,500 2,000 40 1,500 20 1,000 500 0 0 Mar-2010 Aug-2010 Jan-2011 Jun-2011 Nov-2011 Apr-2012 Sep-2012 Feb-2013 Jul-2013 Dec-2013 May-2014 Oct-2014 Mar-2015 Aug-2015 Jan-2016 Jun-2016 Nov-2016 Apr-2017 Sep-2017 Feb-2018 Iran's Crude Oil Including Lease Condensate (1,000 bbl/d) Cushing, OK WTI Spot Price FOB (USD per Barrel) (LHS) Source: US Energy Information Agency. 6 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 8 • Non-Oil Trade Balance (% of GDP) 15 10 5 0 –5 –10 –15 –20 –25 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Non-Oil Exports (% of GDP) Non-Oil Imports (% of GDP) Trade Balance (% of GDP) Source: CBI. dipped in 2016/17 after having rebounded since Europe was the main destination of Iran’s 2012/13 a trend that was similar to that of exports of recent increase in oil exports. Prior to the travel (business and personal). In 2016/17 travel and oil sanctions, in 2010 and 2011, about 60 percent of transportation services each constituted 7.7 percent Iran’s oil exports went to Asia and the Pacific, of Iran’s current account credits and industrial goods followed by 34 percent to Europe . After the accounting for 30.8 percent. imposition of oil sanctions in 2012, the European share declined FIGURE 9 • Top Non-Oil Export Items (% of Total Non-Oil Exports) Agricultural and Traditional Goods (AT) Plastic Materials and Their Products Organic Chemicals (OC) Light Oils and Products Cast Iron, Iron, Steel and Their Articles Fresh and Dried Fruits AT: Others Methanol and Ethylene Glycol Soil and Stone, Cement, Plaster, Stone and Ceramic Products Cyclic Hydrocarbons 0% 5% 10% 15% 20% 2010/11 2014/15 2016/17 Source: Islamic Republic of Iran's Customs Administration (IRICA). RECENT ECONOMIC AND POLICY DEVELOPMENTS 7 FIGURE 10 • Iran’s Oil Exports by Region FIGURE 11 • Iran’s Oil Export Destinations (% of Total Oil Exports) (% of Total Oil Exports) 2017 64% 36% Other 2016 74% 26% UAE 2015 90% 10% Japan 2014 89% 11% Turkey South 2013 89% 11% Korea 2012 87% 5% 8% EU 2011 64% 5% 31% India 2010 61% 5% 34% China 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 5% 10% 15% 20% 25% 30% Asia & Pacific Africa Europe 2018 2017 2011 Source: OPEC Source: Bloomberg and US Energy Information Agency. Note: 2018 represents data for the first half of the year. by 75 percent, to less than 10 percent of Iran’s total of Iran’s total oil exports were to China and 23 percent oil exports. When oil sanctions were removed in to India (Figure 11) . 2016, Iran’s oil exports to Europe rebounded from 10 Iran’s top export destinations percent in 2015 to 36 percent in 2017. Top European continues to be emerging developing destinations for Iranian crude oil exports in 2017 countries. Exports to China and India have included Turkey (9 percent), Italy (7 percent) and remained the highest, with China’s share of exports France (5 percent). In the first half of 2018, 26 percent at 22 percent in 2011 and 26 percent 2017, while India’s share of exports increased from 11 percent in 2011 to 18 percent in 2017 FIGURE 12 • Iran’s Export Destinations of Goods (Figure 12). Iran’s trade balance with (March Quarter, % of Total Global European Union (EU) was negative since 2012 with Exports) the deficit easing to €682 million in 2017/18. Looking forward, similar patterns are likely to US emerge again with a fall of exports to Europe, while Germany exports to China remaining stable. France Top importers of Iranian goods Japan remain largely unchanged. Asia and Korea European Pacific (especially China) and the Middle East Union continue to top the list of main importers . India Published reports indicate that Chinese China authorities have expressed that their trade with Advanced Emerg Iran and notably oil imports will not be impacted by Developing the new sanctions . 0 10 20 30 40 50 60 70 80 90 The share of capital and durable goods remains high in Iran’s import basket. In 2017 2015 2011 2016/17 over 40 percent of Iran’s imports Source: IMF DOTS. consisted of machinery and transportation vehicles (Figure 13), up from 32 percent six years ago . Meanwhile, iron and steel imports fell from 14 8 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 13 • Iran’s Main Imports (% of Total Global Imports) Machinery and Transportation Vehicles (MT) *Goods Classified acc to Their Compositions (GC) Foodstuffs and Live Animals (FA) Chemicals Raw Non Edible Products excl Petroleum Fuels (RN) Miscellaneous Finished Products (MF) Mineral Products, Fuels, Industrial Oils and Grease (MP) Vegetable and Animal Shortenings (VA) Beverages and Tobacco Goods Not Classified 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2011/12 2015/16 2017/18 Source: IRICA. Note: *The main subcomponents of the GC group include iron & steel, paper & cardboard, and yarn & other similar products. percent of the total value of imports in 2010/11 to goods but also included products that domestic 5 .7 percent in 2016/17 . Import volume of iron and producers are presumed to be able to supply to its 80 steel fell by 6 .7 percent in 2016/17 compared to six million population including cars. On the export side, in years earlier . Iran’s major import partners have remained the same in the recent years. United Arab FIGURE 14 • Iran’s Main Import Partners (March Quarter, % of Total Global Emirates (UAE) remains the main passage of entry Imports) of goods to Iran accounting for 28.3 percent of the total value of imports in March quarter 2018 Japan (Figure 14). A significant part of trade with UAE Brazil (especially Iran’s imports) have other primary origins Singapore or destinations . The share of Chinese goods in Iran’s France Netherlands imports remains high but has slightly declined from Italy a high of 15 .7 percent in 2015 March quarter to 13 India percent in the same quarter of 2018 . The share of Russia Switzerland Turkey and Korea in Iran’s imports has also Korea declined since March quarter 2015, while import share Germany from Russia and some European countries including Turkey China Germany, Italy and Netherlands has steadily increased . UAE The ongoing exchange rate depreciation 0% 5% 10% 15% 20% 25% 30% 35% has pushed authorities to place direct bans on imports and exports of certain goods in early 2018 2017 2015 2011 2018/19. In order to manage the supply and demand of foreign exchange, the government announced the Source: IMF Directions of Trade Statistics (DOTS) imposition of import ban on more than 1,400 goods . These goods generally include luxury or non-essential RECENT ECONOMIC AND POLICY DEVELOPMENTS 9 FIGURE 15 • Official and Market Exchange Rates 120,000 250% 100,000 200% 80,000 Rials per USD 150% 60,000 100% 40,000 50% 20,000 0 0% Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Gap, % of Official Rate (RHS) Official Rate (LHS) Parallel Market Rate (LHS) Source: CBI. order to avoid a shortage of essential goods, the export measures such as allowing foreign currency deposits of a number of goods were prohibited later in late-June in the banking sector, a weeklong period of higher 2018.4 The list predominantly included various grains interest rate deposit offering at the banks and advance and seeds used for human and animal consumption. sales of gold coins to redirect liquidity away from the In August 2018, a list of six other items were added foreign exchange market and avoid large capital flight. to the banned export list including powdered milk, The April unification policy of the CBI failed various paper materials, tea and butter .5 to achieve its goals in calming the markets. Black market activity soared under the newly implemented fixed rate, as many businesses imported goods at Exchange Rate, Inflation, and dollar prices and resold them at the higher Iranian Financial Assets prices. As the US pulled out of the Iran deal in May 2018, the rial depreciated further (Figure 15), rising After months of turmoil in the exchange market, above 140,000 rials to the dollar in early September the government announced the unification o f 2018. Iran’s currency depreciation in 2018 has the official and parallel exchange rates in April been one of the highest in the world (Figure 16). The 2018. After four months of depreciation in the foreign extent of the depreciation is more than double that of exchange market on April 10, 2018 the Turkey which is undergoing its own exchange rate government increased the official exchange rate turmoil. The level of foreign debt in Iran is from IRR37,830 to IRR42,000 per USD and comparatively much lower and this limits the announced that the exchange of foreign currency pressure of servicing debt in foreign currency; at any other rate will from then on be however, households and businesses who rely on considered as smuggling. High demand for importing foreign inputs and products (not on the foreign currencies, due to high levels of liquidity fixed rate list) remain exposed to higher prices. (partly a result of earlier interest rate policy With plans to reinstate US sanctions on oil, reforms) and heightened uncertainties due to external factors, caused authorities to devise rationing of 4 https://bit.ly/2wrQ9cB. supply including a four-tier grouping for imports of 5 https://bit.ly/2wnuJ17. goods. The government also used some temporary 10 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 16 • Depreciation of the Rial and other Currencies vs the USD, % 250 200 150 Percent 100 50 0 –50 Iran official Iran Parallel Market Turkey Russia EU UK 2017 2018* Source: CBI and media reports for Iran and monetary authorities of relevant countries. *Latest available data as of 29 August 2018. demand for the US Dollar has pushed the exchange In a subsequent CBI directive, rate premium above 200 percent in mid- September exporters of petrochemical products, steel and between the official rate and parallel rate. non-ferrous metals were required to provide Implementation issues have resulted their export revenues in the NIMA system in continued amendments to exchange rate within two months of receiving their export policies in 2018. The resulting inefficiencies proceeds. The third category of goods include in the classification of goods and allocation luxury and non-essential goods which cannot mechanism of preferential exchange rates led be imported under further notice. As part of the the authorities to overhaul the earlier program new policy package, the CBI allowed exchange and introduce a new three-tier classification of shops to meet the demand for hard currency for 23 goods. The first category includes essential types of uses (e.g. for researchers going and basic goods, medicine and overseas, overseas tourist travel, medical intermediate goods used to produce expenses abroad, international insurance strategically important goods. Imports of tier-1 and transport costs, etc.) at the parallel rate goods are through allocations of foreign with capped amounts. The foreign currency brokers currency at the official exchange rate and were permitted to access the secondary market for is supplied by the CBI. The second category of funds as intermediaries between suppliers of hard goods are those goods that are not currency and importers of goods in the secondary domestically produced and can be used for market and deal more extensively with hard currency various purposes. Imports of such goods are done by facilitating transfers of foreign currency into the through the CBI’s secondary exchange rate market, country. NIMA. In the portal, exporters of petrochemicals, With heightened market basic metals, pistachios, carpets and other non-oil uncertainty, driven by exchange rate items offer their foreign currency denominated depreciation and the reintroduction of US sales to importers of second category imported sanctions, inflation has returned to two-digit goods based on the supply and demand levels in Iran. reflected in the portal. RECENT ECONOMIC AND POLICY DEVELOPMENTS 11 FIGURE 17 • Inflation (%, YOY) 60 6 50 5 40 4 30 3 20 2 10 1 0 0 –10 –1 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 CPI Inflation (monthly) (RHS) CPI Inflation Food and Beverage Inflation PPI Inflation Source: CBI. In December 2017, CPI inflation peaked households who spend more of their household income at 10 percent, before dropping to 7.9 percent by on food . The bottom two deciles spend on average 40 April 2018. Since April 2018, the US withdrawal from percent of their income on food while the top two deciles the Joint Comprehensive Plan of Action (JCPOA) and spend half of that with 20 percent of their income going domestic speculation on the rial led to a sharp to food (Figure 19) . Housing prices in Tehran increased depreciation of the unofficial exchange rate, which by almost 37 percent in Spring 2018 compared to the has increased import costs and fed same period a year earlier and rents were 27 inflationary expectations of consumers. Within 4 percent higher .6 months, CPI inflation had more than tripled, Producer price inflation (PPI) also reaching 24.2 percent in August 2018, the highest Iran continues to rise. PPI year on year increased from has experienced since 2013 and the largest monthly 8 .7 percent in June 2017 to 16 .9 percent by June increase in prices (5.5 percent month on month) in 2018 . In fact, PPI has been steadily rising since 2017, at least 200 months (16 years)—since inflation data from 10 .7 percent in December 2017 to 16 .9 percent began being published accessibly in January 2002. by June 2018, with the greatest pick-up occurring Food and beverages, housing, and transport between May and June of 2018 . Manufacturing were among the top contributors driving CPI continues to be the greatest contributor to PPI in inflation upwards (Figure 18). Tobacco prices have June 2018, with the greatest year-on-year percentage increased following increased excise taxes imposed changes in basic metals (48 .1 percent), followed by in recent months but given their small share in the tobacco (43 .8 percent), and chemical products (41 .3 CPI basket (0 .37 percent) have only contributed 0 .4 percent) . In services, transport had the largest price percentage points to CPI . Food price inflation reached increase (15 .8 percent), with air transport prices the highest level in 4 years at 36 percent year on growing by 35 .8 percent . year in August 2018 with broad increases across the The Tehran Stock Exchange (TSE) overall components . The largest increases were by fruits and index has been rising since May 2018. The index nuts which increased by 85 percent and contributed to more than half the increase of food inflation . Food inflation is three times the rates it was 12 months ago . and will have a disproportionate impact on low income 12 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 18 • CPI Inflation Subcomponents in July 2018 (%, YOY) 140 12 120 10 100 8 80 6 60 4 40 20 2 0 0 CPI Tobacco Recreation and Culture Furnishing, Household Equipment/ Food and Beverages Transport Miscellaneous Communication Clothing and Footwear Restaurants and Hotels Health Education Housing, Water, Elec, Gas YOY (%) (LHS) Contribution to YOY (ppts) (RHS) Source: CBI. peaked at 121,174 points in July 2018 (Figure 20). This increasing again from June onwards . The price uptick is likely a reflection of investors shifting savings earning ratio remains between 6 and 7, where it to assets that are less affected by the devaluation of has been since December of 2016 . The turnover the rial. The TSE index (TEDPIX) initially remained velocity rate jumped in April 2018, from 1 to 2 stable between January and May of 2018, before points with increased uncertainty in the economy FIGURE 19 • CPI Consumption Weights by Decile (%) 100 % Share of Consumption basket 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 Food, Beverages and Tobacco Non food goods and Services CPI Average CPI Average Source: Statistical Center of Iran (SCI). RECENT ECONOMIC AND POLICY DEVELOPMENTS 13 FIGURE 20 • Tehran Stock Exchange 140,000 7 120,000 6 100,000 5 80,000 4 60,000 3 40,000 2 20,000 1 0 0 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Average number of shares traded daily Tehran Stock Exchange Index Turnover Velocity (TSE) (RHS) Source: CBI. and the large share of petrochemical and other assessment through an independent Asset exporters benefiting from higher exchange rates . Quality Review (AQR) of each public and quasi- The Iranian banking sector continues public bank leading to restructuring, to remain fragile. The authorities have make recapitalization and or resolution of these banks, gradual progress in implementing a number the accelerated passage of the CBI Law and the banking sector reforms as part of a reform “road amendments to the Banking Law and the map” that aim to strengthen the banking sector completion of Anti-Money Laundering and Combating resilience and improve the legal and regulatory the Financing of Terrorism (AML/CFT) reform. regime including making the CBI the sole authority to Credit growth in 2017/18 more than halved license and regulate financial institutions, the closure compared to a year earlier. Total credit issued in and or merger of unlicensed financial institutions the banking system was IRR6,139.1 trillion (US$179.4 with banks, the partial settlement of government billion),8 equivalent to 40.1 percent of GDP in 2017/18. arrears through settlement bonds and the drafting With a slowdown in GDP growth, the credit growth of the new CBI Law and amendments to the rate fell from 31.4 percent in 2016/17 to 12 Banking Law that are currently undergoing the percent in 2017/18 which was the lowest rate since legislative approval process. The withdrawal of 2013/14. Box 1 provides more detail on the the US from JCPOA and the threat of sanctions recent credit expansion trend and sectoral and potential loss of recently acquired access to the allocation through the banking system . global financial system has exacerbated the already weak performance of the financial sector. Consequently, the average Capital Adequacy Ratio Public Finances (CAR) had fallen to 4.9 percent by end-June 2017 The central government deficit slightly improved from 5.2 percent a year earlier and the in 2017/18 to 1.8 percent as a share of GDP as nonperforming loans (NPLs) ratio worsened from revenue increased and expenditures remained 9.5 a year ago to 10.3 percent in March quarter 2018.7 The authorities need to 7 continue to undertake several structural IMF Article IV, March 2018 and CBI . reforms including a comprehensive solvency 8 All dollar equivalent values are converted using the official exchange rate. 14 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES BOX 1  •  Recent Credit Growth in Iran’s Banking System Iran’s challenges accessing foreign funds places greater reliance for domestic firms on the national banking system to supply financial resources and instruments. Examining the decomposition of the banking sector loans by sector, purpose and type of bank provides an important insight into economic activity and the role of credit. The largest share of new credit injected into the economy was issued to the trade and services sector in 2017/18. Trade and services’ share of total credit growth in 2017/18 (53.3 percent) was higher than its stock of new credit in the economy (41.2 percent). The services sector in the same year contributed 2.1 percent out of the 3.7 percent growth in real GDP which is likely to highlight the link between the financial and real sector of the economy. In contrast, the non-services sectors received lower shares of additional funds relative to their respective shares of total banking system credit. For example, the manufacturing sector, accounting for 28.4 percent of 2017/18 total banking system credit, only received 20.3 percent of credit growth in 2017/18. In 2017/18, around 76 percent of total banking system credit was issued by the private banks providing IRR4,666.1 trillion (US$136.4 billion) to the real sector. Private banks provided more credit than their state-owned counterparts in all sectors of the economy except agriculture. State owned banks, consisting of specialized and commercial banks, covered 77.8 percent of credit supply in the agricultural sector in 2017/18. TABLE B1.a • Banking System Credit by Sector, 2012/13–2017/18 (trillion rials) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Agriculture 176.9 222.3 255.8 352.2 466.8 492.9 Manufacturing and mining 619.3 706.0 1064.9 1219.5 1609.2 1742.2 Construction and housing 264.1 287.1 404.5 431.1 501.2 517.4 Trade, services and miscellaneous 895.5 1146.8 1688.9 2170.4 2906.5 3386.6 Trade 228.3 305.4 433.1 570.4 724.3 851.7 Services 665.3 838.2 1248.0 1598.3 2178.8 2528.3 Miscellaneous 1.9 3.2 7.8 1.6 3.4 6.6 Total 1955.9 2362.2 3414.2 4173.2 5483.7 6139.1 Source: CBI. TABLE B1.b • Banking System Credit by Sector and Type of Bank, 2017/18 State- Private Banks Private Banks Commercial Specialized owned Privatized and Credit and Credit Banking Shares (trillion rials) Banks Banks Banks Banks Institutions Institutions System (%) Agriculture 73.5 310.3 383.7 87.3 21.9 109.2 492.9 8.0 Manufacturing and mining 193.7 73.7 267.4 745.5 729.2 1474.8 1742.2 28.4 Construction and housing 29.2 199.8 229.0 69.7 218.7 288.5 517.4 8.4 Trade, services and miscellaneous 547.5 45.5 593.0 1110.4 1683.2 2793.6 3386.6 55.2 Trade 77.0 18.3 95.2 265.0 491.5 756.5 851.7 13.9 Services 470.3 27.2 497.5 843.7 1187.1 2030.8 2528.3 41.2 Miscellaneous 0.2 0.0 0.2 1.7 4.7 6.4 6.6 0.1 Total 843.8 629.2 1473.1 2013 2653.1 4666.1 6139.1 Shares (%) 13.7 10.3 24.0 32.8 43.2 76.0 100.0 Source: CBI. (continued on next page) RECENT ECONOMIC AND POLICY DEVELOPMENTS 15 BOX 1  •  Recent Credit Growth in Iran’s Banking System (continued) Working capital was the biggest purpose for which funds were allocated (61.7 percent) by the banking sector in the economy in 2017/18. This is also true in the pattern of allocation at the sectoral level. Almost one tenth of all credit was allocated to establishing new firms across the economy. Out of total credits issued to the trade and services sector, establishment loans was the fourth category that firms used, while establishing new business in agriculture and manufacturing sectors were the second largest reason for borrowings. TABLE B1.c • Banking System Credit by Sector and Purpose, 2017/18 Financing Purchase working Repairs and of personal Housing (trillion rials) Establishment capital maintenance Development goods purchase Others Agriculture 81.1 338.9 1.0 29.8 14.0 1.5 26.7 Manufacturing and mining 128.9 1456.8 10.5 69.2 21.5 5.8 49.6 Construction and housing 86.6 102.8 63.8 16.9 11.8 218.2 17.4 Trade, services and miscellaneous 312.9 1890.3 115.2 185.1 380.2 64.8 437.9 Trade 51.6 584.7 4.5 27.0 51.3 31.6 100.9 Services 260.0 1302.2 110.7 157.6 328.6 33.1 336 Miscellaneous 1.3 3.4 0.0 0.5 0.3 0.1 1.0 Total 609.5 3788.8 190.5 301.0 427.5 290.3 531.6 Source: CBI. flat as a share of GDP. Government revenues grew it was above 20 percent in 2008–2011 (Figure 22). at a slightly slower pace of 17.9 percent (in nominal Oil prices and productions levels help explain the terms) compared to 2016/17 but due to a slowdown variation between years, but the overall level across in GDP growth, the revenue to GDP ratio witnessed a all time periods is significantly lower than other minor increase to 17 percent of GDP. The composition comparators. For example, compared to other oil of growth in revenues changed as oil revenues grew by exporting countries, Iran’s government revenue share more than 24 percent which accounted for just under of GDP is only two-thirds, and around half that of MNA half of the overall increase in revenues. Government and upper middle-income economies (see Box 2 for expenditures growth however slowed from 24 percent further discussion of Iran’s revenues by components). a year earlier to 17 percent in 2017/18. General Further efforts at expanding the tax base and targeting government balances remain relatively modest will be crucial to help increase the resource envelope compared to Iran’s comparators and this has been and diversify away from oil revenues. the case over the past decade which is particularly Lower than expected realized government exceptional given the combination of sanctions and revenues came at the expense of lower capital lower oil prices in recent years (Figure 21). expenditures in 2017/18 as had occurred Government revenues have increased as last year. Tax revenues almost met the approved a share of GDP but they remain amongst the amount in the budget, but total revenues fell short lowest rates in the world. General government of the value envisioned by around 11.3 percent as revenues averaged around 17 percent of GDP in oil revenues were 19 percent lower than approved 2016–2017 period up from 14 percent in 2012–2015, in the budget but accounted for around 6 percent but still below the rate it had previously been when of GDP. Subsequently, expenditures fell short of 16 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 21 • General Government Balance (% of Nominal GDP), 2008–2017 General government net lending/borrowing (Share of Nominal GDP) 4 2 0 –2 –4 –6 –8 –10 –12 Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income 2008–2011 2012–2015 2016–2017 Source: Find My Friends tool using IMF WEO data. the target by 11.8 percent (Table 2). The shortfall in is low compared to the country’s historical values expenditure however disproportionately affects the which were as high as 27 percent (or 5.5 percent of capital expenditures with non-financial assets (NFA) GDP) in 2008/9. realization almost 40 percent less than the budgeted Government debt issuances to finance amount. The share of capital expenditures in total their gross borrowing requirements remained expenditures declined to 15.3 percent (equivalent to high in 2017/18 but lower than the record level 2.9 percent of GDP). This level of capital expenditures in the previous year. The government’s disposal FIGURE 22 • General Government Revenues (% of Nominal GDP), 2008–2017 45 40 35 30 25 20 15 10 Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income 2008–2011 2012–2015 2016–2017 Source: Find My Friends tool using IMF WEO data. RECENT ECONOMIC AND POLICY DEVELOPMENTS 17 TABLE 2 • Central Government Budget in 2017/18 in 2016/17 and was almost 14 percent in 2017/18 (Figure 23). The authorities have also indicated plans (trillion rials) Realized Approved Gap to move towards a more comprehensive approach in its Current revenues 1,675.6 1,741 –3.8% bond issuance and overall debt management strategy Tax revenues 1,158.4 1,164.6 –0.5% such as following a pre-announced timetable of future Other 517.2 576.4 –10.3% issuances. The development of the debt market will Disposal of NFA 922.9 1,189.5 –22.4% occur under the supervision of a committee consisting of the CBI governor, Minister of Economic Affairs and Oil revenues (NFA) 919.3 1,139 –19.3% the head of the Plan and Budgeting Organization. In Other 3.6 50.5 –92.9% 2017/18, similar to the previous two years, the central Total revenues 2,598.5 2,930.5 –11.3% government had no foreign borrowing. Current expenditures 2,429.4 2,538.2 –4.3% Higher frequency data for the first three Acquisition of NFA 439.2 713.7 –38.5% months of 2018/19 show that crude oil revenues have increased by more than 72 percent Total expenditures 2,868.6 3,251.9 –11.8% compared to the same period in 2017/18. This Operating balance –753.8 –797.2 –5.4% increase is largely a result of an increase in oil prices Source: CBI. compared to the previous year which was driven by an increase in oil export volumes. The breakdown of oil revenues also shows that this growth was mainly due of financial assets (bond issuances, receipts from to an increase in sales of crude oil (101 percent) and privatizations and borrowing from the Treasury domestic sales of gas condensates while revenue from revolving fund and National Development Fund of exports of petroleum products and gas condensates Iran) reduced by 4.2 percent after concerns of an shrank (42.5 percent). Disposal of financial assets in over-reliance on the debt market to finance gross the first quarter of 2018/19 (out of which around 74 borrowings. In the 2018/19 budget law the parliament percent in the previous year was issuance of Islamic has restricted government debt issuance to be under instruments) has increased by more than 57 percent 10 percent of general government revenues. New debt year over year, indicating a continued debt financing issuance as a share of revenue jumped to 19 percent mechanism relying on the domestic financial market. The result of the latest assessment of FIGURE 23 •  Debt Issuance as a Share of general government debt puts gross public debt Government Revenues at 37 percent of GDP for the end of 2017/18. The (Including Disposal of Financial government’s comprehensive assessment of assets Assets) (%) and general government debt is still ongoing with a leading role by the Ministry of Economic Affairs’ 20 19 Debt Management Center and collaboration with the 18 CBI and other public and governmental bodies. The 16 13.9 corresponding value of the debt ratio for 2016/17 was 14 also revised to 45 percent of GDP. The authorities have 12 2018/19 budget limit also continued to use zero interest-bearing settlement 10 bonds to swap government’s arrears to contractors 8 6 5.2 with those entities’ outstanding obligations such as 4 tax payments that are due. In late July a second type 2 of settlement bond was introduced through which 0.5 0 government arrears to contractors would be settled 2014/15 2015/16 2016/17 2017/18 and transformed as government debt to the Central Source: CBI. Bank. The process involves contractors that are given 18 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES these bonds by the government to use them to settle activity by settling government arears to the firms their debt to banks. The banks in turn would use the and improve the balance sheets of banks . At the time bonds to settle their own accounts with the Central government debt to CBI had been reported to Bank. The aim of this new tool is to support private have reduced from IRR100 trillion to IRR85 trillion .9 BOX 2  •  Benchmarking Iran’s Government Revenue Collection to Other Comparators Iran collects less general government revenues as a share of GDP relative to its income level, region and the other oil exporting countries (Figure 24). The average oil exporting country collected 50 percent more revenues as a share of GDP than Iran in 2017 while upper middle-income countries (UMIC) collected almost twice as much. Broadening the tax base and improvements in collection are important elements for Iran to be able to deliver higher quality and wider reaching government services. This becomes especially crucial during the upcoming projected period of lower economic activity and the expected decline in oil revenues, the largest single source of revenues for the government. Importantly, Iran has undertaken several reforms in recent years that has increased non-oil revenues across several tax components but significant opportunities remain. This box compares in greater detail how Iran’s revenue collection compares to its comparators by sub-component. Direct taxes Since 2012, Iran’s taxes on corporate income, profits, and capital gains have been lower than MNA and oil exporter averages (Figure 28). Iran’s direct taxes (as a share of GDP) were 3.5 percent in 2017/18, slightly down from 3.8 percent in the two previous years, though well up from the 2.8 percent recorded in 2013/14. The GDP share of corporate taxes were 2.3 percent in 2017/18, income tax was 1 percent, while property tax remained at 0.2 percent, unchanged since 2007/08 despite large increases in property prices in Tehran over the same period. Iran has introduced a higher corporate tax rate of 25 percent but also granted a variety of tax incentives for foreign companies, including tax holidays for firms located in special zones or select sectors, such as agricultural, hand woven carpets, among others. Taxes on individuals’ income, profits and capital gains taxes, is relatively considerably lower than other oil exporters and UMIC countries who on average collect 4 times more (Figure 27). Individual taxes can be expected to become an increased source of revenue in the future, in accordance with Iran’s new progressive income tax model. Indirect taxes Iran’s indirect taxes have doubled in recent years following increases in the rate of VAT. The VAT rate increased from 5 percent in 2011/12 to 9 percent in 2017/18 leading sales and consumption tax collection to go from 0.8 percent of GDP in 2010 to 2.7 percent in 2017. Import taxes have remained at around 1.5 percent of GDP outside of the sanctions period when import levels fall. FIGURE 24 • General Government Revenue (% of Nominal GDP): 2016–2017 vs . Nominal GDP Per Capita (USD): 2016–2017 in Oil Exporter Countries 60 KWT (% of Nominal GDP): 2016–2017 50 General Government Revenue Upper middle income 40 LBY OECD MNA 30 IRQ DZA OMN ARE IRN SAU 20 BHR 10 YEM IRN 2012–15 0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Nominal GDP per capita (US dollars): 2016–2017 MNA Comparator Group Iran, Islamic Rep. Source: Find My Friends tool using the IMF World Economic Outlook. (continued on next page) RECENT ECONOMIC AND POLICY DEVELOPMENTS 19 BOX 2  •  Benchmarking Iran’s Government Revenue Collection to Other Comparators (continued) TABLE B2.A • Composition of Government Tax Revenues (% of GDP) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenues 14.6% 15.3% 15.2% 15.8% 17.4% 13.6% 13.4% 14.0% 15.7% 16.8% 17.0% Current Revenues 9.2% 9.8% 11.2% 7.1% 8.5% 7.7% 7.2% 8.5% 9.8% 11.1% 10.9% Tax Revenues 5.9% 6.2% 7.3% 5.1% 5.6% 5.4% 5.0% 6.2% 6.9% 7.7% 7.6% Direct Taxes 3.9% 4.3% 5.1% 3.4% 3.4% 3.4% 2.8% 3.1% 3.8% 3.8% 3.5% Corporate Tax 2.9% 3.3% 4.1% 2.3% 2.5% 2.3% 1.8% 2.1% 2.5% 2.4% 2.3% Income Tax 0.8% 0.8% 0.8% 0.8% 0.8% 0.9% 0.8% 0.8% 1.0% 1.1% 1.0% Wealth or Property Tax 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Indirect Taxes 2.0% 1.9% 2.2% 1.8% 2.2% 2.0% 2.2% 3.0% 3.2% 4.0% 4.1% Import Tax 1.5% 1.5% 1.5% 1.0% 1.2% 1.0% 0.8% 1.2% 1.0% 1.4% 1.5% Sales and Consumption Tax 0.5% 0.4% 0.7% 0.8% 0.9% 1.0% 1.4% 1.9% 2.2% 2.6% 2.7% Other Revenues 3.3% 3.6% 3.9% 2.0% 2.9% 2.4% 2.2% 2.3% 2.9% 3.4% 3.4% Disposal of Non-Financial Assets 5.4% 5.6% 4.0% 8.7% 8.9% 5.8% 6.2% 5.5% 5.9% 5.6% 6.0% Oil 5.3% 5.5% 4.0% 8.6% 8.9% 5.8% 6.1% 5.5% 5.9% 5.6% 6.0% Others 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: CBI. FIGURE 25 • General Government Taxes FIGURE 26 • General Government Taxes on on International Trade and Goods and Services Transactions (% of Nominal GDP) (% of Nominal GDP) (2000–2017) (2000–2017) 6 12 5 10 4 8 3 6 2 4 1 2 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran, Islamic Rep. Oil Exporter OECD Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income MNA Upper Middle Income Source: Find My Friends tool using the IMF World Economic Outlook. Source: Find My Friends tool using the IMF World Economic Outlook. (continued on next page) 20 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES BOX 2  •  Benchmarking Iran’s Government Revenue Collection to Other Comparators (continued) FIGURE 28 • General Government Taxes on FIGURE 27 • General Government Taxes on Income, Profits, and Capital Income, Profits, and Capital Gains Gains, Payable by Corporations (% of Nominal GDP) (% of Nominal GDP) (2000–2017) (2000–2017) 14 6 12 5 10 4 8 3 6 2 4 2 1 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran, Islamic Rep. Oil Exporter OECD Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income MNA Upper Middle Income Source: Find My Friends tool using the IMF World Economic Outlook. Source: Find My Friends tool using the IMF World Economic Outlook FIGURE 29 • General Government Taxes on Income, Profits, and Capital FIGURE 30 • General Government Gains, Payable by Individuals revenue, other (% of Nominal GDP) (% of Nominal GDP) (2000–2017) (2000–2017) 10 25 9 8 20 7 6 15 5 4 10 3 2 5 1 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Iran, Islamic Rep. Oil Exporter OECD Iran, Islamic Rep. Oil Exporter OECD MNA Upper Middle Income MNA Upper Middle Income Source: Find My Friends tool using the IMF World Economic Outlook. Source: Find My Friends tool using the IMF World Economic Outlook. RECENT ECONOMIC AND POLICY DEVELOPMENTS 21 FIGURE 31 • Recent Trend in Selected Labor Market Indicators (%) 8% 16% 6% 14% 12% 4% 10% 2% 8% 0% 6% –2% 4% –4% 2% –6% 0% 2010/11Q2 2010/11Q4 2011/12Q2 2011/12Q4 2012/13Q4 2013/14Q2 2013/14Q4 2014/15Q2 2014/15Q4 2015/16Q2 2015/16Q4 2016/17Q2 2016/17Q4 2017/18Q2 2017/18Q4 LFP Rate Quarterly Change (LHS) Employment Growth, YOY (LHS) Unemployment Rate (RHS) Source: SCI. The current economic situation along The parliament’s approved version puts the with the depreciation of the exchange rate potential number of cash transfer recipients to has both revenue and expenditure impacts around 55 million down from the 2017/18 level of for the government. Notwithstanding the 76 million people .10 The price of petrol was turmoil in the exchange market that followed the authorized to increase in line with inflation which unification of the exchange rates, the was assumed to be 10 percent instead of the 50 IRR42,000/USD rate announced in April (end of the percent increase suggested in the government’s first Iranian calendar month) meant the currency original bill . Other main assumptions of the depreciated by around 9.1 percent compared approved budget include an oil price of US$55 per to the budget assumed rate of 38,500 in a matter barrel and IRR38,000 to USD exchange rate . of a month. This was the same depreciation that occurred over the entire 2017/18 year. This depreciation affects revenues through higher rial oil Jobs and Labor Market revenues but higher inflation and reduced economic activity will most likely increase In June quarter 2018, the unemployment expenditures of government including salaries, rate improved to 12.1 percent despite labor consumption and the greater need for force participation edging up in the same transfers in a worsening economic climate. period. The unemployment rate was 12 .6 percent11 The 2018/19 proposed budget in June quarter 2017 but fell to 11 .7 percent in underwent a series of amendments by the September quarter before edging up to 12 .1 parliament. The 2018/19 budget bill of the government was rejected in late January 2017 9 https://bit .ly/2LlahCt . following concerns about the proposed reduction 10 Iranian lawmakers block cuts to cash handouts, https:// in the number of recipients for the energy cash www.al-monitor.com/pulse/originals/2018/03/iran-budget- handout allocations (equivalent to a reduction of cash-subsidy-cuts-parliament-protest-aftermath.html. almost 33 million recipients) and cutting energy 11 The official unemployment rate is based on the working subsidies . age population of 10 years of age and above. 22 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 32 • Unemployment by Gender (%), 2017 30 (% of Male Labor Force) in 2017 25 Unemployment, Male 20 15 IRN 2012–15 LBY OMN Upper Middle Income TUN JOR YEM OECD IRN 2017 SYR 10 MAR MNA EGY IRQ DZA 5 LBN KWT ARE DJI SAU 0 QAT BHR 0 5 10 15 20 25 30 35 40 45 Unemployment, Female (% of Female Labor Force) in 2017 MNA Comparator Group Iran, Islamic Rep. Source: Find My Friend using World Development Indicators (WDI) data. percent in June 2018. Underemployment share in those with university degrees was 17 .8 percent . 2017/18 was 10.4 percent. Labor force While there have been some improvements participation rate edged up to 41.1 percent in June in the female labor force indicators, considerable quarter 2018, its highest level in more than 10 years. differences between male and female remain. The economy managed to create a record Female labor force participation rate continued to number of new jobs in 2017/18. Employment improve to around 16 percent in 2017/18. The growth has remained above 3 percent year on year country ranks among the top countries that for 6 consecutive quarters leading to more than improved the participation of females in the labor 790 thousand jobs being created in 2017/18. The force (Figure 34). Out of the new jobs created in employment rate (employment-population ratio) the same year more than 300,000 went to females reached a recent high of 35.4 percent. The trend in while male employment increased by over 400,000. the sectoral employment shares continued with an A year earlier (2016/17), twice as more jobs had increase in the shares of employment in services gone to the female labor force compared to those of which increased to an all-time high of 50.4 percent males. The ratio of female to male employees in in 2017/18 while agriculture fell to 17.6 percent and the industrial sector remains the lowest (one-sixth industry remained steady at 32 percent. compared to almost a quarter in services and Youth unemployment improved in the agriculture). The majority of the jobs for women June quarter 2018 but remains high compared remain part-time with only 14.5 percent of to earlier periods and regional averages. Youth employed females in 2017/18 working full-time unemployment rate (15 to 24-year-old population) hours of 49 hours or more per week while it was 44.1 stood at 28.3 percent in June slightly better than a year percent for men. ago. The rate, however, has worsened compared to Acknowledging the important challenge the 2012–2015 average for both males and females of unemployment ahead, the government has in Iran (Figure 33 Youth unemployment by gender, prioritized job creation plans in the 2017/18 2017). This rate is higher than Iran’s comparators budget. Several plans are underway for new job including the average rate in MNA, upper creation and sustaining existing employment levels . middle-income countries and OECD averages. In These include the Universal Employment plan which June quarter 2018, the unemployment rate among RECENT ECONOMIC AND POLICY DEVELOPMENTS 23 FIGURE 33 • Youth Unemployment by Gender (%), 2017 (% of Male Labor Force Ages 15–24) in 2017 60 50 Unemployment, Youth Male 40 LBY OMN TUN JOR 30 Upper middle income EGY OECD YEM IRN 2017 SAU SYR MAR DZA 20 LBN IRQ MNA 10 DJI KWT IRN 2012–15 ARE BHR 0 QAT 0 10 20 30 40 50 60 70 80 90 Unemployment, Youth Female (% of Female Labor Force Ages 15–24) in 2017 MNA Comparator Group Iran, Islamic Rep. Source: Find My Friend using WDI data. in the 2018/19 budget earmarks a total assessing loan requests from self-employed IRR500 trillion (US$11.9 billion) subsidized agricultural producers and Small Medium loans to be issued by the Ministry of Labor, Enterprises (SMEs) in the industries and agent banks and National Development Fund of construction sectors for low interest rate Iran (NDFI) to those projects that the Ministry credit. Under this plan in 2017/18 around identifies as important for each province. In IRR195 trillion (US$5.7 billion) of facilities were another national plan (Tarh-e-Ronagh) since provided to over 28,000 SMEs. Based on a plan 2016/17, committees in every province have been to support rural employment, a total of US$1.5 FIGURE 34 • Female Labor Force Participation Level and Change in Iran and the World* 100 Female Labor Force Participation in 2017 90 80 70 OECD 60 Upper middle income 50 40 30 20 MNA 10 0 –8 –6 –4 –2 0 2 4 6 8 Change in Female Labor Force Participation, 2014–2017 All other countries MNA Comparator Group Iran, Islamic Rep. Source: Find My Friends tool using WDI data. Note: * Defined as percent of female population ages 15–64. 24 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES billion from the NDFI has been allocated to provide correlation between non-oil sector and oil production, preferential loans to entities in cities and villages the government faces an even greater challenge with less than 10,000 population with a priority of controlling unemployment as the economy for border regions and nomadic tribes. Despite moves back to the pre-2016 these plans and considering the high uncertainties. RECENT ECONOMIC AND POLICY DEVELOPMENTS 25 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES 2 OUTLOOK AND RISKS M edium-term prospects are negative, years compared to the 2011/12–2015/16 period based on a reversion of oil exports to when sanctions were similarly introduced. The growth similar levels as that of the 2012–2015 projections suggest Iran as one of a few countries in period due to the reimposition of oil export the 2018–2020 period that are expected to experience sanctions by the US. The baseline scenario of the a period of recession and rising prices—stagflation forecasts assumes a return of oil exports to the (Figure 37) a phenomenon that challenged Iran from 2012–2015 levels (Figure 35) . Crude oil exports 2012/13 to 2013/14. This follows a dramatic departure are projected to average 1 .5 mbpd in 2018/19 and from the growth outcomes of the past two years where reduce to 1 mbpd in the subsequent years from they were amongst the fastest growing economies in the current levels above 2 .0 . GDP is expected to the world (Figure 37) and inflation simultaneously contract by 1 .6 percent in 2018/19 and then 3 .7 falling to historically low levels. The Iranian economy percent the following year . Figure 36 shows the GDP is expected to undergo similar declines in growth and growth and oil export profile of Iran for the projection inflationary pressures as 2012–2015. FIGURE 35 • Iran’s Exports of Crude Oil and Production 4.5 4.0 3.5 Million Barrels per Day 3.0 2.5 2.0 1.5 1.0 0.5 0 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Crude Oil Exports (MBPD) Crude Oil Production (MBPD) Source: EIA and World Bank staff calculations. 27 FIGURE 36 • Impact of Sanctions in 2012/13 on GDP Growth and Oil Exports Compared with Projections in 2017/18 and Beyond 3.0 15 2.5 10 Million Barrels per Day 2.0 % Real Growth 5 1.5 0 1.0 –5 0.5 0 –10 –1 Time 0 1 2 3 Oil exports Time 0 = 2012/13 (LHS) Oil exports Time 0 = 2017/18 (LHS) Growth Time 0 = 2012/13 (RHS) Growth Time 0 = 2017/18 (RHS) Source: CBI, OPEC and World Bank staff calculations. Downside risks weigh heavily on these Iranian oil including China, India and the EU cut their projections as external pressures from imports considerably and bringing oil exports the US sanctions may be more extensive than below the 1 mbpd mark . Furthermore, if non-oil projected. The projections of oil exports face trade and transactions with Iran’s main trading significant downside risks should major importers of partners including China, UAE, Iraq and Turkey FIGURE 37 • GDP Growth and Inflation Prospect of Iran and the World (%) 30 IRN 2018-20 (% Annual Growth), 2018–2020 25 IRN 2012–15 Consumer Price Index 20 15 10 MNA IRN 2016–17 Upper Middle Income 5 OECD 0 –5 –3 –1 1 3 5 7 9 11 13 Real GDP (% Annual Growth), 2018–2020 Comparator Group Iran, Islamic Rep. Source: Find My Friends tool using IMF WEO data and World Bank Staff calculations for Iran. Note: For graphing purposes, Venezuela has been omitted from the graph. 28 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES are further curtailed due to direct and Iran has access to international reserves and financial restriction imposed by the prospective US other buffers to cover imports and basic needs sanctions, economic growth could be even for a reasonable amount of time if needed (16 weaker in the outer years. months of imports in 2016/17, IMF, 2018). The Amid the uncertainties regarding government has also announced plans to increase the prospects of the Iranian economy, its reliance on tax income, especially indirect taxes, the impact of inflationary expectations is by fighting tax evasion and the introduction of a likely to place additional downward capital gains tax. Sustaining growth in the coming pressure on growth and investment. years will be an even greater challenge as the The sudden depreciation of the exchange rate economy looks inward and must rely on better and its contagion to asset markets such as housing domestic economic policies. Since July 2018, key and gold coin highlights the importance of economic policy making posts of CBI Governor, expectations for consumers as well the investment Minister of Finance and Economic Affairs, Minister decisions of firms. While the CBI and other of Labor, Minister of Industries and Minister of Roads authorities have attempted to convey credibility in and Urban Development have been changed, the markets, the policy changes have at times and the Parliament has focused its attention on been inconsistent (e.g. in terms of tolerance of government plans to deal with the high the parallel market) and have limited success unemployment rate and preparations for US in countering pessimistic expectations. sanctions. Amid these domestic dynamics the Recent changes in the governmentʼs government will need to press on with planned and economic management team and expectations ongoing economic reforms including those in the for possible further changes signal a need for banking sector and pension funds to avoid further clarity on the contours of the adjustment strategy downward pressure on the growth trajectory of and the path of economic reforms. the economy. OUTLOOK AND RISKS 29 ANNEX IRAN: SELECTED ECONOMIC INDICATORS (2015/16–2020/21) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Act. Act. Act. Est. Proj. Proj. Real sector (annual percentage change, unless otherwise specified) Real GDP at factor cost –1.6 12.5 3.7 –1.6 –3.7 1.2 Total crude oil production (million barrels/day) 3.2 3.8 3.8 3.3 2.8 2.8 Crude oil, average price (US$) 50.8 42.8 52.8 65.0 65.0 65.4 Money and prices (annual percentage change, unless otherwise specified) CPI Inflation (p.a) 11.9 9.0 9.6 23.8 31.2 19.6 Investment & saving (percent of GDP, unless otherwise specified) Gross Capital Formation 34.0 35.7 37.8 37.0 35.3 32.6 Gross National Savings 36.4 39.6 41.4 37.6 35.3 33.7 Government finance (percent of GDP, unless otherwise specified) Total revenues 15.7 16.7 17.0 13.3 11.3 12.2 Tax Revenues 6.9 7.7 7.6 6.3 5.8 6.2 Direct Taxes 3.8 3.8 3.5 2.9 2.6 2.7 Indirect Taxes 3.2 4.0 4.1 3.4 3.2 3.4 Total expenditures 17.4 18.9 18.7 18.0 16.5 17.0 Current 15.0 15.7 15.9 15.5 14.0 13.7 Net lending/borrowing (overall balance) –1.7 –2.2 –1.8 –4.7 –5.2 –4.8 External sector (percent of GDP, unless otherwise specified) Current Account 2.3 3.9 3.5 0.6 0.0 1.1 Net Exports 2.0 3.6 3.4 0.3 –0.2 1.3 Export of Goods and Services 19.3 22.4 25.0 17.6 13.8 12.8 Export of Goods 16.7 20.0 22.5 15.1 12.2 10.9 Export of Services 2.6 2.4 2.5 2.5 1.6 2.0 Import of Goods and Services 17.3 18.9 21.6 17.4 14.0 11.6 Imports of Goods 13.6 15.1 17.0 14.3 11.4 8.6 Imports of Services 3.7 3.8 4.6 3.1 2.6 3.0 Total Gross External Debt Stock (US$ bln) 7.5 8.5 10.9 9.3 10.1 10.1 Total Gross External Debt Stock (% of GDP) 1.9 2.0 2.7 2.3 2.5 2.2 Memorandum Items: Nominal GDP (Billion IRR*) 11,414,167 13,151,259 15,317,000 17,219,102 20,718,393 28,124,074 Source: Government data and World Bank staff calculations. *IRR: Iranian Rials. 30 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES SPECIAL FOCUS: UNDERSTANDING POVERTY TRENDS AND CORRELATES IN IRAN DURING 2009–2016 Aziz Atamanov, Mohammad-Hadi Mostafavi, Djavad Salehi-Isfahani, and Matthew Wai-Poi12 This note continues and updates the special focus on monetary poverty published in 2016 in Iran Economic Monitor. It extends the existing poverty and inequality trends in Iran by adding the most recent years to now cover 2009–2016. Poverty is measured using international poverty lines based on U.S. dollars at 2011 purchasing power parity (PPP). The remarkable performance of Iran in poverty reduction during 2009–2012 was driven by the universal cash transfer program, which mitigated the adverse impacts of the energy tariff reforms. However, declining values of transfers in real terms could not sustain the poverty reduction or boost shared prosperity after 2012. Improvements in labor market outcomes may offer a more durable path to welfare improvement. Finally, Iran continues to have pronounced welfare gaps between rural and urban areas and between particular regions. Further research on reducing regional welfare disparities will be important for successful poverty reduction strategies. Introduction by periods of growth reflecting the shocks the country was experiencing, including sanctions. Political and economic uncertainty led to volatile There is limited knowledge of the most economic growth in Iran and had overall adverse recent trends in socio-economic wellbeing of the effects on its macroeconomic performance during 2009–2016. As shown in Figure 38, 12 annualized GDP per capita growth was close to one This section is a product of the Poverty and Equity Global percent in Iran during 2009–2016, which is lower than Practice. It has been written by Aziz Atamanov (lead growth rates observed among most of Iran’s selected author, World Bank), Matthew Wai-Poi (World Bank), Mohammad-Hadi Mostafavi (Consultant) and Djavad peers. The average growth rate masks substantial Salehi-Isfahani (Consultant). Measurement section draws variation in Iran’s GDP per capita growth rate during heavily on the World Bank policy research working paper this period (Figure 39)—the highest among the 7836 “Constructing robust poverty trends in the Islamic comparators. Periods of sharp decline were followed Republic of Iran: 2008–14” by Atamanov et al. (2016). 31 FIGURE 38 • Average Annualized GDP Per Capita Annual GDP Per Capita Growth Rates FIGURE 39 •  Growth Rates During 2009–2016 and in Iran and Selected Comparators GDP Per Capita (2011 PPP) in 2009 (%), 2009–2016 7 15 China Annualized growth rate, 2009–2016 6 10 GDP per capita growh rates 5 Vietnam Turkey 5 4 UMI Indonesia 0 3 Malaysia Chile Saudi Arabia –5 2 1 Iran Russia –10 Brazil 0 –15 0 10,000 20,000 30,000 40,000 50,000 2009 2010 2011 2012 2013 2014 2015 2016 GDP per capita in 2009 (2011 PPP constant) Source: WDI, May of 2018. Authors’ calculation. Brazil Chile Iran Notes: Annualized growth rates in Figure 38 are calculated using geometric mean. UMI Russia Turkey UMI stands for upper middle-income countries. Source: WDI, May of 2018. Authors’ calculation. Notes: Annualized growth rates in Figure 38 are calculated using geometric mean. UMI stands for upper middle-income countries. population in Iran and their characteristics. Even though there are no publicly available “official” poverty estimates in Iran (poverty is measured by some line using international poverty lines expressed in U.S. ministries, but results are not made public), estimates dollars at 2011 PPP. Poverty and inequality changes of poverty trends exist in the academic literature. are decomposed to reveal the key factors behind These are calculated either based on authors’ own the trends. Poverty is explored at the provincial and assessment of an appropriate national line or according regional levels. Finally, simple poverty profiles are also to international poverty lines based on U.S. dollars. compiled in order to identify the key socio-economic Examples of such estimates in English cover different characteristics associated with poverty. periods between 1984 and 2009 and are available in Assadzadeh and Paul (2004), Salehi-Isfahani (2009), Stylized Facts on Poverty and Mahmoudi (2011), Nili and Poursadeghi (2011) and Inequality in Iran for 2009–2016 Maasoumi and Mahmoudi (2013). There is, however, little knowledge about trends in indicators of welfare Trends in poverty and inequality in Iran in the most recent past, in particular after the second half of the 2000s. The special focus in Iran The poverty measurement methodology applied in Economic Monitor (Karakurum-Ozdemir et al., 2016) this section follows a well-established and widely filled the gap by constructing comparable international accepted tradition. Measuring poverty requires two poverty and inequality trends after 2008 and analyzing broad steps. The first step is to define an indicator its determinants. However, the most recent years (2015 to measure welfare or living standards. The second and 2016) were not covered. In addition, the note did step requires setting a poverty line—the minimum not explore characteristics of the poor and regional welfare level below which a person is considered to poverty profiles. be poor. Standard procedures were followed in order This note fills the existing knowledge gap by to construct the components of the welfare aggregate extending poverty and inequality trends in the Islamic as well as price adjustments to ensure comparability Republic of Iran to cover 2009–2016. Given the within survey years and across them (Deaton and absence of an official poverty line, poverty is measured Zaidi, 2012; Haughton and Khandker, 2014). 32 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 40 • Poverty Rate ($5.5 2011 PPP Line) and Gini Coefficient in Iran, 2009–2016 0.37 11.3% 12% 0.36 0.36 9.8% 9.8% 9.5% 10% 9.2% 0.35 0.35 7.8% 7.9% 8% 7.1% Headcount rate 0.34 0.34 6% Gini 0.33 0.33 0.33 0.32 0.33 4% 0.32 0.32 0.31 2% 0.30 0% 2009 2010 2011 2012 2013 2014 2015 2016 Poverty, expenditure per capita Gini, expenditure per capita Source: Household Expenditure and Income Survey (HEIS) 2009–2016. Authors’ calculations. Note: International poverty rates reported in this section are different from the poverty rates reported by the World Bank in World Development Indicators and PovcalNet. The difference comes from the way welfare aggregate is created. In this note, the welfare aggregate excludes expenditure on health and durables for technical reasons, and is inter-temporally and spatially deflated to account for changes in prices during the survey period and spatial variation in prices. . FIGURE 41 • Headcount Poverty Rates at $5.5 2011 PPP by Rural/Urban Areas, 2009–2016 25% 20% Head count poverty rate 21% 19% 20% 19% 15% 18% 15% 15% 13% 10% 5% 7% 6% 6% 6% 6% 5% 5% 5% 0% 2009 2010 2011 2012 2013 2014 2015 2016 Rural Urban Source: Authors’ calculation using HEIS 2009–2016. . Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 33 FIGURE 42 • Distribution of Poor Population How does Iran compare with its peers? Across Rural/urban Areas at $5.5 2011 PPP Poverty Line, 2009–2016 The level of poverty in Iran is comparable to what is observed in countries with a similar level of 100% economic development. Figure 44 shows poverty 90% 80% rates in Iran and selected peers circa 2014 . While 70% welfare aggregates among different countries are not 60% strictly comparable, this rough comparison reveals 50% that for the most recent years, Iran’s poverty rate is 40% 30% broadly within a range of poverty rates observed in 20% countries with similar economic wellbeing: Turkey, 10% Chile, and Malaysia (using an international poverty 0% line of $5 .50 2011 PPP per day) . Vietnam, Indonesia, 2009 2010 2011 2012 2013 2014 2015 2016 and China have much higher poverty rates, but also much lower GDP per capita in 2011 PPP (Figure 44) . Rural Urban The level of inequality is also quite low in Source: Authors’ calculation using HEIS 2009–2016. Iran compared to its peers. Comparing the level of National level trends hide stark rural/urban inequality across countries is usually full of caveats differences both in levels and trends in poverty. for many reasons including the use of “income” Figure 41 shows poverty rates in urban and rural by some countries and “consumption” by others . areas of Iran .15 All variation in poverty during the Keeping this in mind, inequality in Iran is lower than considered period was coming from the rural that which is observed in countries with a similar level areas where headcount poverty rates were three of economic development regardless of the type of times higher than in urban areas . In terms of welfare aggregate used (income or consumption absolute numbers, due to a highly urbanized per capita) . Thus, the Gini index based on spatially population in Iran, the poor are distributed almost adjusted expenditure per capita is around 34 .0 and equally across rural and urban areas (Figure 42) . based on nominal expenditure is around 37 .6, which Iran managed to sustain positive growth is lower than in Turkey and Malaysia (Figure 45) . in per capita expenditure for the bottom 40 percent of the population during 2009–2012 in Explaining Welfare Changes in spite of an overall average negative growth rate. 2009–2016 One of the ways to check whether the benefits of economic growth are shared widely among the There was an apparent disconnect between population, especially among the least well-off, is the macroeconomic performance and welfare to construct a growth incidence curve (GIC) . A trends in Iran in selected years. Figure 46 combines GIC shows real expenditure per capita growth rates real growth rates of GDP in Iran with poverty rates at across the whole distribution of a population . Figure the $5 .50 2011 PPP poverty line . Poverty continued 43 shows GICs for two periods: 2009-12 and 2012- 16 . During the first period 2009–12, the poorest bottom 40 percent of the population experienced 15 Comparing welfare across urban and rural areas in Iran should take into account substantial differences positive expenditure per capita growth, despite a in prices across areas. As explained in Atamanov et al. negative growth rate across the whole population on (2016), expenditure aggregate is adjusted for variation in average (red line) . During the second period food and rent prices across rural and urban areas within 2012–16, while growth rates were more equal eight aggregated regions. The food spatial deflator is across the distribution, the poorest 20 percent constructed from unit values of purchased food products experienced a slightly higher decline in expenditure from the survey. Rent deflator is calculated based on predicted rents for a typical dwelling. per capita compared to the rest of distribution, contributing to increasing poverty and inequality . 34 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES Growth Incidence Curve Showing Annualized Real Expenditure Per Capita Growth Rates by FIGURE 43 •  Percentiles, % a. 2009–2012 15 10 Annual growth rate, % 5 0 –5 –10 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 Expenditure per capita percentiles b. 2012–2016 15 10 Annual growth rate, % 5 0 –5 –10 0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 Expenditure per capita percentiles Source: Authors’ calculation using HEIS 2009–2016. FIGURE 44 • Poverty Rates in Iran and Selected Comparators at $5.5 2011 PPP Daily Poverty Line Circa 2014, % 40 35.4 35 31.5 30 Headcount, % 25 20 19.4 15 13.2 13.6 9.8 9.9 10.1 10 5 2.7 0 Russia-2015 Iran Turkey-2016 Chile-2015 Iran Malaysia-2009 Brazil-2015 China-2014 Vietnam-2014 (spatially (nominal)-2016 adjusted)-2016 Source: HEIS 2016 and PovcalNet as of July 2018. Authors’ calculations. Note: The international poverty rate and Gini coefficient for Iran are slightly different from the poverty rates reported by the World Bank in World Development Indicators and PovcalNet. The difference comes from the way welfare aggregate is created. In this note, the welfare aggregate excludes expenditure on health and durables for technical reasons and is inter- temporally and spatially deflated to account for changes in prices during the survey period and spatial variation in prices. See footnote 15 about spatial deflation. Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 35 FIGURE 45 • The Gini Coefficient in Iran and Selected Comparators Circa 2014 55 51.3 50 47.7 46.3 45 41.9 Gini 40 37.6 37.7 35 34.0 34.8 30 Iran Vietnam Iran Russia Turkey Malaysia Chile Brazil (spatially (exp)-2014 (nominal exp)-2016 (exp)-2015 (exp)-2016 (exp)-2009 (inc)-2015 (inc)-2015 adjusted exp)-2016 Source: HEIS 2016 and PovcalNet as of July 2018. Authors’ calculations. Note: The international poverty rate and Gini coefficient for Iran are slightly different from the poverty rates reported by the World Bank in World Development Indicators and PovcalNet. The difference comes from the way welfare aggregate is created. In this note, the welfare aggregate excludes expenditure on health and durables for technical reasons and is inter-temporally and spatially deflated to account for changes in prices during the survey period and spatial variation in prices. See footnote 15 about spatial deflation. to fall in 2012 despite a large decline in GDP per economic growth or the lack of a trickle-down effect. capita. Conversely, higher poverty was experienced In addition, redistributive government policies could after 2012 even with the observed positive economic play a protective role. A definite answer requires growth in 2014 and 2016. The rest of this section identifying and quantifying the sources of poverty explores this counter-intuitive result. changes during the period considered. One way The apparent disconnect between eco- of doing this is to decompose changes in income nomic growth and welfare may happen for many poverty into changes in income sources (Azevedo, reasons. It may be related to the lagged impact of Minh, and Sanfelice 2012). This will help to identify FIGURE 46 • GDP Growth Rates and Poverty Rates in Iran, 2009–2016 15 12% 11.3% 9.8% 9.8% 9.5% 9.2% 10% 10 7.8% 7.9% Poverty headcount, % 7.1% 8% Growth rate, % 5 6% 0 4% –5 2% –10 0% 2009 2010 2011 2012 2013 2014 2015 2016 GDP per capita growth rates (lhs) Poverty, 5.5 USD 2011 PPP (rhs) Source: Authors’ calculation using HEIS 2009–2016. WDI, May of 2018. 36 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 47 • Sources of Income Poverty Changes at $5.5 2011 PPP Poverty Line, 2009–2012, Percentage Points 8 4 pp change in poverty rate 0 –4 –8 –12 –16 –20 Share of adults Share of Employment Cash transfers Other transfers Pension Other income Total change employed income in poverty Source: Authors’ calculation using HEIS 2009–2016. Note: The levels of income poverty are different from the level of poverty based on expenditure per capita, nevertheless their trends are qualitatively similar. The income welfare aggregate is spatially deflated. Share of adults measures share of working age adults in total household size. the key drivers underlying the increase or decline in employment and employment income contributed to income poverty and inequality.16 We select two periods higher income poverty, consistent with falling growth . for the analysis: the first is 2009–2012 when there The erosion of cash transfers in real was a sharp poverty reduction, and the second is terms contributed to the increase in poverty 2012–2016 when welfare indicators deteriorated. in 2012–2016 with a counteracting impact The total income aggregate consists of labor income, from the labor market. Figure 48 shows the main cash transfers, other transfers (scholarships, private contributors to poverty changes in 2012–2016 . In transfers, charity and welfare transfers), pensions, contrast to 2009–2012, the role of benefits fl ipped . property income (interests, capital, land, and rent) and income from products sold from home.17 Income poverty and inequality are higher than those based on 16 One may also use the Datt-Ravallion (1992) decomposition, expenditures, but the trends are similar (see Figure A1 which splits the change in poverty into distribution-neutral and Figure A2 in the annex). growth and redistribution effects. According to this, the decline in poverty between 2009 and 2012 was fully driven Cash transfers were the key contributors by redistribution, while the growth effect contributed to to the fall in poverty during 2009–2012, higher poverty. During 2012 and 2016 both growth and counterbalancing the negative impact coming redistribution effects were increasing poverty. The income from the labor market. Figure 47 shows contributors poverty decomposition used in this note goes beyond to income poverty changes in 2009–2012. In total, this and has an advantage of being able to quantify income poverty dropped by 11.5 percentage points. contributions of different income sources to changes in poverty and inequality. The key driving force behind this remarkable fall was social assistance in the form of universal cash 17 Income aggregate is also spatially deflated to account for difference in prices across different areas. To do spatial transfers the government distributed to compensate adjustment a weighted spatial deflator was constructed for increasing energy prices after subsidy reform.18 by combining rent and food deflators. Shares of rent In particular, income poverty fell by 15.8 percentage in the total welfare aggregate were used to construct a points due to cash transfers. Generous universal weighted deflator for each household. cash transfers counterbalanced the negative impact 18 This is consistent with early findings from Salehi-Isfahani, of labor market deterioration where decrease in both Stucki and Deutschmann (2015). Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 37 FIGURE 48 • Sources of Income Poverty Changes at $5.5 2011 PPP Poverty Line, 2012–2016, Percentage Points 8 4 pp change in poverty rate 0 –4 –8 –12 –16 –20 Share of adults Share of Employment Cash transfers Other transfers Pension Other income Total change employed income in poverty Source: Authors’ calculation using HEIS 2009–2016. Note: The levels of income poverty are different from the level of poverty based on expenditure per capita, nevertheless their trends are qualitatively similar. The income welfare aggregate is spatially deflated. Share of adults measures share of working age adults in total household size. As a consequence of high inflation, the real value Cash transfers were also the key factor of benefits diminished and this was the key factor behind the decline in inequality between behind the increase in poverty. The size of social 2009-12 and an increase between 2012-16. assistance per capita dropped by half in real terms Figure 49 and 50 demonstrate that social between 2016 and 2012. As the same time, there was assistance in the form of cash transfers was the a positive contribution to poverty reduction coming most equalizing source of income during 2009– from the expanding economy and labor market, 2012 in reducing the Gini coefficient, but was mainly from employment income, but it was not the most un-equalizing source in 2012–2016 . This is not enough to offset the negative impact of diminishing surprising given that the cash transfers represent a social assistance. much higher proportion of total income for poorer households than richer households . In fact, cash transfers in 2012 FIGURE 49 • Sources of Income Inequality Changes Measured by Gini, 2009–2012 0.04 0.02 0.00 Point change in GIni –0.02 –0.04 –0.06 –0.08 –0.10 Share of adults Share of Employment Cash transfers Other transfers Pension Other income Total change employed income in Gini Source: Authors’ calculation using HEIS 2009–2016. Note: Income welfare aggregate is spatially deflated. 38 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 50 • Sources of Income Inequality Changes Measured by Gini, 2012–2016 0.04 0.02 0.00 Point change in Gini –0.02 –0.04 –0.06 –0.08 –0.10 Share of adults Share of Employment Cash transfers Other transfers Pension Other income Total change employed income in Gini Source: Authors’ calculation using HEIS 2009–2016. Note: Income welfare aggregate is spatially deflated. accounted for almost half of total income of the poorest (Tehran, Qom, Alborz)—around 3 percent. In all other 20 percent of population (based on income per capita). regions poverty at $5.5 2011 PPP did not exceed 10 Thus, the cash transfers initially reduced inequality percent except region 8. This region includes the as they mean more to the poor, but then inequality poorest Sistan & Baluchestan and Kerman provinces increased as the real value of these transfers declined, and poverty rate in 2016 reached 34 percent there. affecting the poor more. Employment income started Provincial poverty rates seem to be corre- playing a slightly equalizing role in 2012–2016. This is lated with the level of urbanization, employment, associated with the fact that real growth in employment inequality and access to infrastructure observed income per capita was the highest for the population in provinces. Simple graphs plotting provincial pov- from the bottom of the distribution.19 erty rates versus selected provincial level characteris- tics can be informative. Figure 52 shows that poverty in 2016 was higher in provinces with a lower share of Profile of Poverty urban population, higher unemployment rates, lower access to piped sewage and higher inequality. Geography of poverty Regional level specific factors contribute to observed differences in poverty rates across There is substantial variation in poverty rates provinces, and warrant further research. Simple across Iranian provinces. Besides the rural and correlations do not indicate whether there is something urban poverty gap, there is substantial variation in about certain provinces which makes them have higher poverty across Iranian provinces. Figure 51 shows or lower poverty rates, beyond whether they have more- interval estimates of provincial poverty rates at the or less-educated people, more or less employment, $5.5 2011 PPP daily poverty line. Poverty ranges from and so forth. In order to formally test whether provincial nearly zero in Mazandaran to 33 percent in Kerman location remains a significant factor affecting poverty and 53 percent in Sistan & Baluchestan. Merging provinces into larger regions, reduces variation in poverty rates. If provinces 19 In particular, growth rate in real employment income are grouped into nine regions, regional variation between 2012–2016 was 31 percent for the poorest in poverty rates becomes smaller (Table 3). The quintile (based on income per capita) compared to lowest poverty rate in 2016 was observed in region 6 average 26 percent growth rate for the total population. Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 39 FIGURE 51 • Headcount Poverty Rates in Iran by Provinces in 2016 at $5.5 2011 PPP Poverty Line, % 60% 50% 40% 30% 20% 10% 0% Mazandaran Kermanshah Tehran Chaharmahal & Bakhtiyari Gilan Qazvin Alborz Kordestan Qom Zanjan Yazd Kohgiluyeh & Boyerahmad Khorasan-e-Razavi E.Azarbayejan Esfahan Fars Hamedan Lorestan Bushehr S. Khorasan Ardebil Markazi W.Azarbayejan Khuzestan Semnan Ilam N. Khorasan Hormozgan Golestan Kerman Sistan & Baluchestan Poverty Lower bound Upper bound Source: Authors’ calculation using HEIS 2016. Note: The upper and lower bounds represent a 95 percent confidence interval. after controlling for household level characteristics, a and sector of employment. Even after controlling for simple multivariate probit regression was run explaining these household specific factors, most of provinces probability of being poor in 2016. Explanatory variables remained significant in explaining the probability of included household demographic characteristics, being poor. In particular, the population in Sistan & head of household education, employment status Baluchestan, Kerman and Golestan is found to have TABLE 3 • Headcount Poverty Rates at $5.5 2011 PPP by Nine Regions in 2016 Poverty Lower bound Upper bound region 1 (Gilan, Mazandaran, Golestan, Semnan) 9% 8% 10% region 2 (E. Azarbayejan, W. Azarbayejan, Ardebil, Kordestan) 8% 7% 9% region 3 (Hamedan, Kermanshah, Lorestan, Ilam) 6% 5% 7% region 4 (Esfahan, Chaharmahal & Bakhtiyari, Khuzestan) 8% 7% 10% region 5 (Fars, Bushehr, Kohgiluyeh & Boyerahmad) 7% 6% 8% region 6 (Tehran, Qom, Alborz) 3% 2% 4% region 7 (Zanjan, Qazvin, Markazi) 6% 5% 8% region 8 (Yazd, Kerman, Sistan & Baluchestan, Hormozgan) 34% 32% 36% region 9 (S. Khorasan, Khorasan-e-Razavi, N. Khorasan) 7% 6% 9% Source: Authors’ calculation using HEIS 2016. Note: The upper and lower bounds represent a 95 percent confidence interval. 40 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 52 • Headcount Poverty Rates at $5.5 2011 PPP Poverty Line in Iran by Provinces in 2016 and Different Provincial Level Variables 60 60 Sistan & Baluchestan Sistan & Baluchestan 50 50 40 40 Kerman Poverty, % Poverty, % 30 Golestan 30 20 IIam Golestan Esfahan 20 10 Yazd N. Khorasan 0 10 Fars Bushehr –10 0 40 50 60 70 80 90 100 0 5 10 15 20 25 30 35 40 45 50 Share of urban population (HEIS), % Unemployment rate (HEIS), % 60 60 Sistan & Baluchestan Sistan & Baluchestan 50 50 40 40 Kerman Poverty, % Poverty, % 30 Golestan 30 Hormozgan Golestan 20 20 Ardebil Semnan N. Khorasan 10 Esfahan 10 IIam 0 0 0 10 20 30 40 50 60 70 0.20 0.22 0.24 0.26 0.28 0.30 0.32 0.34 0.36 0.38 0.40 Access to piped sewage (HEIS), % Gini, expenditure per capita Source: Authors’ calculation using HEIS 2016. Note: All indicators are constructed from HEIS-2016. Some indicators like unemployment rate can be very different from official numbers based on the labor force survey. the highest probability of being poor (24, 22 and (Figure 53). Consistently, poverty gradually increases 18 percent accordingly), even after accounting for with more children. In particular, the poverty rate household characteristics. increases by 9 times in households with five children and above compared to households with only one Profile of the poor child. Poverty rates are also higher among households headed by younger heads. Larger households with many children are more Labor force status, sector and type of likely to have higher poverty rates. Household employment are important correlates of poverty demographic structure is strongly correlated with in Iran. Figure 54, Figure 55 and Figure 56 show poverty status. This is not surprising given that the headcount poverty rates depending on the employment international poverty lines are defined in expenditure status of the head of household. The population size of per capita terms and do not account for either each group is also shown in each figure. As expected, economies of scale enjoyed by larger households or having unemployed head of household is associated for lower child calorie requirements. Thus, poverty rate with the highest risk of poverty. About 2.7 million people increases by 10 times in households with 10 members in Iran belong to this group. However, being employed and above compared to one-member households does not guarantee escape from poverty; 18 percent Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 41 FIGURE 53 • Headcount Poverty Rates in heads with occupations in agriculture and unskilled Iran at $5.5 2011 PPP Poverty professions have the highest risk of poverty. Line by Household Demographic A large share of youth aged 15–29 is out Characteristics in 2016, % of education and employment and this group of population is over-represented among the 1 2 poorest quintile of population and women. Youth 3 have particular issues with access to employment Household size 4 5 opportunities. In particular, around 40 percent of 6 7 youth aged 15–29 are not employed and are not in 8 educational institutions. This share is the largest 9 10+ among the poorest quintile of population at 49 percent 0 Number of kids 1 and among women, at around 58 percent. 2 Despite high and increasing school 3 4 enrollment rates, there is a significant degree 5+ 15–24 of inequality between the poor and the rich. Iran HH age group 25–34 belongs to countries with high human development, 35–44 45–54 according to the Human Development Index 55–64 65+ (UNDP, 2017), which was gradually increasing over 0 10 20 30 40 50 60 70 the years. One of the components of the index is Headcount poverty rate, % access to education.20 Using household budget Source: Authors’ calculation using HEIS 2016. 20 Education is no guarantee of employment (see IEM Fall 2017 http://documents.worldbank.org/curated/ of households with a head employed in agriculture en/347831520515722711/pdf/124020-WP-PUBLIC- were still in poverty in 2016. The population with heads P 16 2 0 4 8 - I ra n - I E M - Fa l l - 2 017 - 7 M a r 18 - M M . p d f ) . employed in agriculture is significant—around 11.5 Nonetheless, on average, richer households are better million people in 2016. Consistent with this finding, educated than poorer households. FIGURE 54 • Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Labor Force Status in 2009, 2012, and 2016 30% 70 60.5 25% 60 50 20% Headcount poverty mln people 40 15% 30 20.5 10% 20 5% 10 2.7 1.4 1.5 0% 0 Employed Unemployed Retired Home Other 2009 2012 2016 Population (2016) Source: Authors’ calculation using HEIS 2009, 2012 and 2016. 42 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES FIGURE 55 • Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Employment Sector in 2009, 2012, and 2016 25% 45 41.4 40 20% 35 30 Headcount poverty 15% mln people 25 20 10% 11.5 15 9.7 5% 10 5 0% 0 Agriculture Industry Services 2009 2012 2016 Population (2016) Source: Authors’ calculation using HEIS 2009, 2012 and 2016. survey data demonstrates the gradual increase in shown in Figure 59, almost all children are enrolled enrollment in educational institutions for children in primary school (enrollment rates are near 100 aged 7–19 for all groups of population (Figure 58), percent for the richest and the poorest up until regardless of expenditure levels. However, there around ages 12–13 years). However, the gap in is a substantial gap in enrollment between the enrollment emerges after primary school age and poorest and richest 20 percent of population, as widens sharply. Between ages 13–16 years, no poorer children drop out of school over time. As children from the richest quintile drop out of school, FIGURE 56 • Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Education Level in 2009, 2012, and 2016 25% 35 26.2 32.4 30 20% 25 Headcount poverty 15% mln people 20 10% 16.0 15 5.8 10 5% 3.7 2.5 5 0% 0 Illiterate Primary Secondary Some college Bachelor Graduate 2009 2012 2016 Population (2016) Source: Authors’ calculation using HEIS 2009, 2012 and 2016. Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 43 FIGURE 57 • Headcount Poverty Rates at $5.5 2011 PPP Poverty Line by Head of Household Occupation Status in 2009, 2012, and 2016 30% 16 14.9 14 25% 10.4 10.3 12 20% Headcount poverty 8.2 10 mln people 7.8 15% 8 6 10% 3.7 2.6 2.6 4 5% 1.5 0.5 2 0% 0 Military Management Professional Technical Clerical Services Agriculture Craft Industry Unskilled 2009 2012 2016 Population (2016) Source: Authors’ calculation using HEIS 2009, 2012 and 2016. but 30 percent of children from the poorest quintile Ultimately, improving labor market conditions do. By age 19, the enrollment gap has reached 46 while managing inflation will be key in having percentage points. Understanding the underlying sustainable poverty reduction. Iran’s performance factors behind higher dropout rates of the poor in poverty and inequality reduction was remarkable children will require additional research. until 2012. However, it was primarily driven by the FIGURE 58 • Enrollment in Educational FIGURE 59 • Enrollment in Educational Institutions in 2009, 2012, and Institutions in 2016 for Children Age 2016 for Children Age 7–19 by 7–19 by Age and Poorest and Richest Expenditure Per Capita Quintiles, % Expenditure Per Capita Quintiles, % 100 100 90 90 80 Enrollment, 7–19 Enrollment, 7–19 80 70 60 70 50 40 60 30 50 20 Poorest 2 3 4 Richest 7 8 9 10 11 12 13 14 15 16 17 18 19 Expenditure per capita quintiles Age 2009 2012 2016 Poorest 20 percent Richest 20 percent Source: Authors’ calculation using HEIS 2009, 2012 and 2016. Source: Authors’ calculation using HEIS 2016. 44 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES universal cash transfer program, which was launched Moreover, managing inflation will also be essential, not to protect the population from the negative impact only to ensure the cash transfers maintain their value to of higher energy prices. While the program appears the poor, but also to bolster the spending power of any to have been very effective in mitigating the adverse improvements in labor income. impacts of the energy tariff reform, it cannot be the Better understanding and reducing regional panacea for sustaining poverty reduction and boosting welfare disparities is also important for successful shared prosperity in the long-term. To the extent that poverty reduction strategies. Iran has pronounced improvements in labor market outcomes offer a more gaps between rural and urban areas and between durable path to welfare improvement, the very meager particular regions. Further analysis of regional contribution of the labor market in explaining poverty disparities will help to understand whether disparities reduction in Iran is indicative of a strong need to improve are driven by a concentration of people with more labor market outcomes and access to productive job favorable characteristics or by specific geographic opportunities. A better understanding of the constraints factors such as the quality of institutions, access to to job creation, labor productivity, and private sector basic infrastructure, distance to markets and so forth. participation is needed and requires further research. Knowing the answer may call for different policy actions. Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 45 REFERENCES Jolliffe, D. & Prydz, E.B. (2016). Estimating International Poverty Lines from Comparable National Assadzadeh, A., & Paul, S. (2004). Poverty, growth, Thresholds. 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A global count of the extreme Nations, New York, https://doi.org/10.18356/ poor in 2012: data issues, methodology, and b6186701-en. initial results. Policy Research working paper; World Bank (2008). Islamic Republic of Iran. Spatial No. WPS 7432. Washington, D.C.: World Bank Patterns of Poverty and Economic Activity. Group. Washington, D.C: World Bank. 46 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES ANNEX FIGURE A1 • Poverty Headcount Rates at $5.5 FIGURE A2 • Gini Index Line Using 2011 PPP Poverty Line Using expenditure and Income Per Expenditure and Income Per Capita capita Welfare Aggregates Welfare Aggregates Across Years across Years 30% 0.45 25% 0.40 Poverty headcount 20% 0.35 Gini 15% 0.30 10% 5% 0.25 0% 0.20 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Poverty, expenditure per capita Gini, expenditure per capita Poverty, income per capita Gini, income per capita Source: Authors’ calculation using HEIS 2009–2016. Source: Authors’ calculation using HEIS 2009–2016. Special Focus: Understanding Poverty Trends and Correlates in Iran during 2009–2016 47 Box A1. Measuring International Poverty Rates in Iran Iran is one of the few Middle age or conditions is not available, estimating the East and North Africa countries (MENA) annualized flow of consumption was not possible. collecting annual Household Expenditure and Income Survey (HEIS) of a very high quality. Therefore, the decision was to exclude Collected series are also the longest one in the purchases of durables from the welfare aggregate. region. Data was collected since 1963 in rural Given the difficulty of distinguishing between health areas and 1968 in urban areas. HEIS series expenditures that increase utility and those were used to construct poverty estimates for this considered a regrettable necessity, the decision section. Selected period covers 2009-2016 years. was to drop health expenditure as a whole. Health insurance is included as it is clearly related to Measuring poverty requires two preventive care and as a result associated with broad steps. The first step is to define an higher utility and welfare. All technical details and indicator to measure welfare or living robustness checks of these decisions are shown standards. The second step requires setting a in Atamanov et al. (2016). Dropping or poverty line - the minimum welfare level below including expenditures on health and durables which a person is considered to be poor. did not affect overall trends in poverty and inequality. Standard procedures were pursued in order to construct components of the welfare aggregate Having constructed the welfare aggregate, as well as price adjustment following established there is a need to make additional adjustments methodology in the field of poverty measurement to facilitate ranking of individuals or (Deaton and Zaidi 2012; Haughton and Khandker households. One of the most important 2014). adjustments is spatial and inter-temporal deflation to account for temporal and spatial Using an international line helps to difference in prices faced by the population. The avoid arbitrariness and sensitivity of establishing a line welfare aggregate was adjusted to within in local currency units – a long process which is and across year inflation using weighted usually led by national authorities. The most widely consumer prices index from Statistical Centre of used international poverty line is 1.90 USD (Ferreira Iran combining urban and rural prices. All et al. 2015). It was established by the World Bank welfare aggregates were expressed in 2011- as averages of the national poverty lines of the year prices and transformed afterwards 15 poorest developing countries expressed in PPP to 2011 PPP international dollars using ICP terms to monitor global extreme poverty (Chen and 2011 PPP exchange rates for household final Ravallion 2010). Higher international poverty lines consumption expenditure. ICP 2011 PPP for Iran can be used by countries to measure wellbeing if is equal to 5001.363 Iranian rial per necessary. Extreme poverty is almost non-existent in one international dollar. Iran, so the $5.50 2011 PPP daily poverty line, also called upper middle-class line (Jolliffe and Prydz, In order to account for variation in 2016), is used in the special focus section on poverty. prices across regions, food and rent, regional deflators have been constructed for urban and rural The constructed welfare aggregate areas of all regions and used for spatial deflation. included different food and non-food Food deflator is based on unit values obtained expenditure-based components. Given that the HEIS from each round of HEIS and rent deflator is survey collects very limited information on stocks of estimated using predicted rents for a typical durables and information on their current prices, dwelling. 48 IRAN ECONOMIC MONITOR: MOUNTING ECONOMIC CHALLENGES Households from poor areas with low prices become The total income aggregate broadly consists of richer after spatial deflation, while households from rich labor income, social assistance, transfers, pensions, metropolitan areas with high prices become poorer. property income (interests, capital, land, and rent) and income from products sold from home. Labor income Overall, spatial deflation narrows the regional includes net total income from wage and salaried jobs gap in poverty rates. The level of inequality, measured by and self-employment during the last 12 months. the Gini coefficient, becomes lower after accounting for spatial differences in food and rent prices. As shown Social assistance is a stand-alone component in Atamanov et al. (2016), spatial adjustment does covering only cash transfers. In order to do spatial not change the trends in poverty and inequality, but adjustment a weighted spatial deflator was constructed only shifts the levels. by combining rent and food deflators. Shares of rent in the total welfare aggregate were used to construct a Once welfare aggregates are adjusted for weighted deflator for each household. spatial and inter-temporal price variation, $5.50 2011 PPP daily poverty line can be universally applied for Levels of poverty are different depending on the whole population across all years. The whether income or expenditures are used. Income advantage of this approach compared to the based poverty is constantly higher probably due to alternative of having multiple poverty lines is that under-reporting as typically found in developing all households can be easily ranked and compared countries household budget surveys. However, the to each other. trends are very similar which is an important pre- requisite for conducting income poverty decomposition. HEIS contains rich information on labor market indicators and income. Even though using Detailed explanation of methodological consumption/expenditure data is preferable to choices made as well as all robustness tests are measure poverty in developing countries, discussed in working paper by Atamanov, Mostafavi, construction of income poverty estimates will allow Salehi-Isfahani and Vishwanath “Constructing robust an income decomposition which can check the role of poverty trends in the Islamic Republic of Iran: each income component in changes in poverty 2008-2014” accessible here https:// and inequality. openknowledge.worldbank.org/handle/10986/25152. SPECIAL FOCUS: UNDERSTANDING POVERTY TRENDS AND CORRELATES IN IRAN DURING 2009–2016 49 1818 H Street, NW Washington, DC 20433