Iran has made the reduction of foreign debt one of its top priorities following the end of its war with Iraq. Since then, the country’s credit rating has improved dramatically as the country has worked hard to pay off foreign debts. Iran’s economy is centrally planned with eventual efforts to privatize the economy. Iran’s other major goal is to combat inflation.
Iran’s economy is heavily dependent on the oil sector as a source of wealth and revenue for the government. The state sector of the economy is markedly inefficient. The market viability of the rest of the private sector is heavily distorted by the oil industry. Most of the economy is controlled by the state. The state fixes prices and subsidizes certain industries, which put undue market pressures on the economy. The private sector is generally limited to small scale workshops, agriculture, and services. State controls over the economy have stymied any potential for private sector led market growth.
As a result of a state run economy that is very inefficient, Iran is known for a large informal economy. The informal economy trades items and services without the state’s knowing and thus avoids the collection of taxes. This inability to collect the taxes of the informal economy further prevent the Iranian economy from growing. President Mahmoud Ahmadinejad and the legislative branch passed laws that reduce subsidies on food and energy to combat governmental price distortions. The bill will eventually phase out all subsidies of other products. The phasing out of government subsidized products will benefit Iran’s upper and middle classes. The last time government subsidy reform was attempted was in the 1990′s and the lower classes aggressively protested against the policies.
As an oil producing and exporting nation, Iran had benefited from the higher price of oil in recent years. This could function as a cushion on the transitional periods of its economic reforms. In 2008 Iran secured over $100 billion in foreign exchange reserves as a result of high oil prices. However, in 2009 with the decline in the price of oil at $55 per barrel and a decrease in the production of oil, Iran is currently experiencing budget constraints that hinder any attempts at economic reform.
In addition to Iran’s economic and budgetary concerns, Iran has had a continuous trend of double-digit unemployment despite a decreased rate of inflation. Unemployment in Iran currently stands at 11.8%. Underemployment is another problem in Iran. The highly educated youth are starting to move away from Iran to seek better employment elsewhere resulting in a trend of “brain drain.”
Iran has made the reduction of foreign debt one of its top priorities following the end of its war with Iraq. Since then, the country’s credit rating has improved dramatically as the country has worked hard to pay off foreign debts.