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The Iranian economy has been facing multiple challenges over the past decades, which have resulted in a series of consequences for both the state and its citizens.\u00a0Persistent inflation and low growth have affected the livelihood of average Iranians<\/strong>. The state\u2019s strategic choices, which have intensified adversarial relations with the West, led to an extension of the US-led sanctions, and required the Iranian government to allocate resources in support for regional proxies and friendly states within the global anti-US network. Budget deficit, due to low government revenue, has prompted the government to prioritise allocating resources to advance strategic aims over addressing major economic challenges domestically. Though\u00a0it is unclear how sustainable the current government economic policies are<\/strong>, they are likely to have substantial and negative socio-economic consequences for the country, particularly in the aftermath of the popular uprising in 2022.<\/p>\n President Raisi\u2019s government\u00a0sought to maintain<\/a>\u00a0growth and inflation with 40% budget expansion in the current fiscal year (March 2023-March 2024). The budget increase was perceived as a potential economic boost to the country. However,\u00a0considering the existing inflation level at the beginning of the current fiscal year, the budget expansion was not sufficient to maintain growth or control inflation<\/strong>. In that budget, the government planned to raise taxes by 50%. Collected tax revenue did not exceed\u00a040-60<\/a>% of planned budget level. Moreover, the government\u2019s hydrocarbon revenues have been below the planned level. In January 2023, when the government proposed the current year\u2019s budget, the total\u00a0planned<\/a>\u00a0hydrocarbon revenue (calculated with market exchange rate at the time that was roughly USD1=420,000 riyal) was about USD20 billion. That was based on an unrealistic goal of exporting at least 1.4 million barrels of oil per day, at the price of USD85 per barrel. Indeed, Iran has been offering discounted price to the largest buyer of its hydrocarbon export, China; and free supply to Syria, as a part of the continuous assistance of Assad\u2019s government. In addition, the country has faced substantial evaporation of hydrocarbon revenues due to financial mechanisms involving various intermediaries and front companies \u2013 which buy Tehran\u2019s oil at below market prices \u2013 used to avoid banking sanctions. In addition, the country has been facing substantial evaporation of hydrocarbon revenue through bypassing financial mechanisms that involve several middlemen, and front companies to circumvent banking sanctions. Another factor that drove hydrocarbon revenues below the expected level was the\u00a0stalling<\/a>\u00a0of Chinese trade with Iran in January 2024, due to the Iranian government\u2019s decision to reduce discounted supplies to China.<\/p>\n Iran\u2019s expanding involvement in the region, which requires allocation of financial and military support to various proxy groups, has undoubtedly put financial pressure on the government<\/strong>. There is no exact estimate of the financial cost of Iran\u2019s support for its proxies. The United States\u2019 States Department has estimated in 2019 that Iran\u00a0spends<\/a>\u00a0about USD700 million per year on its regional proxies. A former member of the parliament, Heshmatollah Falahatpisheh, told local media last year, that Iran\u00a0has spent<\/a>\u00a0between USD20 and USD30 billion only on the war in Syria.<\/p>\n In addition to the regional groups, Iran has been providing support to a wider anti-American network globally.<\/strong>\u00a0General Rahim Safavi, an advisor to Iran\u2019s Supreme Leader, has disclosed oil for fuel exchanges between Iran and Venezuela. He\u00a0said<\/a>, \u201cVenezuelans are communists, but they stood up to the Americans and we are helping them, giving them software, and giving them ideas such as how to mobilize people and how to repel cyberattacks.\u201d\u202fWhile there is no exact estimate of the level of financial supports from Tehran, there is compelling evidence to conclude that part of the country\u2019s economic challenges is caused by prioritisations of global and regional strategic aims over the domestic challenges that affect the citizen\u2019s livelihood.<\/p>\n Inflation has remained one of the main economic challenges<\/strong>\u00a0for Iran\u2019s citizens. The current Iranian calendar year was named by the country\u2019s Supreme Leader, Ayatollah Khamenei, as \u201cthe year of controlling inflation<\/a>.\u201d This reflects the political significance of inflation in Iran. Multiple episodes of currency devaluation had weakened riyal and worsened inflation. In March 2023, year-on-year inflation for average consumer price\u00a0reached<\/a>\u00a0 almost 64% and inflation for some food items had reached more than 90%. Since the beginning of the war in Gaza, riyal\u00a0went<\/a>\u00a0through another devaluation episode. The head of the Central Bank of Iran,\u00a0claimed<\/a>\u00a0that the government has no currency and gold reserves limitation, attributing the latest devaluation of the national currency to media hype and psychological reaction of the society, while there has been speculation on the impact of the war in Gaza on the Iranian economy.<\/p>\n Due to\u00a0the rise of political and economic uncertainties<\/strong>, Iranians have been converting their savings from riyal-based assets to liquid assets like hard cash in foreign currency and gold. This is mostly to hedge their saving values against depreciation of the national currency. However, this has increased\u00a0 capital outflow and demand for so-called \u201csuitcase savings\u201d over the past few years.<\/p>\n Additionally,\u00a0corruption has been at its highest in recent years in Iran<\/strong>. In late 2023, a\u00a0scandal surfaced<\/a>\u00a0on the corruption in a chain of entities in Iran that were involved in importing tea to Iran. Nearly USD4 billion was siphoned from the subsidised foreign currency that is provided by the government to import tea. The government has been providing lower rates to companies that import medicines and essential goods. Tea, the national drink in Iran, is considered an essential good by the government, hence allocation of preferential rate. In practice, this policy has allowed well-connected individuals to access government exchange rates. Amid the government\u2019s tax raise initiatives, ongoing subsidy cuts, and persistent budget deficit, loss of government assets to this scale, will have negative economic impacts.<\/p>\n All in all, budget deficit, caused by allocation of resources to advance strategic goals, low revenue, and high corruption, have undoubtedly been playing a crucial role in rising inflation in Iran. As noted above, plans for increasing government revenue has not been successful, therefore, the government has continuously printed money to meet budgetary obligations. Increasing money supply combined with slow growth (from 4.7% in 2022, 3.8%<\/a>) that lead to further decline of standard of living in Iran is indeed politically worrying considering the degree of tension between the state and citizen in 2022 uprising.<\/p>\n Link : <\/i> https:\/\/www.ispionline.it\/en\/publication\/the-economic-challenge-ahead-for-iran-165060<\/p>\nThe Major Economic Challenges for the Citizens<\/h2>\n