Minister expounds on ‘economic miracle’

Iranian Finance and Economic Affairs Minister, Ali Tayyebnia

Iranian Finance and Economic Affairs Minister, Ali Tayyebnia

Tehran, March 11, IRNA — President Hassan Rouhani assumed office in August 2013 when the national economy was reeling in massive upheavals. Amidst widespread unemployment and sluggish markets, galloping inflation and negative economic growth had plagued the national economy.

Likewise, the forex market had plunged into turmoil. The Iranian currency, the rial, had lost its value by about 400 percent against hard currencies.

Even though economic pundits predicted bleak economic prospects would continue for several years, the Rouhani government managed to restore economic stability and regulate the national markets.

Since taking office, the government has managed to bring inflation down to about 15 percent from over 40 percent under the former administration (2005-13).

Besides, the national economy has grown considerably after it shrank by about 6 percent during the administration of former president Mahmoud Ahmadinejad.

Undoubtedly, Economic Affairs and Finance Minister Ali Tayyebnia has played a pivotal role in scoring such outstanding achievements.

In an interview with the Persian daily Iran, Tayyebnia commented on how his ministry has managed to curb rampant inflation which is interpreted as an ‘economic miracle ‘. Excerpts carried by Iran Daily, follow:

Q: Official data indicates that inflation has been reduced to about 15 percent from 40 percent. How have you managed to achieve such a significant gain?

A: Since the government took office inflation rate was over 40 percent. Inflation not only plays havoc with the national economy, but also spells disaster for the production sector. Economic stability and market regulation are contingent upon economic prosperity as well as growth in national economy. Hence, the administration decided to zero in on efforts to combat inflation in a short period of time. Besides, effective fiscal and monetary policies were adopted to curb inflation. Fortunately, seasoned experts and domestic know-how helped the ministry rein in raging inflation. President Rouhani has also thrown his weight behind the ministry to press ahead with its plans to fight the gloomy phenomenon.

Q: Official figures on the reduction of inflation have been criticized because people believe their living conditions have not yet improved. How do you respond to such criticisms?

A: A reduction in inflation does not mean fall in prices. It indicates that prices still grow but more slowly. Under the former administration prices rose 40 percent per annum, whereas they are now 15 percent. As a result, inflation has been brought down but it has not been frozen.

Q: Even though oil prices fell below $50 per barrel from over $100 under the former government, the reduction in inflation has been seen as an ‘economic miracle’. How has the administration managed to overcome such a major obstacle?

A: In the past decades, inflation was rooted in budget deficit. In fact the budget bills proposed by the governments created inflation. The collapse in oil revenues gave rise to budget deficit prompting the administrations to offset the plummeting petrodollars by borrowing from Central Bank of Iran (CBI), which expanded liquidity and pushed up inflation.

As a result, the Rouhani government has done its utmost to halt a likely budget deficit and cut excessive expenditures. The administration has also made efforts to boost revenues to rein in inflation.

Q: What measures has the government taken to offset declining oil revenues?

A: Tax revenues have increased by 47 since March 2014, while inflation has declined to 15 percent. The 32-percent difference is unprecedented in Iran’s history.

Customs revenues have also increased and the government has made efforts to manage expenditures to forestall a budget deficit. The rise in non-oil exports has also helped the government attain its objective.

The growth in liquidity depends heavily on annual budget bills. Since this year’s budget bill has not given rise to liquidity, its growth averaged 15 percent during March to February. If the current effective policies continue, the inflation rate will be down to a single digit in the future.

Q:You have already commented on the need to do away with cash subsidies to the affluent which is yet to be implemented. Do officials have opposing stances on removing the monthly allowances to the rich?

A: Nobody can ever doubt that the stipends of the rich must be removed. The ex-government granted monthly allowances to all walks of life irrespective of their financial needs, which has weighed on the incumbent government. The government intends to remove the cash subsidies to the rich, but comprehensive plans should be adopted to identify them.

Fortunately, the administration has drawn up approaches to identify high-income strata.

President Rouhani has always underlined that approaches taken to identify the rich must be watertight to redress the situation. Hence, exact information is required to implement the plan because serious miscalculations will cause injustice, which is against the government’s policies.