An Overview of Iran's Economic Decline: From Pre-revolution 9% Annual Growth to Less Than 2%
Iran's average economic growth during the four decades of the 1979 Islamic Republic has been nearly a fifth of the average growth rate of the last two decades before the revolution, according to Iran's Central Bank’s data.
Iran’s economy grew, on average, by 9.1% annually between 1960 and 1979, while the average economic growth rate during the 42 years after the revolution, namely from 1979 to 2020, is about 1.9%.
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In addition to a shrinking economy, this staggering 80% drop in the economy’s average growth rate indicates a loss in the country’s development capacity.
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Golden Decade of the 1960s
The best period of Iran's economy, which saw the highest economic growth, was the 1960s, also called the Golden Decade of Iran's economy.
The average growth rate during the 1960s was 11.4%. The growth was partly because of an increase in Iran's oil revenue and partly because of government policies, including its support of the manufacturing sector, generous industrial import subsidies, and large foreign investments and loans.
Iran's newly-established Economic Ministry was also, for the first time, being run by a team of Western-educated economists such as Alinaghi Alikhani, Reza Niazmand, Mohammad Yeganeh, Roknauddin Sadat Tehrani, and Alinaghi Alikhani. Equally competent economists, namely Mohammad Ali Safi Asfia, Khodadad Farmanfarmaian, and Gholamreza Moghadam, ran the Central Bank and the Plan Organization.
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Record Growth During Hoveyda’s Tenure
The highest rate of economic growth in Iran belongs to the government of Prime Minister Amir Abbas Hoveyda - Iran's longest serving prime minister. During Hoveyda's 13 years in office (1965-77), Iran’s economic growth rate reached 12%.
The lowest economic growth rate of the past six decades was recorded during the period between 1981-1989 when prime minister Mir Hossein Mousavi was in office. During that time Iran's average economic growth was 0.9%. This was due to the Iran-Iraq war and the economic, social, and political consequences that came as a result of the war.
The most successful administration during the Islamic Republic regime, in terms of average economic growth rate, was the eight-year administration of Akbar Hashemi Rafsanjani with an average rate of 5.5%. The end of the Iran-Iraq war, relative economic stability, investment in development infrastructure and the overall freedom of the people are among the most important factors contributing to this growth.
However, during this same period, changes in economic policy stopped shortly after its inception, and Hashemi's second administration was unable to continue that trend of economic growth.
The Triad of Revolution, Confiscation, and War
We calculate Iran’s average economic growth rate in the last 60 years, from 1961 to 2020, to be around 4%.
The Central Bank of Iran reported the highest economic growth rate, occurring in 1982, to be 22.8%; the lowest growth occurred two years prior, in 1980, at -23.2%.
The causes of the lowest growth rate were the 1979 revolution, its economic consequences, and the start of the eight-year Iran-Iraq war caused detrimental damage to the economy's growth.
This severe decline in growth was brought about due to the economic climate resulting from confiscation of factory owners’ and wealthy individuals’ properties, the nationalization of many industries and factories, the cessation of production and investment, interruption of Iran's international relations, and its involvement in a war. These events had a profound effect on Iran's economy.
Oil and Nothing Else
The highest economic growth rate was in 1982 here it reached an average of 22.8%. What is the reason for this considerable growth? The answer is oil. After a few years of production being frozen and declining performance due to instability and war, Iran was able to regain some of its production power.
Economic growth in 1982, excluding oil production, was 2.1%. Comparing this number to the 22.8% total economic growth clearly indicates the powerful role of the oil industry on Iran’s macroeconomy.
We had a similar situation in 2016 which saw a 12.5% economic growth: the only double-digit growth rate in the past 25 years. This growth directly resulted from signing the Joint Comprehensive Plan of Action (JCPOA) agreement, lifting sanctions, and the return of oil and gas industries to the Iranian economy. Iran’s economic growth in 2016, excluding the oil and gas sectors, was 3.3%.
The Lost Decade (2011-2020)
The lowest rate of economic growth in the last six decades happened between 2011 to 2021. In this decade, the Iranian economy. The combination of corruption and mismanagement and severe international sanctions resulted in a 0.5% growth.
This decade is known among economic experts as the lost or wasted decade due to the reduction of investment capital, flattening, or even declining private-sector consumption, outflow of about $100 billion capital from Iran and poor economic growth.
This article was originally published in Persian (available here).