The economy of Iran is a mixed and transition economy with a large public sector. Some 50% of the economy is centrally planned. It is dominated by oil and gas production, although over 40 industries are directly involved in theTehran Stock Exchange.
A unique feature of Iran’s economy is the presence of large religious foundations, whose combined budgets represent more than 30% of central government spending.
Price controls and subsidies, particularly on food and energy, burden the economy. Contraband, administrative controls, widespread corruption, and other restrictive factors undermine private sector-led growth. The legislaturein late 2009 passed President Mahmoud Ahmadinejad’s bill to reduce subsidies. This is the most extensive economic reform since the government implemented gasoline rationing in 2007. Due to its relative isolation from global financial markets, Iran was initially able to avoid recession in the aftermath of the 2008 global financial crisis.
Most of the country’s exports are oil and gas, accounting for a majority of government revenue in 2010. Oil export revenues enabled Iran to amass well over $100 billion in foreign exchange reserves as of 2010.
Due to increasingly stringent sanctions imposed by the international community as a result of the country’s nuclear program, oil exports fell by half, allowing Iraqi oil exports to overtake Iran’s for the first time since the 1980s. In September 2012, the Iranian rial fell to a record low of 23,900 to the US dollar.
Iran ranked first in scientific growth in the world in 2011 and 17th in science production in 2012. According to The Economist, Iran ranked 39th in a list of industrialized nations, producing $23 billion of industrial products in 2008.Between 2008 and 2009 Iran moved to 28th from 69th place in annual industrial production growth.
In the early 21st century the service sector was the country’s largest, followed by industry (mining and manufacturing) and agriculture. In 2008 GDP was estimated at $382.3 billion ($842 billion PPP), or $5,470 per capita ($12,800 PPP).
Nominal GDP is projected to double in the next five years. However, real GDP growth is expected to average 2.2% a year in 2012-16, insufficient to reduce the unemployment rate. There are virtually millions of people who do not paytaxes in Iran and hence operate outside the formal economy. According to the International Monetary Fund, Iran is a “transition economy”, i.e., changing from a planned to a market economy.
The United Nations classifies Iran’s economy as semi-developed. According to Goldman Sachs, Iran could become one of the world’s largest economies in the 21st century.
Energy subsidies left the country one of the world’s least energy-efficient, with energy intensity three times the global average and 2.5 times higher than the Middle Eastern average.
Iran’s economic freedom score is 43.2, making its economy the 168th freest in the 2013 Index. Its score has increased by 0.9 point from last year, with a notable decline in monetary freedom offset by small gains in five of the 10 economic freedoms including control of government spending. Iran is ranked last out of 15 countries in the Middle East/North Africa region, and its overall score is well below the world and regional averages.
Iran continues to be mired in a climate of economic repression. Severely hampered by state interference, the formal economy is increasingly stagnant, and informal economic activity is expanding. As a result of rampant corruption and deficiencies in the legal framework, the rule of law remains fragile and uneven. The government dictates most production and investment activity and derives most of its revenue from the oil sector.
The private sector, largely marginalized by the restrictive regulatory environment, is further undermined by government inefficiency and mismanagement. State interference in the financial sector distorts price levels and constrains private-sector growth by allocating credit on non-market terms. Efforts to enhance the business climate have been modest, undone on occasion in the interest of maintaining the status quo. The threat of government expropriation remains high.
National economic planning
The fifth development plan, for 2010–15, is designed to delegate power to the people. The plan is part of “Vision 2025″, a strategy for long-term sustainable growth. Following annual approval of the government’s budget, the central bank presents a detailed monetary and credit policy to the Money and Credit Council (MCC) for approval. Thereafter, major elements of these policies are incorporated into the five-year economic development plan.