154 MPO Oct 21
Key conditions and
challenges
Having undergone multiple waves of
COVID-19 infections, Iran continues to be
heavily impacted by the pandemic. With
more than 5.3 million confirmed cases
and 115 K dea ths, as of mid-September
2021 (population: 84 million), Iran re-
mains the most affected country in the
Middle East and North Africa region. The
spread of the Delta variant since August
2021 has led to a new record number of
daily cases (50K) and deaths (709). As of
September 15, 2021, only 31 percent of the
population have received the first dose of
a vaccine and about 16 percent were fully
vaccinated. As a result, the hospitaliza-
tion rate remains high.
Over the last decade, Iran’s real GDP
growth has been negligible and has result-
ed in a drop of real GDP per capita to its
2006 level. Despite some progress towards
economic diversification, high public sector
presence continues to inhibit private sector
job creation and investment. Even prior to
recent sanctions, job creation fell short of
meeting new labor supply and unemploy-
ment remained stubbornly high. The labor
market is characterized by low participa-
tion and large gender disparities. Adverse
events owing to climate change, such as
droughts and desertification, have impact-
ed the agriculture sector but also hurt in-
dustrial production due to lower hydro-
electricity generation. Furthermore, since
2019/20,1/ a sharp decline in oil revenues
due to US sanctions combined with the
onset of the pandemic have accentuated the
pro-cyclicality of government spending
and volatility of the economy.
Income losses have worsened households’
welfare. The loss in household incomes
due to the pandemic (owing to lockdowns)
and rising living costs due to inflation add-
ed more pressures on low-income house-
holds. Given the large share of vulnerable
households, these shocks are likely to have
determined a sizeable increase in poverty.
While a range of social protection
measures were aimed to compensate for
the welfare loss, their mitigating impact
was eroded by inflation. Inflation has re-
mained high (36 percent YoY on average
since 2018/19) largely due to a sharp cur-
rency depreciation (over 400 percent since
2018/19) and deficit monetization.
Recent developments
Iran’s economy witnessed a moderate
recovery in 2020/21 following more than
two years of recession. A gradual recov-
ery in global demand and limited COVID
-19 lockdowns contributed to stronger
growth in the oil sector (11.2 percent) and
in manufacturing (7.1 percent) which led
GDP to grow by 3.4 percent in 2020/21.
On the expenditure side, public and pri-
vate consumption contracted by 2.3 per-
cent and 0.4 percent, respectively, and
import bans led to another year of declin-
ing Imports (-29.2 percent) offsetting the
decline in exports (-5.4 percent). The lat-
est industrial production data indicates a
IRAN, ISLAMIC
REPUBLIC
FIGURE 1 Islamic Republic of Iran / GDP growth and
demand side decomposition
FIGURE 2 Islamic Republic of Iran / Inflation and parallel
market ER
Sources: CBI and World Bank staff calculations. Sources: CBI, SCI, and World Bank staff calculations.
Iran’s economy exited a two-year recession
in 2020/21, aided by limited COVID-19
mitigation measures and a gradual re-
bound in oil production in the second half
of 2020. Yet, poor economic activity, part-
ly due to US sanctions, low oil revenues
and higher recurrent and COVID-19 re-
lated expenditures widened the fiscal defi-
cit, leading to significant inflationary
pressures and currency depreciation.
Growth is expected to remain modest and
challenged by further waves of COVID-19
variants, uncertainties in the materializa-
tion of sanctions relief, recent tensions in
Afghanistan, and climate change impact.
Table 1 2020
Po pulation, million 84.0
GDP , current US$ billion 202.8
GDP per capita, current US$ 241 4.3
Upper middle-income po verty rate ($5.5)a1 4.0
Gini indexa42.0
Scho ol enrollment, primary (% gross )b1 1 0.7
Life expectancy at birth, yearsb76.7
To tal GHG Emissions (mtC O2e) 81 7.1
(b) W DI for School enrollment (20 1 7); Life expectancy (201 9).
Source: WDI, Macro Povert y Outlo ok, and of ficial data.
(a) Mo st recent value (201 8), 201 1 PPPs.
-15
-10
-5
0
5
10
15
2012/13 2014/15 2016/17 2018/19 2020/21 2022/23f
Private cons. Gov. cons. Investment
Exports Imports Inventories & S.D.
GDP Growth
Percent, percentage points
-100
-50
0
50
100
-10
-5
0
5
10
15
20
25
Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21
Inflation, MoM (lhs) ER depreciation , MoM (lhs)
Inflation, YoY (rhs) Core inflation, YoY (rhs)
Percent (MoM) Percent (YoY)
