News ID: 121353
Published: 0245 GMT July 01, 2015

Importance of fostering economic growth

Importance of fostering economic growth

By Mehdi Asali

Boosting economic growth in parallel with curbing inflation has been among the major achievements of the 11th government in the past two years.

Despite Iran's domestic and international problems, President Rouhani's administration has staged a defendable performance in formulating and implementing economic policies since taking office in 2013, and has managed to initiate meaningful economic reforms.

Apparently, now that the government's anti-inflationary policies have proved successful, it has focused efforts on developing and adopting anti-recession strategies to stimulate production and further accelerate economic growth.

A report by the International Monetary Fund on Iran's economic growth forecast that the rate, which was 3 percent in the year to March 20, 2015, will drop to 0.6 percent by the yearned, which is of deep concern.

It is more rational that to cope with surplus labor force in the coming years, the government should concentrate more on spurring a job-creating economic growth to minimize the number of educated unemployed.

Various factors have aggravated recession in Iran. Perhaps privatization and economic liberalization policies have not been enacted properly in the past few years. They were distracted from their main target which was to minimize the government's role in controlling microeconomic sectors and create healthy competition among financial agencies.

The other factor which has worsened recession pertains to ineffective fiscal policies in the past years resulting in the accumulation of a huge amount of money in domestic banks. While the incumbent government has embarked on tackling the issue, economic officials believe that a major portion of this capital is amassed in financial and credit institutes and organizations over which the government has no supervision and control.

A great deal of anti-inflationary and growth stimulating efforts have gone, and will go, down the drain due to this.

Another factor contributing to the recession is enactment of flawed fiscal and taxation policies. Lack of a transparent information and financial system that provides state organizations with comprehensive data about the condition and performance of economic agencies and institutes, has also neutralized a major portion of the government's endeavors to pull the country out of recession and boost employment, wasting immense opportunities and a great part of state revenues.

In the past few years, domestic agencies were compelled to downsize workforce and reduce output capacity due to banking and fiscal restrictions which left them unable to purchase enough raw materials and intermediate goods. This has also greatly deepened the recession.

These problems, aggravated by the anxieties of agencies arising from Iran's nuclear negotiations with P5+1, have created a special condition for the domestic economy.

Abandoning anti-inflationary policies or trying to move the country out of recession by boosting liquidity and pursuing expansionist monetary strategies, do not seem rational because Iran's economic recession stems from several other factors.

The domestic economy has proved incapable of maintaining the growing trend of last year although the government's finances have remained almost unchanged, compared to that of a year ago, and similar fiscal strategies have been pursued since March 21, 2015.

Iran's economy has entered a critical phase whereby it is very difficult to fuel growth. Sweeping reforms are required in different sectors to improve the condition. The lifting of the Western sanctions can greatly contribute to the speedy implementation of economic reforms.

Domestic energy sectors, including oil, gas and petrochemicals can become pioneers of a national movement to lead domestic economy out of recession and promote growth.

The Rouhani administration can ride out of recession by developing energy-intensive industries including cement, steel and iron production.

Iran's cheap energy carriers and rich energy resources are highly effective in developing the above mentioned industries. These industries also have the potential to create a large number of job opportunities and have shouldered a major portion of this responsibility so far.

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