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- GDP (PPP):
- $990.2 billion
- 2.0% growth
- 3.7% 5-year compound annual growth
- $13,053 per capita
- Inflation (CPI):
- FDI Inflow:
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.
President Mahmoud Ahmadinejad’s regime has been undermined by popular cynicism regarding the legitimacy of his 2009 re-election, sniping from rival hard-liners, and tougher international sanctions due to Iran’s illicit nuclear weapons program and support for terrorism. Petroleum exports provide about 85 percent of government revenues but declined in early 2012 due to a European Union embargo, sanctions on the central bank, and lower production caused by poor maintenance of facilities, lack of technology, and falling foreign investment. Iran’s economy, once one of the Middle East’s most advanced, remains burdened by high inflation, state ownership, corruption, costly subsidies, and an increasingly bloated public sector.
Corruption pervades all branches of government. Resort to a court system infected by bribery and cronyism is often counterproductive; finding a local business partner with substantial political patronage is a more effective way to protect contracts. The constitution allows the government to confiscate property acquired either illicitly or in a manner not in conformance with Islamic law. Few laws protect intellectual property rights.
The top income tax rate is 35 percent, and the top corporate tax rate is 25 percent. All property transfers are subject to a standard tax. A value-added tax (VAT) has been collected intermittently. The overall tax burden is estimated to equal 8.4 percent of total domestic income, and government spending is equivalent to 25.5 percent of GDP. The government budget is in surplus because of oil revenue, and public debt is below 15 percent of GDP.
The restrictive regulatory environment severely constrains private economic activity. Obtaining operating permits takes more than 300 days and costs over twice the level of annual average income. Labor market rigidity, exacerbated by state interference, continues to discourage dynamic job growth. Tight government controls distort price levels. In response to international sanctions, a three-tiered exchange-rate system was introduced in 2012.
The trade-weighted average tariff rate is prohibitively high at 19.6 percent, and layers of non-tariff barriers further restrict trade. Investment is heavily regulated by the state, and foreign investment is banned in many sectors. Strict government controls limit access to financing for businesses. State-owned commercial banks account for a majority of total banking-sector assets, with credit allocation directed by the government.