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- GDP (PPP):
- $945.5 billion
- -1.7% growth
- 1.0% 5-year compound annual growth
- $12,264 per capita
- Inflation (CPI):
- FDI Inflow:
Iran’s economic freedom score is 41.8, making its economy the 171st freest in the 2015 Index. Its score has increased by 1.5 points since last year, with improvements in five of the 10 economic freedoms, including labor freedom, the control of government spending, and monetary freedom, outweighing a decline in business freedom. 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.
International isolation and a faltering domestic economy have undermined economic freedom in Iran. Over the past five years, its score has declined by 0.3 point, with losses concentrated in three of the 10 economic freedoms. In particular, rising business regulations have made it harder for entrepreneurs to do business. Capital flight and increased inflation due to currency devaluation also have affected the petroleum-dependent economy.
Weak rule of law and autarkic trade and investment policies have long undermined the foundations of economic freedom in Iran. Political and religious interference in judicial matters is common. All investment must be approved by the government and is limited to certain sectors. Small-business entrepreneurs struggle to register businesses or acquire capital.
Iran had one of the Middle East’s most advanced economies before the 1979 Islamic revolution. Today, the economy is in shambles thanks to an agenda characterized by large subsidies to favored sectors, a bloated public sector, and high inflation. Corruption is another serious problem. Economic sanctions imposed by the U.S. and European Union in response to Iran’s illicit nuclear weapons program have had devastating effects. Petroleum exports, which provide about 85 percent of government revenues, declined to about 1.5 million barrels per day in 2012 from about 2.5 million per day in 2011. President Hassan Rowhani, elected in June 2013, will find it difficult to revive the economy unless he can secure the removal of Western sanctions by negotiating a deal to curb Iran’s nuclear program.
Corruption is pervasive. The hard-line clerical establishment has gained great wealth through control of tax-exempt foundations that dominate many economic sectors. The government long ago abolished independent financial watchdogs. The judicial system is not independent; the supreme leader appoints the head of the judiciary, who in turn appoints senior judges. The government has confiscated property belonging to religious minorities.
Iran’s top individual income tax rate is 35 percent, and its top corporate tax rate is 25 percent. Other taxes include a value-added tax and a property tax. The overall tax burden is equal to 5.9 percent of domestic output. Total government expenditures equal 15.3 percent of gross domestic product, and public debt is equivalent to 11 percent of GDP.
Bureaucracy and a lack of transparency often make business formation and operation costly and burdensome. Business start-up is now more streamlined, but obtaining necessary licenses remains time-consuming. Labor regulations are rigid, and informal labor activity is substantial. In April 2014, Iran cut gasoline subsidies as part of a fiscal consolidation program; gas prices increased by 75 percent.
Iran’s average tariff rate is 21.8 percent. Importing goods is time-consuming. The government reviews proposed foreign investment and maintains several sectoral restrictions. Iran’s financial sector remains heavily affected by state interference. A small number of private banks operate under strict restrictions directed by the government. State-owned commercial banks and specialized financial institutions direct credit allocation.