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- GDP (PPP):
- $1.3 trillion
- 3.0% growth
- 1.0% 5-year compound annual growth
- $17,114 per capita
- Inflation (CPI):
- FDI Inflow:
Severely hampered by state interference, the formal Iranian economy remains stagnant, and informal economic activity is expanding. Recent five-year plans have talked about pursuing a gradual move toward a market-oriented economy, but there has been little real change.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 43.5 (up 1.7 points)
- Economic Freedom Status: Repressed
- Global Ranking: 171st
- Regional Ranking: 14th in the Middle East/North Africa Region
- Notable Successes: None
- Concerns: Rule of Law, Open Markets, and Regulatory Efficiency
- Overall Score Change Since 2012: +1.2
As a direct result of political oppression and deficiencies in the legal framework, the rule of law remains fragile. Efforts to enhance the business climate have been modest and occasionally undone to maintain the status quo. The private sector remains largely marginalized. The government’s money-laundering and terrorist-financing activities continue to be major problems.
After the pro-Western shah was overthrown in 1979, radical Islamic forces established a theocratic government with religious authorities holding the most power. The president, who has limited powers, is elected every four years by popular vote in a charade orchestrated by hard-line clerics who veto candidates that pose a threat to the regime. Current President Hassan Rowhani, elected in 2013 as a pragmatist, has tried to steer a less confrontational path in dealing with foreign powers. Petroleum exports account for over 80 percent of government revenues. The government owns and directly operates numerous enterprises and indirectly controls many companies affiliated with the security forces. Relaxation of economic sanctions as a result of negotiations relating to Iran’s nuclear weapons program has raised hopes for an economic turnaround.
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 directly appoints the head of the judiciary, who in turn appoints senior judges. The government has confiscated property belonging to religious minorities.
The top personal income tax rate is 35 percent, and the top corporate rate is 25 percent. All property transfers are subject to a standard tax. A value-added tax has been collected intermittently. The overall tax burden equals an estimated 5.8 percent of total domestic income. Government spending amounts to 15 percent of GDP. The budget is in surplus because of oil revenue, and public debt equals 12 percent of GDP.
The regulatory environment remains restrictive, severely constraining private economic activity. Labor market rigidity exacerbated by state interference continues to discourage dynamic job growth. In 2015, the government was forced to make significant cuts in subsidies, not as part of an orderly and enlightened liberalization plan to make structural reforms but because of sharply lower oil revenues.
Iran’s average tariff rate is 15.2 percent. Customs delays impede trade. Foreign investment is subject to government screening and sectoral restrictions. International sanctions limit trade and investment. Strict government controls limit access to financing for businesses. State-owned commercial banks account for a majority of total banking-sector assets, and credit allocation is directed by the government.