2021 Index of Economic Freedom

Iran

OVERALL SCORE47.2
WORLD RANK168
Rule of Law

Property Rights33.5

Judicial Effectiveness28.3

Government Integrity31.8

Government Size

Tax Burden80.8

Government Spending90.1

Fiscal Health82.8

Regulatory Efficiency

Business Freedom57.1

Labor Freedom50.1

Monetary Freedom42.1

Open Markets

Trade Freedom54.2

Investment Freedom5.0

Financial Freedom10.0

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Quick Facts
  • Population:
    • 82.9 million
  • GDP (PPP):
    • $1.5 trillion
    • -7.6% growth
    • 0.3% 5-year compound annual growth
    • $12,912 per capita
  • Unemployment:
    • 11.4%
  • Inflation (CPI):
    • 41.1%
  • FDI Inflow:
    • $1.5 billion

Iran’s economic freedom score is 47.2, making its economy the 168th freest in the 2021 Index. Its overall score has decreased by 2.0 points, primarily because of a decline in judicial effectiveness. Iran is ranked last among 14 countries in the Middle East and North Africa region, and its overall score is well below the regional and world averages.

The Iranian economy remains in the ranks of the repressed where it has been for all but four years since 1996 when it was first included in the Index. The government and powerful interest groups that dominate the economy and are mostly linked to the security and religious establishments are largely opposed to economic liberalization and reengagement with international businesses.

IMPACT OF COVID-19: As of December 1, 2020, 48,628 deaths had been attributed to the pandemic in Iran, and the economy was forecast to contract by 5.0 percent for the year.

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Background

Iran’s economy, one of the Middle East’s most advanced before 1979, has been plagued since then by mismanagement, international sanctions, and pervasive graft under a repressive Islamic government that is dominated by Shiite religious authorities. President Hassan Rouhani, reelected in 2017, has reportedly tried to steer a more pragmatic path, but Supreme Leader Ayatollah Ali Khamenei continues to promote radical policies. Iran has the world’s second-largest reserves of natural gas and fourth-largest reserves of crude oil. Although the 2015 nuclear agreement briefly allowed Tehran to expand oil exports, attract greater foreign investment, and increase trade, U.S. sanctions imposed after Washington withdrew from the agreement in May 2018 have slashed Iran’s oil exports and pushed the country into a deepening recession.

Rule of LawView Methodology

Property Rights 33.5 Create a Graph using this measurement

Judicial Effectiveness 28.3 Create a Graph using this measurement

Government Integrity 31.8 Create a Graph using this measurement

Property rights are recognized under Iran’s civil code, but the code also allows the government to confiscate the property of ethnic and religious minorities. The judicial system is not independent of the supreme leader and is used routinely to silence critics and charge political opponents with “economic” crimes. Corruption is endemic. Criminal penalties for corruption exist, but the government applies them subjectively.

Government SizeView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 25 percent. Other taxes include inheritance and real estate taxes. The overall tax burden equals 8.4 percent of total domestic income. Government spending has amounted to 18.1 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.1 percent of GDP. Public debt is equivalent to 29.7 percent of GDP.

Regulatory EfficiencyView Methodology

Government ownership and indirect control of companies in Iran crowds out the private sector. Labor force participation is low. In 2020, with the economy under extreme duress as a result of renewed U.S. sanctions and lower oil prices, the government was forced to make significant reductions in subsidy programs.

Open MarketsView Methodology

Iran has three preferential trade agreements in force. The trade-weighted average tariff rate is 15.4 percent. Iran is not a member of the World Trade Organization. The intrusive state continues to hold back economic development, undermining trade and investment flows. Government controls limit access to financing for businesses. State-owned commercial banks and specialized financial institutions account for a majority of banking-sector assets.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1United Arab Emirates76.90.7
2Israel73.8-0.2
3Qatar72-0.3
4Bahrain69.93.6
5Saudi Arabia663.6
6Jordan64.6-1.4
7Oman64.61.0
8Kuwait64.10.9
9Morocco63.30.0
10Tunisia56.60.8
11Egypt55.71.7
12Lebanon51.4-0.3
13Algeria49.72.8
14Iran47.2-2.0


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