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Iran’s economy suffers from fragile private sector

Business Materials 17 February 2014 15:30

Baku, Azerbaijan, Feb. 17

By Dalga Khatinoglu, Umid Niayesh - Trend:

Iran's private sector which shares only 20 percent of the country's economy is too weak and fragile compared to the state-owned firms, head of the Iran World Trade Center, Mohammad Reza Sabzalipour told Trend news agency on Feb. 17.

"In general, some 80 per cent of Iran's economy is under the control of state-owned and semi-state-owned companies," Sabzalipour said, adding that with such a trend the problems of Iran's economy will never be solved.

Some state-owned companies have been transferred to semi-state-owned companies in the past few years, which is in contradiction to Article 44 of the Iranian Constitution regarding privatization, he underlined.

While responding to a question about the share of state-owned companies in Iran's economy Sabzalipour went on to say that Iran's current year budget bill indicates that the national economy has remained largely government-oriented, while the administration speaks about reduction in its role in the economy.

"Over 70 percent of the national economy is owned by the government. Of course, the current administration wants to minimize its role in the national economy and secure the situation for the private sector for making investment as preceding administrations," he added.

A comparison between government budget and gross domestic product (GDP) shows the size and dimension of the state-run sector, the expert underlined.

"In recent years, the government budget has been tantamount to the country's total gross domestic product. Meanwhile, the current budget, which is an indicator of the size of the government, has been declining," Sabzalipour added.

In Iranian year 1384 (March 2005-March 2006), the current budget to the gross domestic product ratio was 30 percent, he said, adding that this is while the former administration was gaining dreamlike foreign currency incomes.

Based on the current year's budget bill, the figure fell to 15 percent, he underlined.

Commenting on the rising share of the government organizations in the national economy, Sabzalipour said that the share of government organizations was 65 percent of the total GDP in 2005-2012.

But, the figure has decreased to 55 percent since the government's foreign currency income dropped sharply in the current year's budget, he added.

This is while a large number of state-run companies have been privatized in recent years, the expert noted.

"In Iranian year 1391 (March 2012-March 2013), the government budget was 3.8 quadrillion rials (about $153 billion), which was very close the total liquidity sum of 4.5 quadrillion rials (about $181 billion) at that time," Sabzalipour said, adding that surprisingly the state-run companies budget has been set to 5.35 quadrillion rials (about $215 billion) in the current Iranian year budget.

The 60 percent rise of the figure compared with that of the year 1391 is notable, he remarked.

The collapse of the national currency in value and the rise of the inflation rate were among the reasons for the budget growth according to the expert.

"Foreign currency income constitutes the lion's share of large government companies, so the national currency devaluation can lead to a rise in the government companies` budget," he underlined.

According to the Sabzalipour, while the International Monetary Fund has estimated the country's economic growth rate will be less than one percent in the current Iranian year, which ends on March 20, 2014 it can be said that the growth bubble of state-run companies in comparison with the size of the national economy has greatly changed the balance between the government and the private sectors.

He added that based on the submitted budget bill for the next Iranian calendar year (to start March 21) over one fourth of the country's general budget goes to a certain state-run company.

"The administration says 5.14 percent of the country's oil production value will be directly paid to a certain state-run company," he said, remarking that a simple calculation shows that if the country consumes 1.5 million barrels of oil domestically in the next Iranian calendar year and exports another one million barrels, 5.41 per cent of the crude oil production value would amount to 350 trillion rials (some $11.7 billion based on the exchange rate of USD at the free market).

"The budget bill has envisaged 7.83 trillion rials of income and expense for the next year. Less than one third of the mentioned figure is allocated to the current budget," he said.

"The current budget for the next year is over 2.18 trillion rials," Sabzalipour underlined.

"World's communist nations such as China and Russia have even given up on the state-dependent economy, but the Iranian officials and clerics do not listen to our cries for privatization," he said, arguing that this is a great responsibility which needs a powerful leader. "The future will surely judge about this issue," Sabzalipour added.

He went on to note that Iran's oil revenues in the past 8 years were around $700 billion, however, there are 5.3 billion unemployed people in Iran; the country's economic growth stands at a negative 6.5 percent; and inflation is around 40 per cent.

Now Iran is facing lower income due to reduction of oil exports, so it remains to be seen how lower income would affect the country's economy, he added.

Edited by C.N.

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