Sharp depreciation of currency in Iran raises poverty rate - World Bank

Business Materials 6 January 2021 19:23 (UTC +04:00)
Sharp depreciation of currency in Iran raises poverty rate - World Bank

BAKU, Azerbaijan, Jan. 6


A World Bank Group announced that high inflation placed additional economic stress on lower-income households of Iran following a sharp depreciation of the currency.

The Iran Economic Monitor (IEM) provides an update on key economic developments and policies. It examines these economic developments and policies in a longer-term and global context and assesses their implications for the outlook for the country, Trend reports citing World Bank Official Website.

“High inflation placed additional economic stress on lower-income households following a sharp depreciation of the currency,” IME said in a report. “As Coronavirus (COVID-19) cases surged, stricter measures were enforced in Fall 2020 and new social transfers were announced.”

According to IME, in Apr-Nov 2020, inflationary expectations and geopolitical and economic uncertainties sharply increased demand for safer assets, leading the rial to lose 43 percent of its value against the dollar year-on-year (YoY).

“The currency depreciation impacted consumers as imported goods became more expensive and domestic production prices, especially for tradable goods, increased,” IME said in a report adding that “Consumer price inflation reached 30.6 percent (YoY) during Apr–Nov 2020 and climbed to a 16-month high of 46.4 percent (YoY) in November 2020. Similar to 2019/20, inflation was led by sharp price increases in food and housing which disproportionately affect lower-income deciles.”

Referring to the impact of the recession and high inflation on poverty, IME announced that “In 2018/19, the national poverty rate measured at the international poverty line of USD 5.5 purchasing power parity (PPP) was 12.3 percent, up 1.5 percentage points from the previous year. Inequality (measured by the Gini index) was 35.6 points and continued to increase after 2016/17.”

Rising living costs eroded the value of cash transfers and labor incomes in real terms. Poverty mitigation measures including cash transfers helped partly mitigate pressures on the poor but also placed additional pressure on fiscal balances due to lack of adequate targeting.

IME said that the special focus on Iran`s Poverty Rate shows the poverty could substantially increase, by up to 21 percentage points, as a combined result of the fall in household incomes and high inflation through the pandemic.

"Iranians in the bottom half of the welfare distribution, working in services and high-contact economic sectors, and those in rural areas are disproportionately affected," the World Bank group noted.