Rouhani Shifts Gears on Economy

The fact of the matter is that the Rouhani administration has not been fortunate enough to prove that continued fiscal discipline would result in the fulfillment of its goals. The global economy has shrunk more than expected this year, affecting the Iranian economy. Furthermore, plunging oil prices and lower international demand for Iran’s mineral products have put more pressure on the national budget, threatening the fragile recovery.

On the other hand, the weak domestic consumption of durable goods like cars and home appliances have added to the government’s financial problems. A majority of Iranian consumers are still waiting for sanctions to be lifted to make such purchases, contributing to the weak demand. According to Tayebnia, the administration’s revenues dropped by 6% in the first half of this fiscal year compared to the same period last year, leaving the government in a desperate struggle to keep industries afloat until the end of this Iranian fiscal year, March 2016, when the Joint Comprehensive Plan of Action (JCPOA) is expected to be implemented and major sanctions removed.

A couple of weeks before the administration unveiled its new stimulus package, the International Monetary Fund predicted that the Iranian economy will expand by 4.4% in 2016, as Iranian banks resume transactions with global counterparts and multinational companies dare to invest in Iran in the absence of major sanctions. In this vein, the administration’s economic stimulus package may be aimed at buying time until sanctions are lifted.

It could also be a maneuver ahead of the crucial parliamentary elections in late February, with Rouhani hoping that his allies and supporters will win enough seats to hold a clear majority in the parliament. Whatever the case may be, the next few months look set to be rocky for the economy — and the administration.

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