Iran's Economic Policy Dilemma

By Askari, Hossein | International Journal, Summer 2004 | Go to article overview

Iran's Economic Policy Dilemma

Askari, Hossein, International Journal

IN 1979, THE ISLAMIC REPUBLIC OF IRAN (IRI) inherited an economy that was heavily dependent on oil with a small and inefficient manufacturing sector. An eight-year war with Iraq, an influx of refugees, rapid population growth, US economic sanctions and politically expedient policies have resulted in the economic conditions of today, conditions under which the IRI has little room for manoeuvre. The medium- and long-term policies that are called for are obvious yet politically difficult to implement.

This article provides a brief overview of the Islamic Republic's economic performance since the revolution of 1979, describes its policy record, and addresses the economic policy dilemma at hand.


In 1988, Iran's real gross domestic product (GDP) was about what it was in 1977, and given population growth of about 60 percent, per capita real incomes had fallen by roughly 40 percent. Recently, GDP growth has been more satisfactory, at an average annual rate of 6.7 percent for 1990-1995 (although unbalanced and with heavy external financing); 3.8 percent for 1995-2000; and more recently, after adopting some reforms, a more balanced 5.8 percent on average for 2000-2003. During 2002-2003, overall growth reached 6.8 percent even though the oil sector contracted, and 6.5 percent growth is projected for 2003-2004. Yet even after these recent successes, real per capita GDP in 2000 was some 30 percent below the levels of the mid-1970s(1) and 20 percent below those levels in 2003. These figures suggest subpar economic performance and rapid population growth over the long haul, although with significant improvement in recent years.

Iran's overall export growth has also been less than stellar since the revolution. Total exports in current dollars declined at an annual rate of 2.5 percent, with fuel oil exports--on which Iran depends heavily--declining at an annual rate of 4.3 percent. (Non-fuel exports increased at an annual rate of 10.9 percent.) Petroleum exports declined for most major oil exporters over the same period. But in the case of Iran, two internal developments further exacerbated the decline in oil export revenues: a decline in oil output (and capacity) and a rapid increase in domestic petroleum consumption. The decline in production capacity was due largely to investment shortfalls in the oil sector. The increase in domestic consumption was due to high population growth and one of the world's highest petroleum product price subsidies.

Although the economy underperformed and total exports did not fare well, Iran did not resort to significant external borrowing until 1988, after the Iran-Iraq war. Between 1988 and 1993, Iran's external debt exploded from $5.8 billion to $28.5 billion (all figures in US dollars) because of the rapid increase in imports (to meet pent-up demand in the aftermath of the war) and resulted in large current account deficits. Unfortunately, the increased external borrowing did not finance productive investments and Iran received little long-term benefit from the external debt it incurred. This period was followed by several years of current account surpluses because of lower imports. These current account surpluses reduced the stock of external debt to around $7.2 billion 2002.(2) At the same time, gross official reserves increased from $5.3 billion in 1997 to an estimated $21.8 billion in 2002. Iran's debt/GDP ratio stood at 6.3 percent in 2001; its ratio of debt to exports was 30.4 percent; and its debt (excluding short-term debt) service ratio was 6.3 percent.(3) These are low figures by any standard and represent a significant accomplishment relative to most other developing countries.

In the social arena, Iran has enjoyed much more success since the revolution: the average Iranian's life expectancy has risen steadily; infant mortality rates have fallen; access to safe water, sanitation and health care have shown significant improvement; the number of physicians, dentists and nurses per person have increased; and immunization rates have risen. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)


1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited article

Iran's Economic Policy Dilemma


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.