Remarks by Carlo Cottarelli at the Free Iran World Summit 2021 on 12 July 2021

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Carlo Cottarelli, former designated Prime Minister of Italy and Director of the International Monetary Fund

Thank you very much. It is, for me, a great honor to participate in this event with such a distinguished minister or speaker. We are here to discuss a topic, which is of extreme importance from a political, social, and economic perspective. Over the last millennia, we can say this only for a handful of countries, Iran has been at the center of the world’s culture and economic development. And it is therefore particularly sad, upsetting, and disturbing to see the Iranian people going through such a difficult period over the last decades. In my remarks, I will focus primarily on the Iranian economy because that’s where my comparative advantage is. But let me underscore at the outset that the problems arising for the Iranian people to use a euphemism. It is a point in performance of the Iranian economy when compared to the issues related to freedom to governments, to democracy that have been raised and highlighted by all the speakers that proceeded.

By going to the Iranian economy, even if we leave aside what happened in 2020, the developments that have been affected by the current pandemic, recent economic developments in Iran were very disappointing. Iran GDP, Iran output declined by some 13% during 2018 and 2019. Inflation soared to 35% and it’s currently close to 40%. The external current account surplus shrank to little more than zero in 2019 and it turned into a deficit in 2020 for the first time since 1998. The unemployment rate officially at some 11% is estimated by the Institute of International and Strategic Affairs to be twice as much. Over the last two years, poverty increased from 11% to 16% out of 3.7 million people in the poverty row. According to Bloomberg, the exchange rate against the US dollar depreciated by some 80% since early 2018. So, these results are affected by the tightening of international sanctions. However, the weak performance of the Iranian economy has a much longer history. Over the last few decades, economic performance has been poor. Perhaps a single number can summarize all these. Between 1980 and 2019, the average per capita GDP growth rate has been just 0.2%, which is one of the lowest growth levels in the world during those 40 years. As a result of these, Iran lost routes with respect to peer countries. In 1975, Iran’s per capita income was almost 1/3 higher than Turkey. 40 years later, Iran’s per capita income is almost 1/3 lower than that of Turkey. The impact of this low economic growth of the population has not been compensated by a more equal income distribution. On the contrary, in 2019, the Gini coefficient, which is a standard coefficient of income inequality, is at the level of 42 according to the World Bank. This is a very weak result. Almost 3/4 of the seven countries surveyed by the World Bank have a more equal income distribution. The Iranian regime blames all these on the sanctions, but it is not just the sanction. All these result points at mistakes in domestic policies, lack of economic reform, and severe shortcomings in the economic governance framework. And just a few numbers show this.

World Bank’s doing business indicators. Out of 190 countries, Iran ranks 104 in the ease of getting credit. 113th in the ease of getting a business/electricity connection, 128th in the protection given to minority investors, 133rd in the easiness of resolving insolvency, 144th in the easiness of paying tax, 178th regarding the easiness of starting a new business. The economic performance is even worse if we look at governance indexes. Again, according to the World Bank, out of 210 countries in 2019, Iran ranks 142nd for government effectiveness, 160th for rule over law, 179th for corruption, 184th for voice and accountability, 196th for greater equality, and 197th for political stability and absence of violence and terror. Since 1996, when the World Bank indexes became available, all these indicators show either a lack of improvement or a deterioration. A steady deterioration is also recorded in the global competitiveness index of the World Economic fall. Iran moved from the 69th position in 2019 to the 99th position.

Finally, let me measure the results of the 2021 economic freedom index of the Heritage Foundation. All together, Iran ranks 168th in the 168th position in the world. It is the last position in the Middle East and North Africa, and Asia. Iran scores about 10% below average for regulatory efficiency, 17% below the world average for labor and freedom.

Allow me to open a sharp parenthesis here to measure some key issues related to employment and unemployment to the labor market. The first is the high level of unemployment, some 28% even in the official statistics. Second, there’s a surprising association between the level of education and unemployment. The unemployment rate for college educated youth is particularly high for men and women aged between 25 and 29. It is close to 35% for men and 45% for women, according to the 2016-2017 census. More education. This means more education is associated with higher unemployment. The third feature that I want to highlight about the labor market is the social exclusion of women, labor participation just at 13%. Now let me go back to other aspects of the economic freedom index of the Heritage Foundation. Iran is 23% below average for trade freedom, 33% below world average for government integrity, 40% below world average for property rights and judicial effectiveness, 45% below average for monetary freedom, 80% below the world average for financial freedom, and as much as 91% below the world average for investment freedom.

These statistics, these data, these information leads us to a clear conclusion over the last decade. During the past revolution period, the Iranian economy suffered from severe economic mismanagement, which added to the economic consequences of the political mismanagement that led to economic sanctions. These need to be changed. Thank you for your attention.

Thank you very much.