Iran ranked as no longer 'economically repressed' by Heritage

By bne IntelliNews February 28, 2017

Iran’s standing on The Heritage Foundation’s latest Index of Economic Freedom improved 7.0 points and 16 places from a year ago, leaving the country with 50.5 points and ranked 155 out of 180 assessed nations. The result saw the country move out of the “Repressed” category for economic liberty and into the “Mostly Unfree” section.

Heritage, a US-based conservative think tank, recorded significant progress in Iran’s property rights, government integrity, business freedom, labour freedom and monetary freedom in the 2017 index released on February 27. However, it cut the marks given to the country for government spending and the tax burden, and perceived no improvement in judicial effectiveness, fiscal health, investment freedom or financial freedom.

Summarising Iran’s situation one year after Tehran saw the removal of many economic sanctions following the nuclear deal, the Heritage report concluded: “The intrusive state and institutional shortcomings continue to hold back more broadly based economic development. Deriving most of its revenue from the oil sector, the state owns and directly operates numerous enterprises and indirectly controls many companies affiliated with the security forces. The rule of law remains vulnerable to political interference and oppression.”

It added: “The private sector is largely marginalised by the restrictive regulatory environment and government inefficiency and mismanagement. Modest efforts to enhance the business climate have occasionally been undone to maintain the status quo. The repressive climate stifles innovation.”

In further notes on Iran, Heritage said the government had confiscated property belonging to religious minorities, the judicial system is not independent, corruption is pervasive and that “the hardline clerical establishment has gained great wealth through control of tax-exempt foundations that dominate many economic sectors”.

The overall tax burden in Iran equals 6.4% of total domestic income, the report said, while government spending of tax and oil revenue amounted to 15.5% of GDP over the past three years.

In other observations, the report summarised: “The restrictive regulatory environment, exacerbated by the state’s economic planning process and excessive bureaucracy, continues to hamper private investment and production. Labour regulations are restrictive, and the labour market remains stagnant. Price controls and subsidies that date from the early years of the Islamic Revolution have been reduced in scope in recent years.”

Trade is moderately important to Iran’s economy, with the value of exports and imports taken together equalling 43% of GDP, Heritage said. “The average applied tariff rate is 15.2 percent. International sanctions and domestic barriers limit foreign investment. Stringent government controls limit access to financing for businesses. State-owned commercial banks and specialised financial institutions account for a majority of banking sector assets.”

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