There is no doubt that the current coronavirus crisis will undermine the Iranian economy and lead to a major contraction in the country’s gross domestic product. Some early estimates project a contraction of up to 3%, though it is too early to offer a reliable assessment. The Iranian government has already announced a number of measures to support vulnerable social classes as well as businesses that will be hit hard by the current economic downturn. Yet with the government itself heavily burdened by budget deficits, external sanctions, mismanagement as well as a collapse in the global oil price — what impact will these measures have?
Evidently, the very first challenge in designing and implementing the right stimulus to Iranian businesses is the fact that the government itself is the largest economic player in the country as opposed to being the regulator of economic sectors. This means that direct stimuli such as bailouts will mainly refer to major state or semi-state companies and defeat the actual purpose.
Consequently, the focus of the government is elsewhere. It has identified a number of sectors to which some financial assistance will be offered, though the actual support remains ambiguous. According to the Central Bank of Iran, all commercial banks in the country have been instructed to extend low interest loans to the 10 business categories that are most affected by the COVID-19 virus outbreak, i.e., restaurants, shops selling dried nuts, confectionary and similar products, tour and travel agencies, hotels and hospitality firms, transportation companies, airlines, textile companies, manufacturers of leather products, sports and entertainment centers, and event organizers.
At the same time, Ebrahim Dorosti, deputy head of the Chamber of Guilds, believes that the government should not only focus on specific sectors and should offer stimuli to all businesses. Dorosti also predicts that the main economic fallout of the current crisis will be visible in three months.
In the midst of this debate, the government’s main focus is on limiting the economic impact on lower income classes. Details of the government’s measures were published on March 16, and there is no sign of easing the pressure on businesses. The key actions include:
* One-time cash handout to lower income classes within the next four months. According to the vice president and head of the Management and Planning Organization, Mohammad-Bagher Nobakht, the government has identified those recipients of cash handouts who have no other income and will boost their income through supplementary cash transfers.
* Additionally, retail sector workers and street vendors who have lost their jobs as a result of the crisis will receive an interest-free loan of 20 million rials (about $474 at the official exchange rate). The loan will be repaid over 30 months and it is estimated that about 4 million citizens would receive this grant.
* Empowerment of single mothers through specific workshops to align the capabilities of single mothers with the existing needs in the job market. This will not translate into immediate financial support, but potentially improve the chances of the target persons to secure sustainable jobs.
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