The impact of COVID-19 on poverty in Iran is severe. The pandemic accelerated the decline of Iran’s Gross Domestic Product (GDP) and the rise of unemployment. Despite the economic crisis, Tehran’s massive natural resources allow the country to effectively recover economically if the newly elected Ebrahim Raisi is willing to end the country’s decades-long hostility with the United States.
The US Sanctions and Economic Crisis Before COVID-19
Before analyzing the impact of COVID-19 on poverty in Iran, one needs to understand the context in which the pandemic took place. In May 2018, under President Trump, the U.S. withdrew from the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). As a result of the U.S. withdrawal, a “maximum pressure” campaign that consisted of unilateral sanctions against the Middle Eastern country replaced the Obama-era Iran foreign policy.
The sanctions contributed significantly to the downfall of Iran’s economy. The country’s GDP went down by 11% and average living standards have reduced by 13%. The “maximum pressure” campaign also caused an inflation shock. The sanctions cut oil exports, which reduced the supply of foreign exchange and resulted in hyperinflation. For example, the sanctions were one of the main reasons for prices rising by 41% in 2019.
How COVID-19 Worsened Iran’s Economic Crisis
The pandemic has further accelerated the crisis of the already declining Iranian economy. The mismanagement of the COVID-19 outbreak resulted in Iran being one of the worst impacted countries in the world, with almost 94,603 deaths and more than four million overall cases. Considering how widespread the highly transmissible Delta variant is and the fact that only about 4% of the country’s 83 million citizens are fully vaccinated, the future seems even more pessimistic.
Observing the health effects of the pandemic, it is not surprising how severely COVID-19 damaged Iran’s economy. In 2020, an estimated three to four million Iranians were at risk of losing their jobs, with the potential of increasing the actual (not official) unemployment rate from 20% to more than 35%. The country’s GDP shrunk by 5% in 2020 and inflation nearly doubled from February 2020 to February 2021. The COVID-19 pandemic caused a decline in GDP and an increase in public spending led the government to take extensive debt and sell its assets on the stock market. As a result, the fiscal deficit-to-GDP ratio more than doubled.
The Lives of Impoverished Iranians During the Pandemic
COVID-19 forced working-class, low-income Iranians to choose between their health and earning a basic income necessary for physical survival. In previous decades, the combination of charity work and welfare ministry, which provided financial assistance to economically vulnerable families, managed to maintain poverty below the 10% threshold. However, sanctions and the pandemic have put the survival of millions of Iranians, particularly informal and daily workers, at risk.
Around six million Iranians (a quarter of the overall workforce) work in the informal economy and earn daily wages. They often have no fixed salaries, minimal or no savings and little insurance from the social protection programs. Although these workers face a greater risk of infection, their financial situation does not allow them to stop working. Due to the fragile economic reality of Iranian people, particularly low-income citizens, the government cannot afford strict quarantine measures because these restrictions can push an additional 20% of Iranians into extreme poverty.
Moreover, according to a World Bank report, consumer price inflation stood at 30.6% from April to November 2020 and reached 46.4% in November 2020. The hyperinflation caused drastic price increases in food and housing, which disproportionally harmed working-class families.
The Way Out of the Economic Crisis
Various international and local nongovernmental organizations work tirelessly to alleviate poverty in Iran. One of the most significant NGOs that provides financial and educational resources for Iran’s vulnerable is Relief International. The organization has been particularly active since the outbreak of COVID-19. Relief International has provided multi-purpose cash assistance for 26,000 families who lost their income due to the pandemic.
Although the work of Relief International and other NGOs is significant for mitigating the impact of COVID-19 on poverty in Iran, NGOs have limited resources. Therefore, the Iranian government should play a greater role in the process of poverty reduction. For easing the short-term economic impact, the government should provide direct income assistance to its vulnerable citizens. More importantly, for a meaningful, long-term change, the Reisi administration should end the four-decade-long animosity with the U.S. and agree to the new nuclear deal. The precedent of the 2015 JCPOA agreement shows that lifting sanctions will reverse the negative economic impact of COVID-19.
– Aleksandre Jgarkava