Iran is ranked 170th out of 177 countries for economic freedom in the latest annual report by the US think tank Heritage Foundation.
With an overall score of 42 out of 100, Iran ranked lowest among 14 Middle Eastern countries included in the Economic Freedom Report survey, which is an authoritative comparative source on the subject. The latest report is the 28th annual edition.
Turkey, with a score of 57, is 107th in the world, while Saudi Arabia with 55.5 is 118th. The United Arab Emirates has a high score of 70 and ranks 33rd in the world.
The index measures economic freedom based on 12 quantitative and qualitative factors grouped into four categories: rule of law, size of government, regulatory effectiveness and open markets.
The report says that over the past five years, Iran has experienced only an average annual growth of 1.2%, accompanied by a decline in economic freedom.
“Sinking under the weight of steep declines in fiscal health and business freedom scores, Iran has seen an overall loss of economic freedom of 8.1 points since 2017 and has fallen further into the ‘Repressed’ category,” says The report.
Of the index’s 12 indicators, Iran has regressed on 10 of them. Only taxation and public spending “do not weigh heavily on the economy”.
The sanctions imposed by the United States since 2018 have had a serious impact on the Iranian economy, however, many indicators of economic freedom are factors related to national governance and the political and economic system of the ruling Islamic Republic.
“Iran’s economy, one of the most advanced in the Middle East before 1979, has since been undermined by mismanagement, international sanctions and widespread corruption under a repressive Islamic government dominated by Shia religious authorities. “, says the report, providing examples of peculiarities that undermine the economy.
The corrupting economic role of the Revolutionary Guards, IRGC, is one of the most important aspects of the state-run economy. The general category of ‘rule of law’ factors is strongly affected by the role of the military and the lack of independence of the judiciary.
“Iranians have the legal right to own property and set up private businesses, but powerful institutions such as the Revolutionary Guards limit fair competition and entrepreneurial opportunities. The judiciary is not independent of the Supreme Leader,” the report summarizes.
In the broad category of “regulatory efficiency”, the study shows that “the bloated public sector and companies controlled by Iranian security forces put private business owners at a disadvantage”.
Iran has regressed on government integrity, fiscal health, business and labor freedom and has historically scored very low (only 5 points out of 100) on investment freedom. This is a particular question that is generating debate on the impact of international sanctions. While it is easy to see that international restrictions can harm foreign investment, Iran’s political and economic system has generally been inhospitable to all kinds of investmentsand it played a major role in keeping growth at anemic levels for four decades.
The reason for the lack of investment-friendly policies is nepotism, graft, and the important part of the army in the economy. A more open economic system will lead to more competition, which is incompatible with the vested interests of regime insiders.
The same factors have prevented the country from adhering to international conventions on financial transparency, anti-money laundering regulations and the prohibition of terrorist financing. Since 2017, the regime has refused to pass laws reforms required by the Financial Action Task Force, an international watchdog. As a result, even if US sanctions are lifted, Iran’s global banking relationships will remain severely restricted.
The ruling system, instead of relying more on an open economy and investment, has depended on revenues from oil exports and the resulting vulnerability to international sanctions.