Editorial
Iran’s economy has reached a point where its difficulties can no longer be explained away as the product of temporary shocks or short-term policy mistakes. Chronic inflation, persistently weak or even negative economic growth, investment levels that fall short of covering capital depreciation, and a steady erosion of household welfare toward widespread poverty all point to a deeper problem: entrenched structural imbalances.
In such circumstances, reactive and stopgap policies are ineffective. What is required instead is a coherent framework that can clearly map a path out of the current impasse.
At the heart of this challenge lie three interlinked deadlocks that continue to trap the Iranian economy.
The first is the government’s fiscal imbalance. Chronic budget deficits—both explicit and hidden—have been the single most powerful engine of inflation in Iran.
As long as the budgets of state-owned enterprises, quasi-governmental foundations, pension funds and various public institutions remain fragmented and opaque, fiscal discipline will remain elusive.
When deficits are routinely financed through monetary expansion or pressure on the banking system, lasting disinflation becomes impossible.
Integrating these disparate budgets into a transparent, unified fiscal framework is a prerequisite for restoring discipline and credibility. In Iran, inflation control is less a purely monetary challenge than a fundamentally fiscal one.
The second deadlock is economic isolation driven by sanctions. Sanctions have sharply raised transaction costs and cut Iran off from global trade, investment and financial networks.
Negotiations to lift sanctions will not, by themselves, solve all economic problems. However, they can reshape expectations, improve the planning horizon for businesses and policymakers, and give banks and the private sector much-needed breathing space.
Past experience suggests that domestic reforms undertaken under conditions of isolation are both costly and weak in impact. Worse still, prolonged isolation has normalized smuggling and informal channels, undermining transparency and governance across the economy.
The third deadlock lies in institutional weakness and an unfriendly business environment. Here, the creation of genuinely functional free trade zones could play a pivotal role.
Such zones should not become hubs for imports or rent-seeking, as has often been the case, but instead serve as engines of institutional reform.
Truly effective free zones must be exempt from excessive mainland regulations, allow free entry and exit of capital, and be firmly connected to global value chains. Properly designed, they can function as laboratories for reform, allowing successful policy experiments to spread gradually from the bottom up to the wider economy.
These three policy axes are not independent. Without fiscal reform, the gains from sanction relief will be fragile. Without sanction relief, domestic reforms will remain slow, expensive and politically difficult. And without genuine free zones, institutional reform risks remaining little more than rhetoric.
Only through the simultaneous and coordinated pursuit of all three can Iran’s economy move from a mode of mere survival toward durable stability and sustainable growth.
