Analytical Report: The Return of Stagflation; Iran's Economy on the Path to Collapse
Economy Author: Shoresh Mohi
In the latest report by the World Bank, published in May 2025, a serious warning accompanies the outlook for Iran's economy: the country is once again entering negative growth, and inflation is on an upward trajectory. This assessment presents a concerning picture of Iran's economic future, indicating a full entry into a period of stagflation—a situation where economic stagnation occurs alongside high inflation, considered one of the most challenging economic scenarios for any country. Macro Estimates: Declining Growth, Surging Inflation According to the World Bank report, Iran's economic growth rate is expected to reach negative 1.6% by the end of the current fiscal year. Meanwhile, the inflation rate is projected to rise to 42%. These two indicators clearly show that Iran's economy is not only failing to recover and revitalize after sanctions but is also mired in structural inefficiencies, systemic corruption, and economic mismanagement. Analysis of Factors Contributing to Iran's Economic Decline 1. Sanctions and International Isolation: The return of U.S. sanctions following its withdrawal from the JCPOA and the inability to revive it have deprived Iran's economy of access to international currency resources and foreign investment. This situation has led to currency shortages, increased production costs, and reduced imports of essential and industrial goods. 2. Structural Corruption and Lack of Transparency: Iran's economic institutions are plagued by widespread corruption and rent-seeking behavior. A significant portion of the national budget is allocated to military and religious institutions without accountability or oversight regarding how these resources are spent. This not only erodes public trust but also hinders optimal resource allocation. 3. Decline in Domestic Investment and Capital Flight: Economic instability, lack of investment security, and political pressures have deterred both domestic and foreign investors from entering Iran's economy. Meanwhile, capital flight and the emigration of skilled professionals have accelerated. 4. Social and Political Pressures: Recent protest movements, particularly during the "Women, Life, Freedom" campaign, have increased the government's security costs and intensified repression. This environment has not only created public unrest but has also disrupted economic activities. Stagflation; A Multi-layered Crisis Stagflation is a phenomenon that rarely occurs in economies and indicates deep-rooted structural problems. In Iran, this situation arises from the combination of declining GDP with continuously rising prices; that is, both the people's livelihoods are shrinking, and their purchasing power is diminishing. This scenario exerts severe pressure on the middle and lower classes and can pave the way for broader social unrest. Future Outlook; Without Reforms, Collapse is Likely The World Bank report offers no signs of immediate improvement in Iran's economy. In the absence of fundamental reforms—such as budget structure transparency, ending unaccountable institutionalism, and opening up international relations—Iran's economy will continue on a path toward collapse. The social consequences of this collapse may become more pronounced in the coming months and years. The World Bank's report serves as a clear warning to the Islamic Republic system and the people of Iran: the country's economy has reached a critical point that can only be salvaged through structural changes and an end to repressive policies and international isolation. Continuing the current situation will only lead to increased poverty, widespread protests, and further degradation of economic infrastructure.
0
0