Islamic Social State:
the Case Study of Iran
Armineh Manookian
Anush Begoyan
CRRC-DAAD Conference on “Social State: Concept,
Armenian Reality and Perspectives“,
February 24-26, Tsakhkadzor
The Content:
i)-Iranian Economy in the Context of Islamic Economy




Principles of Islamic Economy
Iran’s Macroeconomic Conditions after the Islamic Revolution
State Share in the Economy
Privatization debate
ii)-Iran’s Social State




Education
Health
Welfare
Subsidies
iii)-Conclusions
2
Principals of Islamic Economy:
i)-the prohibition of the charging and collection of
interest,
ii)-a system of taxation and redistribution known as
‘zakat’ or ‘sadaqat’,
iii)-accordance of economic decisions to Islam’s
moral principles
3
Iran’s Macroeconomic Conditions after
Revolution
4

Islamic revolution of 1979 redefined all institutions based on
Islamic norms and principles

Centralized economy during Iran-Iraq war (1980-88)

Approve and implementation of five year development plans
(FYDP)

Significant structural reforms in the 3rd FYDP (2000-2004)
 ambitious privatization program ,
 granting the licenses to private banks and insurance companies
 establishment of the Oil Stabilization Fund (OSF),
 …..
Challenges that Iran’s Economy Still Facing

Highly dominated by oil export
(about 60 % of government budget)

Large size of the public sector

Low rate of tax revenue in the government budget
(about 25 % of government’s general revenue)
5

High rate of liquidity (30.2 %)

High rate of inflation (15 %)

High rate of unemployment (10.9 %)

Unsuccessful privatization program of state owned enterprises
State Share in the Economy-Constitution

Article 44 of Constitution of IRI:
Three Sectors in Iranian Economy:
i)-state,
ii)-cooperative,
iii)-private.
State Sector is to include:
“all large-scale and mother industries, foreign trade, major minerals,
banking, insurance, power generation, dams, and large-scale irrigation
networks, radio and television, post, telegraph and telephone services,
aviation, shipping, roads, railroads and the like; all these will be publicly
owned and administered by the State.”
6
Iran's State Expenditure as Percent of GDP
(1959-2005)
60
50
(Percent)
40
30
20
10
0
59
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
Revolution
7
Source: National Accounts, Central Bank of Iran
79
19
81
19
83
19
85
19
87
19
89
19
91
19
Government expenditures as percent of GDP
93
19
95
19
97
19
99
19
01
20
03
20
05
20
Iran's State Expenditure as Percent of GDP
and Crude Oil Price Fluctuations
(1959-2005)
60
60
2nd oil shock
Iran-Iraq War
50
3rd FYDP
40
40
Revolution
8
Government expenditures as percent of GDP
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
0
19
73
0
19
71
10
19
69
10
19
67
20
19
65
20
19
63
30
19
61
30
19
59
(Percent)
1st oil shock
Crude oil price
Source: National Accounts, Central Bank of Iran and http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp for crude
oil price.
(Dollar per Barrel)
50
Total Approved Budget of Iran and Its
Subsections
(In billion of Iranian Rials)
2003
2004
2005
General Government Budget
411,425
474,643
527,788
Banks, State Owned Enterprises and Other
Organizations dependent to Government
554,337
688,921
1,055,969
22,099
23,428
35,817
943,663
1,140,135
1,547,941
1,109,532
1,406,031
NA
37.1
33.8
…
50.0
49.0
…
85
81
…
Less: Duplicated Figures
Total Budget of Iran
GDP at current prices
As percent of GDP
General Government
Expenditures of Banks, State Owned
Enterprises and Other Organizations
Dependent on Government
Total Budget
9
Source: Total Budget Laws of the Islamic Republic of Iran 1382-84 (2003/04-2005/06). Management and Planning
Organization
Government Budget and its Functions as Percent
of GDP
2003
Other
63%
General
Government
37%
2004
General Affairs
2%
General Affairs
2%
Natioanl Defence
2%
Social Affairs
13%
Economic Affairs
4%
Natioanl Defence
2%
Social Affairs
13%
Other
66%
General
Government
34%
Other * 16%
Source: Total Budget Laws of the Islamic Republic of Iran 1382-83 (2003/04-2004/05). Management and Planning Organization.
10
Economic Affairs
3%
Other * 14%
Privatization Debate

Ongoing debate between nationalization and privatization process

Considerable attempts during 3rd FYDP for socio-economic reforms:
–
–

Current conditions:
–
–
–

SOE privatization has not been fully implemented.
privatization of existing banks and insurance companies has not yet occurred.
licensing of four new private banks and insurance companies
Main obstacle:
–
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Reforms aimed at reducing the state control over the economy.
Ambitious privatization programs of state owned Enterprises (SOE), banks and
insurance companies,
Current interpretation of Article 44 of the Constitution
Iran’s Social State
Education

Article 30 of Constitution:
“The government must provide all citizens with free education up to secondary
school, and must expand free higher education to the extent required by the
country for attaining self-sufficiency.”

the largest share in the government spending (24%)

Three types of Institutions: public, nonprofit and private institutions

In 2003-04 academic year:



12
16 million students covered by Ministry of Education.
49 percent of the total 1.9 million university students are in the public universities
university female students comprise 52 percent of the total students
Health

over 85 percent of the population has access to health services

currently the lowest share in the government spending (5%)

public health centers, private health network and insurance-company-based
voluntary schemes

In 2004:


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beneficiaries of “Medical Services Insurance Organization”: 32.6 million persons
(approximately 50 percent of population).
Out of the total number of beneficiaries, 73 percent are villagers
Welfare

Article 29 of Constitution refers to Social Security issue:
“…the government must provide services and financial support for every individual
citizen by using national revenues and funds obtained through public contributions.”
Two types of welfare system:
i)-contributory social security systems
ii)-noncontributory social assistance and relief institutions


Contributory System:


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in 2004: 2,000,000 pensioners covered by two major organizations. (60 % of population over
65 years old.)
Non Contributory System: strong organizations known as “bonyads”
“Bonyads”

involved in:
-financial holdings, business and welfare and social affairs

Targeted at:
-mainly “revolutionary movements” groups, veterans and families of martyrs.

Main Sources from:
-net income of their asset holdings,
-government transfers
-charitable contributions including zakat,

All the bonyads are supervised directly by the Supreme, religious leader.

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important issues:
-control a large part of social-economic activities
-non transparent operation and relations with the public sector
-serious issues regarding their accountability
-during 3rd FYDP some positive movements to make the activities of bonyads more transparent
and accountable.
Subsidies

Explicit subsidies: 5% of GDP
for basic necessities including wheat, sugar, milk, cheese, rice
and vegetable oil, fertilizers, and foreign exchange losses generated
from the 1993 and 2002 exchange rate unifications.

Implicit energy subsidies: 10.5 percent of GDP
These arise from the differential between domestic and border prices.
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How are the Equity and Human
Development Indices in Iran?

The Gini coefficient: 43 (UNDP report)
(range for 124 countries is between 24.7 and 70.7)
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
Iran’s Human Development index: 99 among 177 (UNDP report)
(Medium development group)

Population below poverty line: 21 % in 2002 (IMF country Report)
Large involvement of the state, but poor result.
WHY?

Poor public administration
–

inefficient operation, centralization of the power in the hand of
selected group, incomplete and non transparent information,
underdeveloped infrastructure
Political and religious dominated environment and
Islamic charity organizations
-bias distribution of resources

Non transparent operation
-encourage the shadow economy

General, untargeted subsidiary system
-benefits are distributed to all members of country equally

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The small role of tax in the economy
Concluding General Remarks:
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
rich natural resources and the availability of large revenues through
these sources not necessarily provide for the welfare and prosperity of
society.

The importance of good governance, effective public administration
and protecting citizens through targeted regulations and guarantees

The large provision of public services and some explicit subsidies for
basic goods In Iranian economy can hardly have any direct and
significant influence on the economy of Armenia

Some impacts on Armenian economy through Iran’s implicit energy
subsidies which affect final prices of goods produced by Iranian
industries, which requires a separate study focusing on the positive
and negative effects of it
Thank you