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How the Rouhani administration can contain excess liquidity

In the absence of genuine reforms that will allow the adoption of more prudent fiscal, monetary and foreign currency policies, the Iranian economy will remain structurally crisis-ridden.
Iranian rials are seen at a currency exchange shop in Baghdad, Iraq August 8, 2018. REUTERS/Khalid Al-Mousily - RC17F50AED10

Inflation is quickly rising in Iran on the back of a continuous and uncontrollable growth of liquidity. Two basic factors explain the ongoing slump in the economy. One is the ineffectiveness of the government's fiscal policies. The other is the monetary objectives of the Central Bank of Iran (CBI); these are frequently dictated by governments, including that of President Hassan Rouhani. As a result, the Iranian banking system has been consistently used as the main apparatus to finance the budget deficits of state bodies, whether under critical or normal circumstances.

Public finances have been routinely misallocated and squandered due to inefficiencies in fiscal policy and factors such as dysfunctional supportive policies, direct distribution of public resources among citizens and enterprises, subsidies for energy, direct government intervention in price making, low public sector efficiency, large government size and lack of budget transparency.

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