Inflation and weak rial push Iran’s middle class towards poverty

As she points to the empty shelves of her freezer, Nahaal sighs, remembering how they used to be stuffed with meat and delicacies.

Now she can barely make ends meet. “I have never felt under such financial pressure in 15 years of married life,” the 43-year-old retired secretary says in her rented apartment in Motahhari, a central Tehran neighbourhood.

“My husband and I have forgotten about our own needs – sometimes we even forgo medical treatment – and we only focus on education, food and the health of our daughter.”

Maintaining a decent lifestyle is increasingly challenging for middle-class Iranians like Nahaal and her husband Ali, a computer engineer whose earnings have lagged behind Iran’s annual inflation of 40 per cent (unofficial estimates say the real figure is double this) and have been affected by the plunge of the rial by around 50 per cent over the past year.

The country’s economy has deteriorated rapidly thanks to oil and banking sanctions imposed by US and European Union over Tehran’s nuclear programme, and because of the populist policies of former president Mahmoud Ahmadi-Nejad, who doled out monthly cash payments and gave cheap housing loans to the poor.

Consumer prices have risen consistently as domestic industry has stagnated, GDP has shrunk by 5.4 per cent over the past year and youth unemployment is officially estimated at 28.30 per cent.

During Mr Ahmadi-Nejad’s eight-year tenure, the percentage of Iranian families living under the poverty line increased from 22 per cent to more than 40 per cent, according to Hossein Raghfar, a prominent economist who warned that middle class families like Nahaal and Ali’s are feeling increasingly insecure as they see their living standards deteriorate.

Until two years ago, Nahaal and Ali spent most weekends enjoying dinner parties and lunches with relatives and friends. Over rich Persian dishes, talk would revolve around the latest mobile phones and laptops, the best schools and buying apartments.

Then the economic crisis started to bite.

Now Nahaal says her family is invited to a party “maybe” every other month, and the food on offer is much simpler. “While I’m eating I think how much it will cost us when we reciprocate that lunch or dinner,” she says. “And worse than that, everyone just talks about how difficult life has become and how it may even get worse, which stresses me out more.”

About half of Ali’s salary goes toward paying rent – around $500 per month – leaving him unable to save any money. He also has to repay a loan he took out in the summer to treat the family to a four-day holiday to the southern Island of Kish, which cost about $1,500. “I earn a weak rial and spend expensive dollars,” he says.

The election of Hassan Rouhani, the new centrist president, has given Ali and Nahaal a glimmer of hope. Mr Rouhani came to office promising to alleviate hardship through a combination of economic reforms and easing sanctions through nuclear talks negotiations with the major powers.

The couple say they voted for Mr Rouhani and hope his moderation will at least prevent the economy from getting worse. “Rouhani has so far done a good job on nuclear policy and in dealing with the US, like speaking with [President Barack] Obama by telephone,” Ali says.

“His victory has not improved our economic situation yet, but we have no choice but to hope that he can get the sanctions lifted gradually and honourably without sacrificing the nuclear programme or submitting to the US’s bullying.”

But Ali is realistic about the challenges ahead. His salary has been paid late for several months in a row, even though he works for one of Iran’s richest entities, the quasi-state-owned Social Security Organisation.

The organisation lent IR540tn ($21.7bn) to the previous government, which is now part of the IR1,800tn ($72.5bn) debt Mr Rouhani last week said his government has inherited.

The massive debt plus a budget deficit that is unofficially estimated to be as high as $28bn prompted the parliament on Wednesday to revise the budget to accommodate a projected 30 per cent decrease in revenue this fiscal year, which ends in late march. The government warned that it would not be able to pay public-sector salaries without the budget revision.

To further narrow the deficit, the government is to exclude millions of better off Iranians from a monthly cash payment of about $18 designed to compensate the slash in subsidies on energy and basic commodities.

“If this applies to us, we will be under even more pressure,” Ali says.

The couple say they have given up on their dream of owning the apartment they rent. “I have little doubt now that I have to take that dream to the grave,” Nahaal says. “We will be very lucky if we are not forced to sell our carpets or move to a poor neighbourhood in southern Tehran.”

The Financial Times Limited 2013.