The economy of Iran is a transition economy where a continuing strong labour force growth unmatched by commensurate real economic growth is driving up unemployment to a level considerably higher than the official estimate of 11 per cent. According to experts, annual economic growth above five per cent would be needed to keep pace with the 900,000 new labour force entrants each year.

Government spending as percent of total budget was 6 per cent for health care, 16 per cent for education and 8 per cent for the military in the period 1992-2000 and contributed to an average annual inflation rate of 14 per cent in the period 2000-2004, although some unofficial estimates place the figure above 20 per cent today. Iranian budget deficits have been a chronic problem, in part due to large-scale state subsidies totaling more than $40 billion per year (40 per cent of the government's budget in 2006), including foodstuffs and especially gasoline.

The Government is attempting to diversify away from oil by investing revenues in other areas of the economy, including, car manufacturing, aerospace industries, consumer electronics, petrochemicals and nuclear technology. Also, Iran has a great potential for development in mining, information and communication technology (ICT).

Pre-revolutionary Iran's economic development was rapid. Traditionally an agricultural society, by the 1970s, Iran had achieved significant industrialization and economic modernization. However, the pace of growth had slowed dramatically by 1978, just before the Islamic revolution.

Iran's long-term objectives since the 1979 revolution have been economic independence, full employment, and a comfortable standard of living for its citizens, but at the end of the 20th century the country's economic future was lined with obstacles. Iran's population more than doubled in that period, and its population grew increasingly young. In a country that has traditionally been both rural and agrarian, agricultural production has fallen consistently since the 1960s (by the late 1990s Iran was a major food importer), and economic hardship in the countryside has driven vast numbers of people to migrate to the largest cities.

The rates of both literacy and life expectancy in Iran are high for the region, but so, too, is the unemployment rate, and inflation is regularly in the range of 20 percent annually. Iran remains highly dependent on its one major industry, the extraction of petroleum and natural gas for export, and the government faces increasing difficulty in providing opportunities for a younger, better-educated workforce, which has led to a growing sense of frustration among lower- and middle-class Iranians.

After the end of hostilities with Iraq in 1988, the government tried to develop the country's communication, transportation, manufacturing, energy infrastructures (including its prospective nuclear power facilities) and hospitals & schools and has begun the process of integrating its communication and transportation systems with those of neighbouring states.

Five-Year Economic Development Plan (2005-10)

The Fourth Five-Year Economic Development Plan (2005-10) sets the guidelines and points the direction in which the trade sector will be taking over the next five years. The focus has been on expanding trade interaction with the global community and pursuing an active presence in international markets. To achieve this would require raising exports substantially. Another area of focus has been to develop free trade zones and turning them into gateways to international markets.