Population 76.117 million
GDP 483.78 US$ billion
@rating
country
Business climate
assessment
| 2010/11 | 2011/12 | 2012/13(e) | 2013/14 (f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
5.9 |
1.7 |
-3 |
-1 |
|
Inflation (yearly average) (%)
|
12.5 |
20.5 |
30 |
21 |
|
Budget balance (% GDP)*
|
1.5 |
-1 |
-4.5 |
-5.3 |
|
Current account balance (% GDP)
|
5 |
5 |
-1.8 |
-1.2 |
|
Public debt (% GDP)
|
17 |
18 |
18.5 |
20 |
| (e) Estimate (f) Forecast * fiscal year beginning the 21th of March |
||||
STRENGTHS
- Second largest OPEC oil producer and extensive gas reserves (second in the world after Russia)
- Very low external debt
- Important cultural heritage
WEAKNESSES
- Economic and financial situation still dependent on hydrocarbon revenues
- UN sanctions, toughened by the USA and the EU because of the Iranian nuclear programme
- Unfavourable business climate and insufficient investment
- Political and social tensions
Risk assessment
Recession attributable to the tightening of international sanctions and persistence of high inflation
The economy has gone into recession due to the tightening of international sanctions. Oil, industrial and commercial activity is curbed by the very negative effect of the strengthening of these sanctions, while household consumption (the main component of GDP) is affected by the reduction of subsidies, increased unemployment (particularly among the young) and sharp price rises.
Inflationary pressures remain very strong due to the gradual elimination of subsidies on everyday products since the end of 2010, the sanctions and the collapse of the rial.
Widening fiscal deficit and appearance of a current account deficit, but a still fairly comfortable external financial situation
The public accounts benefit from hydrocarbon revenues, which represent two thirds of tax income, and a policy of the gradual elimination of costly subsidies (10% of GDP). However, due to the decline in activity and the negative impact of international sanctions on hydrocarbon exports, the fiscal deficit will deepen sharply during 2013 (straddling two fiscal years). Nevertheless, although set to rise, the public debt level will remain sustainable. Moreover, the country has a reserve fund for future generations.
The external accounts will be in deficit in 2013, despite high world oil prices. Oil sales will diminish due to a production fall-off – attributable to inadequate investment in modern technology – but additionally to international sanctions which also curb non-oil exports. At the same time, despite the need to import a proportion of refined fuel, the import bill is expected to decline because of restrictions imposed by the authorities and sanctions which complicate the financing of foreign trade.
Iran’s external financial position is likely, however, to remain fairly comfortable because of very low external debt at around 3% of GDP. However, the level of foreign exchange reserves is falling and will represent the equivalent of 10 months’ imports in 2013. Indeed, the collapse of the rial, linked to the sanctions and possible capital flight, linked to political uncertainties, constitute important weakness factors.
Domestic political tensions and further tightening of international sanctions affect the pace of business
The March 2012 parliamentary elections were won by ultra conservatives favourable to the Supreme Leader (ultimate religious and political authority), the Ayatollah Ali Khamenei. President Ahmadinejad’s faction obtained only a third of the seats, which further reduces his room for manoeuvre, while he is accused of bad economic management and blamed for the country’s increased diplomatic isolation. In the run up to the June 2013 presidential election – the end of the current president’s second and final term – tensions are intensifying between the regime’s rival conservative factions, but the victor will probably be from the Ayatollah Khamenei’s camp.
Meanwhile, a report from the International Atomic Energy Agency on the advanced state of the Iranian nuclear programme led to a further toughening of international sanctions at the end of 2011. Western governments also tightened their sanctions by prohibiting most financial transactions with Iran and by instituting an oil embargo from July 2012. However, any shift in Iran’s nuclear policy is unlikely before the June 2013 presidential election, while the risk of an Israeli attack on Iranian nuclear installations during the first half of 2013 seems to have lessened.
The new sanctions weigh heavily on the different economic sectors and push the country to greater self-sufficiency. They also influence a business environment already affected by the worsening political climate and institutional shortcomings.
Because of the suspension of the activities of western firms, Iran is developing its trade notably with China, India and Turkey. These countries are interested in Iranian hydrocarbons and are likely to contribute to necessary investment in the energy and petrochemical sectors. These new trading partners, however, use the sanctions as an excuse for trying to obtain preferential terms from their Iranian suppliers, while, moreover, being likely to suffer payment defaults on the part of Iranian buyers, particularly in connection with imports of agricultural products.
