Country Report Iran May 2017
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_________________________________________________________________________________________________________________________________________________________ Country Report Iran Generated on November 13th 2017 Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom _________________________________________________________________________________________________________________________________________________________ The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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ISSN 2047-5020 Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Iran 1 Iran Forecast Highlights Outlook for 2017-21 3 Political stability 4 Election watch 4 International relations 5 Policy trends 5 Fiscal policy 6 Monetary policy 6 International assumptions 7 Economic growth 8 Inflation 8 Exchange rates 8 External sector 9 Forecast summary Data and charts 10 Annual data and forecast 11 Quarterly data 12 Monthly data 13 Annual trends charts 14 Monthly trends charts 15 Comparative economic indicators Summary 15 Basic data 17 Political structure Recent analysis Politics 19 Forecast updates 27 Analysis Economy 35 Forecast updates 35 Analysis Country Report May 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 2 Highlights Editor: Mohamed Abdelmeguid Forecast Closing Date: May 12, 2017 Outlook for 2017-21 Political stability under the reformist president, Hassan Rouhani—whom we expect to secure a second presidential term in the May polls—will be weakened by polarisation between his camp and his conservative opponents. Despite the new US administration's hostility to the nuclear deal (and intro duction of new sanctions), we expect Iran to remain committed to its terms in order to retain the economic gains of the agreement and to isolate the US. We expect Iran's fiscal account to record modest (but widening) deficits in 2017 21 as a rampingup of capital spending is partly offset by rising oil revenue on the back of higher prices (compared with 2015 16) and output. Real GDP growth in Iran is set to surpass that in the rest of the Middle East as (non-US) inward investment rises. We expect growth to pick up from an estimated 4.6% in 2016/17 to an annual average of 5.6% in 2017/18-2021/22. The official rial rate will weaken markedly in 2018, in line with the government's (delayed) plan to merge it with the market rate. The pace of depreciation will then slow, with the rial averaging IR46,821:US$1 in 2021. We forecast that the current account will remain in surplus in 2017 21, buttressed by rising oil and non-oil exports, which will partly offset a growing import bill (on the back of pent-up demand and rising investment). Review A former reformist president, Mohammed Khatami, has announced his backing for the candidacy of Mr Rouhani for the May 19th presidential election. The former president's endorsement increases the chances of Mr Rouhani securing a second presidential term. Iran's army chief, Major General Mohammad Baqeri, has warned that his forces would target Sunni militants in Pakistan if the latter did not effectively contain terrorist activities on the border between the two countries. The long-running dispute over border security will weigh on bilateral ties. The EU has extended human rights sanctions against Iran for another year, to 2018. Introduced in 2011, the EU sanctions impose a travel ban and asset freeze on 82 individuals and also ban the export to Iran of sensitive tele communications equipment. Iran's exports to the EU surged to €5.49bn (around US$6bn) in 2016, from €1.26bn in 2015, according to Miguel Arias Cañete, Spain's European Commissioner. Rising oil production will remain the main contributor to higher export revenue during the forecast period. Country Report May 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 3 Outlook for 2017-21 Political stability The Economist Intelligence Unit expects the incumbent, moderately reformist president, Hassan Rouhani, to win a second four-year term in the May 19th presidential poll. With the economy at the centre of the election debate, Mr Rouhani is touting the 2015 Joint Comprehensive Plan of Action (JCPOA)—the international agreement over Iran's nuclear programme—as a success. The deal is undoubtedly a positive for the growth over the long term, although the effect of the agreement on the wider economy is yet to trickle down to young Iranians, who continue to grapple with limited employment opportunities and stagnant real wages. In addition, there is resistance among vested interests—especially religious foundations and the Islamic Revolutionary Guards Corps (IRGC)—to the present government's notion of increasing competition and transparency as part of fostering a more vibrant private sector. Nonetheless, Mr Rouhani will benefit from the fractious nature of the hardline conservative camp. Assuming he wins a second term, Mr Rouhani's reformist drive and diplomatic outreach will be threatened both by resistance among hardliners in Iran and by the presidency of Donald Trump, whose administration is adopting a far more confrontational approach towards Iran than that of his predecessor. This US stance will encourage Mr Rouhani's opponents in Iran, who fear that the JCPOA might lead to broader political change. Amid this in fighting, the position of the supreme leader, Ayatollah Ali Khamenei, will be crucial in maintaining stability. He will seek to strike a balance between the two sides: generally supporting the JCPOA and being non-committal on foreign investment, while maintaining a negative approach towards social and political reform and the US. However, such an uneasy balance will prove difficult to maintain. In particular, the heightening of confrontational rhetoric between Iran and the US following Mr Trump's inauguration and subsequent introduction of new US sanctions in February will result in increased pressure from Iranian hardliners to withdraw from the JCPOA. Nonetheless, we expect Ayatollah Khamenei to stick with the JCPOA, reflecting a desire not to jeopardise rising investment from abroad and a calculation that Iran has an opportunity to isolate the US from other world powers (which are likely to remain committed to the agreement). In any case, even assuming a Rouhani victory in the election, the hardliners will continue to interfere in daily decision- making, with, notably, the intrusions of the unelected Guardian Council (a vetting body dominated by hardliners) proving a continual source of irritation for the president and his pro-business cabinet. This situation will be exacerbated by the unpredictable interventions of the IRGC in the country's political and economic spheres, as well as the residual dominance of vested business interests. As a result, political and social reform will be stifled, and economic liberalisation will proceed inconsistently. Amid these political machinations, speculation about the position and future of Ayatollah Khamenei will increase, reflecting his age and the state of his health; the 77 year old underwent prostate cancer surgery in 2014. However, the identity of Ayatollah Khamenei's potential successor remains uncertain, with the orientation of the Assembly of Experts—which selects the supreme leader—also unclear; although reformists performed strongly in the February Assembly of Experts election, the body subsequently chose a hardliner, Ayatollah Ahmad Jannati (who is also head of the Guardian Council), as its chairman. However, Ayatollah Jannati is too old to be a realistic prospect for supreme leader (he is 90), and so Ayatollah Khamenei's successor will almost certainly come from the next generation. Country Report May 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 4 Election watch The next presidential poll is due to be held on May 19th.