_________________________________________________________________________________________________________________________________________________________ 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. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York The Economist Intelligence Unit The Economist Intelligence Unit 20 Cabot Square The Economist Group London 750 Third Avenue E14 4QW 5th Floor United Kingdom New York, NY 10017, US Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500 Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248 E-mail: [email protected] E-mail: [email protected] Hong Kong Geneva The Economist Intelligence Unit The Economist Intelligence Unit 1301 Cityplaza Four Rue de l’Athénée 32 12 Taikoo Wan Road 1206 Geneva Taikoo Shing Switzerland Hong Kong Tel: +852 2585 3888 Tel: +41 22 566 24 70 Fax: +852 2802 7638 Fax: +41 22 346 93 47 E-mail: [email protected] E-mail: [email protected] This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting a local sales representative. The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search engine can be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mail when new reports become available. Copyright © 2017 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. 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 2 Political stability 4 Election watch 4 International relations 5 Policy trends 5 Fiscal policy 6 Monetary policy 6 International assumptions 7 Economic growth 7 Inflation 8 Exchange rates 8 External sector 8 Forecast summary Data and charts 9 Annual data and forecast 10 Quarterly data 11 Monthly data 12 Annual trends charts 13 Monthly trends charts 14 Comparative economic indicators Summary 14 Basic data 16 Political structure Recent analysis Politics 19 Forecast updates 23 Analysis Economy 29 Forecast updates 33 Analysis Country Report June 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 2 Highlights Editor: Mohamed Abdelmeguid Forecast Closing Date: May 23, 2017 Outlook for 2017-21 Political stability under the reformist president, Hassan Rouhani, who secured a second presidential term in the May election, will be weakened by polarisation between his camp and his conservative opponents. Despite the 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 Mr Rouhani was re-elected by a big margin in the presidential election held on May 19th. The president will use his second term to advance his policy agenda based on economic liberalisation and social reform. On May 17th the US administration renewed sanctions relief for Iran. The move reflects an understanding that, given opposition from the major powers in Europe and Asia, the US will not be able (unilaterally) to reimpose the international sanctions against Iran that were lifted following the nuclear deal. Iran has resumed crude oil supplies to the regime of the Syrian president, Bashar al Assad. The development is an indication of how invested Iran is in the regime's survival, given that Syria has yet to pay for previous Iranian supplies. More than 2,000 computers in Iran have been infected by the global outbreak of WannaCry—malware that targets Microsoft Windows operating systems and locks files until a ransom is paid to hackers using digital Bitcoins. Farid Dehdilani, an international adviser at Iran's state-run Privatisation Organisation, has said that his country attracted US$3.6bn in foreign direct investment in fiscal year 2016/17, which ended on March 30th. This is well below the government's target of US$15bn in annual inflows. Outlook for 2017-21 Political stability The Economist Intelligence Unit expects the moderately reformist president, Hassan Rouhani, to continue with gradual economic liberalisation and social reform in his second presidential term, which he secured in the election held on May 19th. Having gained partial sanctions relief for Iran in 2015, with the signing of the Joint Country Report June 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 3 Comprehensive Plan of Action (JCPOA) with world powers. Mr Rouhani has deepened his support base among younger and middle-income Iranians aspiring for greater domestic freedom and economic integration with the outside world. The deal is undoubtedly a positive factor for the economy over the long term, although the effect of the agreement on the wider public has yet to trickle down to young Iranians, who will continue to grapple with limited employment opportunities and stagnant real wages, at least in the early years of the forecast period. 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. Mr Rouhani's reformist drive and diplomatic outreach will be threatened both by resistance among hardliners in Iran and by the US presidency of Donald Trump, whose administration is adopting a far more confrontational approach towards Iran than that of his predecessor, Barack Obama. Although Mr Trump has recently renewed sanctions relief for Iran, he has simultaneously agreed to boost the defence capabilities of the country's main rivals in the region—chiefly Saudi Arabia— through major arms deals. (In February Mr Trump also imposed new sanctions on Iran, after the latter conducted missile tests, which the US contends represented a violation of UN Security Council resolutions.) 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 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, the hardliners will continue to interfere in daily decision­making, 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.