Country Forecast Iran December 2017 Updater

Country Forecast Iran December 2017 Updater

  • December 2017 •
  • Report ID: 358979 •
  • Format: PDF


  • 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 on May 19th. However, political disagreements over political and economic reform will intensify as the reintegration of Iran into the global community prompts a backlash by hardliners. Mr Rouhani will therefore continue to face criticism from opponents. The issue of choosing a successor to the supreme leader, Ayatollah Ali Khamenei, will also loom larger in 2018-22.
  • The more confrontational approach of the US administration will cause a sharp deterioration in bilateral ties with Iran, although the US is unlikely to withdraw from the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. With the EU, China and others likely to remain committed to the JCPOA, and the government keen to maximise inflows of inward investment, we expect Iran to continue to adhere to the agreement's conditions.
  • Buttressed by a relatively supportive parliament, Mr Rouhani will seek to step up economic reform. This will include easing foreign investment laws, implementing revised contracts for international oil firms and seeking to draw the bonyads (charities with extensive business interests) and firms connected to the Revolutionary Guards into the tax system. However, progress will be halting, in the face of resistance by vested interests close to the supreme leader.
  • The public finances will be supported by the easing of sanctions and a recovery in oil export volumes. However, with the government keen to ensure a post-sanctions windfall, spending on infrastructure will be ramped up, leading to a widening of the fiscal deficit in 2018/19-2022/23 (March 21st-March 20th).
  • We expect growth to average 5.7% a year in 2018/19-2022/23, helped by the lifting of sanctions on Iran's energy and financial sectors. The current-account position will be supported by rising oil exports, but the surplus will narrow steadily as imports surge and non-merchandise outflows (especially profit repatriation) increase.
  • Inflation will rise to an average of 11.4% in 2018, as the weakening currency pushes up the cost of imports. Nevertheless, as the rate of the rial's depreciation gradually slows following unification of the dual exchange rates in early 2019, and rising foreign investment, inflation will ease to an average of 8.9% in 2019-22.


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