Iran’s GDP growth expected to reach 4.5%

Business Materials 3 October 2016 21:52 (UTC +04:00)

Baku, Azerbaijan, Oct. 3

By Emil Ilgar – Trend:

Iran’s GDP growth for the current fiscal year, started on March 21, is expected to reach 4.5%, the International Monetary Fund reported Oct.3.

According to the report, the real GDP rebounded strongly over the first half of the year as sanctions eased post-JCPOA implementation. “Oil production and exports rebounded quickly to pre-sanction levels, helping cushion the impact of low global oil prices. Increased activity in agriculture, auto production, trade and transport services has led the recovery in growth in the non-oil sector. Real GDP is projected to grow by at least 4.5 percent in 2016/17”.

The prudent monetary and fiscal policies adopted in recent years, along with favorable international food prices, allowed CPI inflation (Inflation measured by consumer price index) to decline to a low of 6.8 percent (y/y, point-to-point) in June 2016. Although point-to-point inflation has risen to 9.5 percent in September, IMF estimates inflation is expected to average 9.2 percent in 2016/17.

IMF said that Iranian government is implementing far-reaching, ambitious, reforms to support a sustained acceleration in growth. “To anchor inflation over the medium-term, the authorities have proposed a fundamental overhaul of the monetary policy framework and plan to gradually reduce the non-oil fiscal deficit. They plan to clear government arrears, recapitalize banks and strengthen supervisory powers. New combating the financing of terrorism (CFT) laws have been passed and the government is committed to enhancing safeguards in the financial system to secure better access to the global financial system”. IMF said it sees these reforms as critical if Iran is to harness its re-integration into the global economy to spur growth and become a more market-based, diversified economy.

Vulnerabilities are emerging that could erode Iran’s economic achievements, the report said.

“From the second half of 2015/16 when the economy was weak, the government stimulated growth by directing bank credit to selected sectors and reducing interest rates”.

The report says on current policies, the non-oil fiscal deficit in 2016/17 is estimated to increase by 0.5 percent of non-oil GDP to reach 8.9 percent of non-oil GDP (or 7.7 percent of total GDP). “Oil receipts to the budget are falling short because of the need to repay to the National Development Fund of Iran (NDFI) the funds that were borrowed last year. As a result, the overall fiscal deficit is expected to deteriorate to 2.7 percent of GDP in 2016/17 from 1.7 percent of GDP 2015/16. Moreover, this year’s budget requires additional financing (beyond the funding of this deficit) to proceed with the planned clearance of arrears (R.300,000 bn/2.3 percent of GDP)”.

IMF added that the combination of looser monetary and fiscal policies has fueled rapid growth in monetary aggregates.” International reserves have fallen by about $7 billion since end-March 2016, reflecting valuation changes, the clearance of FX dues to export credit agencies and increased imports post-JCOPA implementation”.
Provisional estimates suggest public debt could be as high as 40 percent of GDP once government arrears to the private sector are recognized.