Tillerson's remarks may dash hopes for boosting Iran's economy

Tillerson's remarks may dash hopes for boosting Iran's economy

Baku, Azerbaijan, Apr. 20

By Farhad Daneshvar – Trend:

While Iranian government largely sees foreign investment as a catalyst for economic growth in a post sanctions-era, the recent remarks by US Secretary of State Rex Tillerson on a 2015 nuclear deal have cast shadow over the future of Tehran’s economic plans.

"An unchecked Iran has the potential to travel the same path as North Korea and to take the world along with it," said Tillerson claiming the nuclear accord represents the "failed approach" of the past.

Following the implementation of the Joint Comprehensive Plan of Action (JCPOA aka nuclear deal) in January 2016, the oil-producing Iran drew up a plan to rebuild its depressed economy through luring $30-$50 billion per year in foreign investment which would eventually contribute to hitting the target of eight percent economic growth.

Over the past decade, international community in a bid to curb Tehran's nuclear activity imposed crippling sanctions on Iran’s economy making a catastrophic impact on the nation’s economic situation and life conditions.

The world’s major powers agreed to ease the sanctions in exchange for Iranian limits on its nuclear program under the JCPOA.

Many observers and critics of the moderate Iranian President Hassan Rouhani suggest that his administration has failed to meet its economic promises as the life standards of the ordinary people have not improved after the implementation of the nuclear accord.

Coming to foreign investments, the country has only approved plans for luring worth of about $10 billion of foreign investment since the nuclear deal was implemented last January - which obviously lags behind the drawn plans.

However, the International Monetary Fund (IMF) through its latest report (February 2017) suggested that Iran’s economic growth rebounded over the course of 2016/17 on the back of higher oil production. Real GDP grew by 7.4 percent in the first half 2016/17, rebounding from recession in 2015/16.

The IMF report added that growth in the non-oil sector averaged 0.9 percent, despite the pick-up registered in the second quarter, reflecting continued difficulties in access to finance and domestic financial sector and structural weaknesses.

In the meantime inflation in Iran has declined to single digits and has hovered in the 9.5 percent range, year-on-year, since mid-2016. According to the IMF, growth is projected to stabilize at 4.5 percent over the medium-term as the recovery broadens. Real GDP growth is expected to reach 6.6 percent in 2016/17 and to ease to 3.3 percent in 2017/18 as oil production remains at the OPEC target.

Thereafter, higher foreign direct investment (FDI) and a gradual improvement in domestic financial conditions drive investment and stronger non-oil sector growth.

Despite all economic forecasts, if the US decides to continue its unilateral sanctions on the Islamic Republic, the international companies would run into difficulty to do business in Iran concerning repercussions from the US, which would spoil all efforts to encourage foreign investment.

Obviously any effort to shape sustainable economic development in Iran is doomed to fail without foreign investment. And this would eventually worsen unemployment and plunge the country deeper into recession, exposing the fatal flaw in Rouhani’s economic policy just ahead of next month’s presidential elections.

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