BAKU, Azerbaijan, August 3. Iran’s GDP growth is projected to remain modest in the medium term, as the economy remains constrained by both global and domestic growth bottlenecks, Trend reports citing the World Bank’s country report.
The report said that higher inflation is forecast to weigh on consumption and to keep demand sluggish after an initial post-pandemic rebound. Growth projections for Iran in 2022–24 have improved with higher projected oil prices and oil market supply gaps that allow the country to produce more oil and petroleum products to meet export demand.
“The non-oil sector is also expected to benefit from spillovers from higher oil export proceeds.However, the continuation of sanctions, subdued net capital formation particularly in the oil sector, energy shortages, global inflation, and the scarring effects of the pandemic on the labor market limit growth prospects,” the report said.
Furthermore, a more favorable global oil market outlook is projected to improve Iran’s fiscal and external balances.
Higher projected oil prices in the outlook period and growth in oil export volumes considering the tighter global oil market are forecast to improve oil revenues. However, high growth in expenditures due to a growing wage bill and pension spending as well as higher food import costs and additional cash transfers are projected to keep the fiscal balance in a deficit of 4.4 percent of GDP per year in 2022– 24. Iran’s current account balance is also forecast to remain in surplus over the medium term due to improved oil market conditions.
“Iran’s economic outlook is subject to significant risks. On the upside, further increases as well as sustained high oil prices can result in higher oil export revenues. If oil markets seek all available supply to ease price pressures, stronger demand could also lead to higher oil export volumes, thereby further improving fiscal and external balances. If economic sanctions are significantly eased or removed following a breakthrough in nuclear negotiations, this could further improve Iran’s economic prospects and curb inflationary expectations,” the report said.
The World Bank noted that downside risks relate to the impact of surging global food prices, the resurgence of new COVID-19 variants, and a worsening of the climate change impact. Soaring global food prices due to the war in Ukraine, if prolonged, could heavily impact crop and fertilizer supplies and raise food security risks. Further price increases would add to Iran’s import bill and put more pressure on the government and its limited accessible foreign exchange reserves.
Persistent high inflation, if unmitigated, would increase pressures on lower-income deciles and adds to existing social grievances