Our next newsletter (Issue 64) will be published in November 2016.
In this issue:
- The gradual normalisation of Iran’s role in the international community is marked by Iran’s first post-JCPOA ministerial meetings and first attendance to the World Nuclear Association annual meeting.
- President Rouhani used his attendance at the United Nations General Assembly to seek sympathy for the lethargic attitude of Western banks to rebuilding relationships with the Iran’s financial sector and pressed Western leaders in the side-lines to do more.
- Back in Tehran, the government kicked off next year’s budget process and set out the challenging reform agenda for the final year of Rouhani’s first Presidential term.
- Central to the budget plan is the creation of a sovereign bond market, which will provide a valuable source of income for the government and will alleviate the public sector burden on the banking sector, both potentially stimulating growth prospects.
- The Iran Petroleum Contract (IPC) was finally signed off by Parliament and the first new deal is in place. International Oil Companies are being courted for investment in 50 oil and gas projects worth US$10 billion.
- Iran’s dual exchange rates are to be unified within two or three months according to the Economy Minister. The Minister also defended Iran’s engagement with the Financial Action Task Force in front of Parliament, drawing parallels between the FATF principles and Iran’s long standing fight against smuggling, tax evasion, financial corruption and other illegal economic activities.
- The refusal of two of Iran’s largest banks to do business with the Islamic Revolutionary Guards Corp (IRGC) has caused considerable controversy in Iran, with critics accusing the authorities of “self-sanctioning” Iran’s banks.
- On the contrary, Banks Mellah and Sepah are spearheading efforts to reassert the international reputation of Iranian banks. The result will be of benefit to the entire Iranian economy, and should be applauded.
- The toxicity of the dispute reveals the scale of the challenge facing the Rouhani administration’s economic reform agenda. “Opening up” will mean compliance with many more international regulatory and legal frameworks, designed without Iran’s own sensibilities in mind.
- The Central Bank of Iran has taken positive measures to strengthen the financial sector: further widening access to the open market foreign exchange rate and establishing a stress-testing system for Iran’s domestic banks.
- Finally, thirty percent of Iranians are hungry or do not have nightly bread, according to the Ministry of Health, serving a stark reminder of the real costs of foot-dragging over economic reforms.
- With nine months to go to the Iranian Presidential election, time is running out for President Rouhani to prove the value of the JCPOA to the voting public. Latest figures suggest the economy underperformed last year with GDP growth of 0.7%.
- Nonetheless, Iran’s oil sector has quickly recovered market share, with exports now very close to the pre-sanctions level of 2.2 million barrels per day (mbpd).
- To reach its stated goal of 5mbpd crude output, Iran must invest heavily in its long-neglected oilfields, which have been starved of investment for decades. The new Iranian Petroleum Contract (IPC) will be vital to unlocking that investment.
- The Central Bank of Iran is making real progress towards a unification of the country’s dual exchange rates. Recent moves have given hard currency earners more confidence in depositing their hard currency earnings and will deliver efficiency savings and reduce the opportunity for graft.
- A recent study by the World Economic Forum found empirical evidence of the impact deeply-embedded corruption can have on the economy. Iran bears the hallmarks of an economy under the strain of endemic mismanagement and corruption across both the private and public sectors.
- Many commentators in Iran blame the US for Iran’s stagnant economy, but to continue to blame external parties delays progress. Verity Iran’s sources consistently point to the risks and uncertainties within the Iranian business environment as the chief cause for concern amongst foreign investors.
- One year away from the Presidential election, one year since the signing of the JCPOA, the Rouhani administration still has its work cut out to convince the Iranian people of the merits of the nuclear deal.
- The Rouhani government can take credit for a generally sound and stable stewardship of the economy but the economic dividends that many hoped would follow the signing of the JCPOA have been slow to materialise. Ordinary households are still struggling to see a real difference in their pockets.
- The same obstacles continue to face foreign investors: a lack of assurances about the rule of law, opaque ownership structures, the role of the security services and intelligence agencies in the economy and widespread corruption.
- The recent salary scandal in the state sector has highlighted what appears to be an intractable corruption problem. Senior officials say the problem was inherited from the previous administration, which is true to an extent.
- But corruption and rent-seeking are so deeply embedded in the Iranian economy, small measures are futile, only a significant shift in the economic system will correct it. This will be a defining factor in Iran’s economic resurgence.
- The Central Bank of Iran has published its roadmap for banking reform with two new bills set to enter Parliament that could shake up how banking and business are done.
- As part of the reforms, the government will aim to leverage the bond markets to repay its debts to the banking sector, which could help stimulate lending activity in the economy.
Further issues available via the Archive tab at the top of the page.