Iran

Owing to economic sanctions imposed in 2010, Iran lost almost $160bn in oil revenues. The economy faced multiple challenges, accentuated by the sanctions that included rising unemployment, high inflation and sharp depreciation of the Iranian currency.

Oil production witnessed a significant uptick following the lifting of economic sanctions in 2016. Iran raised its crude exports to the pre-sanction level but falling oil prices took almost half of the revenues. As a result, in 2016, GDP grew by just 4pc but was a great improvement from minus 6.8pc in 2015.

Strong capital inflows, including FDI and the repatriation of frozen assets are helping drive economic growth.

After the lifting of the sanctions, many observers and private-sector leaders are of the view that the authorities now enjoy a free hand to launch much-needed reforms to further shore up the economy.

Iran is looking ahead to 2017 with both big investments and hefty challenges.

According to the Central Bank of Iran the economic growth could accelerate to 5pc in the Iranian calendar year that started on Mar 20, 2016. Independent experts project GDP growth for 2016-17 at 5.5-7pc.

Iran’s finance minister sees average economic growth for the current calendar year has exceeded expectations and will reach above 5pc against 1pc during the last Persian calendar year (March 2015/16).

The IMF expects Iran’s economic growth to reach as high as 6.6pc for the Persian calendar year that started in March 2016 to be contributed by higher oil production and exports.

Iranian authorities have adopted a comprehensive strategy encompassing market-based reforms as envisaged in the government’s 20-year vision document and the sixth five-year development plan for 2016-2021. The development plan envisages an annual economic growth rate of 8pc during the five-year period.

Recent fluctuations in the free market rate of the Iranian rial have caused concerns within the country’s business community that the currency may experience a sharp decline in value owing to the external environment.

The anticipation of renewed anti-Iran policies and sanctions, the possible extension of the Iran Sanctions Act by the US Congress in view of Donald Trump’s anti-Iran position as he takes over as US President on Jan 20, along with uncertainties about the international oil price and uncertain domestic political developments.

Despite CBI efforts and the government’s desire to maintain a degree of stability, the rial is currently overvalued and that devaluation is expected in 2017. The CBI is trying to steer rial toward a unified exchange rate in the course of 2017.

Though, reforms put in place since Iranian President Hassan Rouhani took office in 2013 have helped restore economic stability.

Risks to the growth outlook include lower oil prices and slower global growth.

A key challenge relates to the prospect of undertaking structural reforms.

The challenge is to create the conditions for sustained macroeconomic stability and growth.

Afghanistan

Afghanistan is strategically located between South and Central Asia and offers lucrative business opportunities. Over 30 years of conflict have left Afghanistan one of the poorest countries in the world. Large population continues to suffer from shortages of housing, clean water, electricity, medical care, and jobs.

The country faces insecurity, weak governance and lack of infrastructure. Over 50pc of Afghanistan’s population is trapped by grinding poverty. A joint survey of the World Bank, ministry of economy and Central Statistics Office reveals that more than 39pc Afghans live below the poverty line.

And Afghan authorities’ difficulty in extending rule of law to all parts of the country poses challenges to future economic growth.

Though, Afghanistan’s economy is recovering from decades of conflict and has improved significantly largely because of the international assistance owing to the recovery of the agricultural, and service sector. The country is highly dependent on foreign aid despite the progress made over the last decade.

A recent report of World Food Programme revealed about 40pc of the Afghans face food shortage. The government has not been able to prudently use the resources it has and has fallen short of collecting the amount of revenue it had promised to international donors.

Afghanistan’s impressive average annual growth of 9pc during 2002-2013 has slumped to 1.5pc during 2013-15. It was just 0.8pc in 2015. Real GDP remains far below the level needed to ensure increased employment and improved living standards. The unemployment rate rose from 9.3pc in 2011-12 to 24pc in 2014. Large fiscal and external deficits continue to be financed by donors.

According to the World Bank, the drastic economic decline during 2014 and 2015 is mainly the result of the post-2014 international military drawdown and intensified political instability that followed the 2014 election. 2016 was another year coupled with ups and downs. Growth is estimated at no more than 2pc for 2016, well below the rate of population growth rate.

In 2017 the government will face multiple challenges. The year is strategically and economically critical in the history of Afghanistan. The government still lacks a strategy for key administrative reforms. It has failed to bring about good governance and decrease corruption.

Stronger growth is predicated on improvements in security, political stability, reform progress, and continued high levels of aid.

International donors pledged to provide $15.2bn in support of Afghanistan’s development priorities for the period 2017-2020.

Earlier they had pledged over $67bn between 2003 and 2010. In July 2012, the donors pledged an additional $16bn in civilian aid through 2015.

Afghanistan has so far attracted a whopping $1.1bn in private investment including $700m for the energy sector alone. But the latest security reports indicate that militants still control more than 30pc of the Afghan territory.

Fear of insecurity, weak governance, lack of infrastructure and the government’s difficulty in extending rule of law to all parts of the country pose risks to investments and future economic growth.

Published in Dawn, Business & Finance weekly, January 16th, 2017