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.