Iran has moved out of its three-year recession after recording two consecutive quarters of growth, the Central Bank of Iran’s (CBI’s) governor Abdolnasser Hemmati has announced on his Instagram account. Officials have credited higher exports and a general realignment of the economy, necessitated by the impact of heavy US sanctions, with securing the new growth.
Trump’s sanctions drive against Iran kicked in halfway through 2018, a year that brought a GDP contraction of 6%, according to the World Bank. Things worsened in 2019 as the sanctions screw was tightened, with economic output falling 6.8%. The World Bank estimates it declined by 3.7% in 2020.
Iran looks set to be engulfed by what would be its fourth coronavirus wave. Anxieties that its week-long Nowruz celebrations of the Persian new year, which took place last week to bring in the Persian year of 1400, would cause another surge of coronavirus cases appear to have been well-founded. Its daily infection count this week moved back into five figures for the first time since December.
In terms of its coronavirus vaccination programme, Iran has vaccinated roughly 80% of its medical staff dealing with COVID-19. The country started inoculating citizens in February using Russia’s Sputnik V vaccine, but progress is slow. If scheduled deliveries of other vaccines take place in coming weeks, including through the COVAX world programme, it should pick up. A domestically developed vaccine is expected to become available in May.
New US President Joe Biden has reiterated that his administration will lift sanctions on Iran if Tehran returns to “strict compliance with the nuclear deal”. The new US administration’s continuation of the so-called maximum pressure campaign previously installed by the Trump government has not been taken well in Iran, which was hoping for a change in tune from Washington. Despite warm gestures after taking office in January, Biden has not budged on Iran, saying that it should re-enter the Joint Comprehensive Plan of Action (JCPOA) before the US will consider lifting sanctions. Tehran, meanwhile, said it is Washington, which left the deal in 2018 under Trump’s direction, which is at fault. Tehran on February 28 ruled out closed-door meetings with Washington and other major powers to break the log jam currently.
Proponents of the nuclear deal would like to see it restored prior to Iran’s June presidential election which may strengthen the power that hardliners can exert in Iranian foreign policy and make a restoration of the agreement that much more difficult or even implausible.
A month before November’s US election, Iran’s rial hit the 300,000-to-the-dollar threshold for the first time ever on the unregulated free market in Tehran as tensions with the Trump administration tightened and a coronavirus third wave took its toll on the economy. That put the rial 46% down against the dollar since the start of 2020. The currency has since recovered to around 240,000, but remains volatile. During the course of the four-year Trump presidency, the rial lost 80% against the greenback.
On January 20, Iran’s deputy minister of economic affairs and finance said the country’s foreign debt was currently very insignificant at nearly zero. Utilising foreign debt could be a good opportunity for the government to meet investment needs inside Iran, Mohammad-Ali Dehqan Dehnavi added.
Last October also brought an IMF forecast that Iran's total budget deficit for the current fiscal year (ending on March 19) will be around $58bn. In an April report, the IMF predicted that Iran's foreign exchange reserves would be $85bn in 2020, but around 90% of the reserves are frozen abroad by sanctions.
In mid-January, the head of the Tehran Stock Exchange (TSE) and the Securities and Exchange Organisation of Iran (SEO) resigned from both of his posts in the wake of a “Black Monday” market crash. Hassan Ghalibaf Asl went as angry protests grew outside the exchange building, trading was halted and the TSE website was pulled.
Investors, many of whom were new entrants to the market in 2019 when officials encouraged new players to look for value in the bourse, have lost billions of dollars in market turmoil that saw the TSE’s main index, the TEDPIX, plummet back down to near a million points, having broken through the million threshold for the first time in May 2020 and smashed through the two-million barrier just three months later.
On the political front, hardline Iranian MPs on February 22 protested against the Rouhani government’s decision to permit “necessary” monitoring of Iran’s nuclear development programme by the UN nuclear watchdog for up to three months. The lawmakers claimed the move broke a law mandating an end to the International Atomic Energy Agency’s (IAEA’s) snap inspections.
Meanwhile, Iran’s attorney general has indicted information and communications technology minister Mohammad Javad Azari Jahromi on charges including not properly implementing internet censorship policies.
Jahromi, the youngest member of President Hassan Rouhani’s cabinet and the official behind the introduction of fourth-generation (4G) broadband cellular network technology to Iran has bucked the trend adhered to by previous generations of Islamic Republic officialdom by siding with the country’s youth in the battle against shutting down popular social media applications like Instagram and WhatsApp in recent years.
Looking ahead, the January edition of the World Bank’s Global Economic Prospects report forecasts that GDP growth of 1.5%, from a very low base, is in reach for Iran in 2021. But the situation is fluid. The dropping of the sanctions by the Biden administration would lead to a big revision in prospects—in November, the Institute of International Finance (IIF) trade body said Iran’s economy could expand by as much as 4.4% in 2021 and grow by 6.9% in 2022 and 6% in 2023 if the sanctions were chucked out.
The International Monetary Fund (IMF) with its World Economic Outlook figures presented last October (thus a bit behind the curve by now) predicted that Iran’s GDP would contract 5% in 2020 but bounce back by 3.2% in 2021.
Iranian consumer prices in 2019 rose 41% and were on course to grow 30.5% in 2020 and 30% in 2021, the IMF said. However, the official annual inflation rate now stands at 46.2% (compared with less than 10% at the point in May 2018 that Trump quit the nuclear deal) and price growth is very unevenly spread among the various goods and services categories.
Looking at Iran’s current account balance as a percentage of GDP, the Fund gave figures of 1.1%, -0.5% and 0.3% for 2019, 2020 and 2021, respectively. Unemployment was expected to grow to 12.2% in 2020 from 10.7% in 2019 and rise to 12.4% in 2021, the IMF added.
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