Iran has endured three years of recession under the renewed US sanctions. The first of those sanctions kicked in halfway through 2018, a year that brought a GDP contraction of 6%. Things worsened in 2019 as the sanctions screw was tightened, with economic output falling 6.8%. The World Bank estimates that GDP declined by 3.7% in 2020.
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”. One obstacle to Biden taking the US back into the deal might be an insistence from Tehran that it is compensated for the economic damage wrought by the Trump sanctions. US Secretary of State Antony Blinken warned on February 1 that Tehran is months away from being able to produce enough fissile material for a nuclear weapon. He added that it could be only “a matter of weeks” if Iran continues to over-ride restraints in the nuclear deal.
Iran has called on President Biden to remove sanctions it says hinder Tehran’s fight against the coronavirus (COVID-19) pandemic. Separately, Tehran said it had approved Russia’s Sputnik V coronavirus vaccine for domestic use and was attempting to buy vaccines from AstraZeneca and other companies. Iranian President Hassan Rouhani said on January 23 that vaccinations would begin in the coming weeks. Iran has recorded nearly 1.39mn cases of COVID-19 and 57,651 deaths, according to official data updated on January 27. The infection and death rates in Iran have been on a downward trend in recent weeks following the country’s third coronavirus wave.
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, 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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