Iran “fis­cally and struc­turally well placed” for come­back

Financial Mirror (Cyprus) - - FRONT PAGE -

Iran has sig­nif­i­cant eco­nomic growth po­ten­tial, and struc­tural re­forms have helped strengthen its fis­cal foun­da­tion, Moody’s In­vestors Ser­vice said in a spe­cial re­port, “Sov­er­eign Credit Pro­file Set to Im­prove in Af­ter­math of Sanc­tions.”

“Sanc­tions re­lief will grant Iran ac­cess to an es­ti­mated $150 bln in frozen for­eign as­sets. We pro­ject the re­sult­ing im­ple­men­ta­tion of in­vest­ment plans, as well as a re­cov­ery in oil pro­duc­tion, to con­trib­ute to higher GDP growth of 5% in 2016-17,” said Atsi Sheth, an As­so­ciate Man­ag­ing Di­rec­tor at Moody’s.

Un­rated Iran’s $417 bln econ­omy, the se­cond largest in the Middle East af­ter Saudi Ara­bia (rated Aa3 sta­ble), is more di­ver­si­fied than other re­gional oil ex­porters. Nev­er­the­less, Moody’s ex­pects the re­moval of oil-re­lated sanc­tions to re­sult in an in­vest­ment in­flow, which will help re­vive the coun­try’s age­ing oil in­fra­struc­ture. Ac­cord­ing to Iran’s Fi­nance Min­is­ter, the coun­try will need $90 bln an­nu­ally in ex­ter­nal fi­nanc­ing to meet its 8% eco­nomic growth tar­get.

“In­ter­na­tional sanc­tions meant that Iran had to adapt to the re­al­ity of lower oil rev­enues and im­ple­ment struc­tural re­forms much ear­lier than other oil-ex­porters. Most other oil-de­pen­dent sov­er­eigns are only just be­gin­ning to con­sider struc­tural fis­cal re­form,” Sheth added.

Iran’s cap­i­tal and fi­nan­cial ac­counts re­main re­silient to ex­ter­nal shocks. Iran’s ex­po­sure to the cap­i­tal flow volatil­ity, which many emerg­ing mar­ket economies are un­der­go­ing as a re­sult of the US Fed in­ter­est rate hike, is neg­li­gi­ble.

How­ever, Iran’s key credit driver re­mains political, in par­tic­u­lar whether it will con­tinue to meet its obli­ga­tions un­der the re­cent agree­ment, and whether other coun­tries will con­tinue to agree that it has done so.

Mean­while, with the nu­clear deal that led to the lift­ing of in­ter­na­tional sanc­tions, Iran sud­denly has ac­cess to around 100 bln euros of its as­sets that were frozen in coun­tries around the world.

And as of last week it is back in the global bank­ing busi­ness, able to use the world­wide trans­ac­tion net­workSWIFT, the Bel­gian based co­op­er­a­tive which han­dles cash trans­fers and let­ters of credit be­tween fi­nan­cial in­sti­tu­tions, ac­cord­ing to Euronews.

Mohsen Jalalpour, the head of Iran’s Cham­ber of Com­merce, In­dus­tries, Mines and Agri­cul­ture, said: “Banks can now ac­cess SWIFT. We should note that our banks were sub­ject to bank­ing sanc­tions and needed to pre­pare the nec­es­sary in­fra­struc­ture and they man­aged to do that by to­day.”

Re-en­gag­ing with the bank­ing world through the Swift sys­tem is vi­tal for Iran’s trade, par­tic­u­larly of crude oil.

While in­ter­na­tional banks are ex­pected to link up with their Ira­nian coun­ter­parts via SWIFT, Iran will also be look­ing to en­cour­age for­eign in­sti­tu­tions to ex­pand in­volve­ment in the coun­try’s fi­nan­cial sys­tem.

How­ever, for­eign banks con­sid­er­ing es­tab­lish­ing

a sub­sidiary in Iran will in most cases re­quire a part­ner­ship with a lo­cal en­tity un­less they set up in one of a hand­ful of free zones, said Ni­cholas Gi­lani, se­nior part­ner at Ar­jan Cap­i­tal, a con­sul­tancy ad­vis­ing on Iran busi­ness.

And for many for­eign banks, there are con­cerns about be­ing caught up in on­go­ing US sanc­tions.

Many in­ter­na­tional sanc­tions re­lat­ing to Iran’s nu­clear pro­gramme were lifted but most in­volv­ing U.S. mea­sures re­main in place. Non-US banks may trade with Iran with­out fear of pun­ish­ment in the United States, but U.S. banks may still not do so, di­rectly or in­di­rectly.

Wash­ing­ton’s sanc­tions pre­vent U.S. na­tion­als, banks and in­sur­ers from trad­ing with Iran and also pro­hibit any trades with Iran in U.S. dol­lars from be­ing pro­cessed via the U.S. fi­nan­cial sys­tem. This is a sig­nif­i­cant com­pli­ca­tion given the dol­lar’s role as the world’s main busi­ness cur­rency.

Euro­pean banks are also cau­tious – with some, in­clud­ing Deutsche Bank, re­mem­ber­ing past fines from US reg­u­la­tors for break­ing sanc­tions, though Com­merzbank has said it is re­view­ing its pol­icy of not do­ing busi­ness in Iran.

An Ira­nian cen­tral bank of­fi­cial said banks from Euro­pean coun­tries in­clud­ing Ger­many, France, Bri­tain and Italy, had been in talks to open branches af­ter the lift­ing of sanc­tions.

“God will­ing, soon we will wit­ness that too. Iran is a very at­trac­tive mar­ket for busi­ness and they know that,” the of­fi­cial said.

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