Iran’s economy grew 3.7% during the last fiscal year (March 2017-18), according to latest reports released by the Central Bank of Iran and the Statistical Center of Iran.
This is the first time CBI and SCI are reporting similar figures on Iran’s economic growth and the first time their corresponding reports are released at the same time.
According to CBI, Iran’s gross domestic product—based on the fiscal 2011-12 prices–stood at 6,940 trillion rials ($164.2 billion based on official exchange rates) last year.
According to SCI, the economy grew by 4.3% without taking into account crude oil production, Financial Tribune reported.
The services sector, as usual, registered the highest growth rate last year with 6.8%.
The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real-estate and business services; as well as community, social, education and health services.
This sector employs nearly half of Iran’s working age population.
Production in the sectors of industry and agriculture grew by 1.6% and 1% respectively.
> GDP Growth Timeline Vis-à-Vis Sanctions
Iran’s economy emerged from recession in fiscal 2014-15 with a 3% growth after two years of recession when the economy contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran.
Growth in 2015-16 has been put at -1.6% by the Central Bank of Iran and 0.9% by SCI.
CBI has put 2016-17 growth at 12.5% while the SCI says it was much lower and near 8.3%.
The astronomical growth experienced in Iran after the removal of international trade restrictions on the economy as a result of the nuclear deal the country signed with world powers in 2015 (came into effect in Jan. 2016), owed to a great extent to Iran’s ability to increase its oil sales.
Later, however, as crude output was ramped up and the production capacity neared pre-sanctions levels, growth in the key sector slowed down and gave way to better performance in other sectors.
“Growth has begun to broaden in the non-oil sector,” read a statement by Catriona Purfield, who led an International Monetary Fund team to Iran last year.
In its latest “Global Economic Prospects” report released in June, the World Bank put Iran’s economic growth rate at 4.3% in 2017, forecasting a 4.1% growth in both 2018 and 2019, and 4.2% in 2020.
The International Monetary Fund estimated Iran’s real GDP growth at 4.2% in 2017-18, projecting it to be sustained or even rise toward 4.5% over the medium term, if financial sector reforms take hold.
“Notwithstanding the recovery, the economy faces near-term challenges. Rising financial vulnerabilities and external uncertainty call for the urgent implementation of the planned financial sector reform. A coordinated reform package that also sees the government take additional fiscal measures to reduce debt, unify the exchange rate and transition to a market-based monetary policy framework would send a strong signal of the authorities’ commitment to stability,” an IMF report reads.
The United Nations has estimated a 5.3% economic growth for Iran in 2017, noting that the growth is projected to settle at 5.1% and 5% over the next two years respectively.
“The economic situation in the Islamic Republic of Iran has improved visibly in recent years. In 2017, GDP growth remained relatively robust at 5.3%, after surging by an estimated 12.5% in 2016 due to a strong expansion of oil production and exports. GDP growth is expected to remain above 5% in 2018 and 2019, supported by easing monetary conditions and an improving external sector,” the UN report reads, adding that future economic growth in Iran depends on attraction of foreign direct investment.
“The moderately favorable outlook is contingent on the capacity to attract foreign investments and is subject to significant geopolitical risks and uncertainties.”
His comments came as the United Nations Conference on Trade and Development recently put the volume of foreign investment inflow to Iran in 2017 at $5.019 billion, registering an over 48% rise compared to the year before.
“Following the lifting of sanctions in 2015, the country’s rich reserves started to attract significant foreign participation in the exploration and production of oil and gas. In July 2017, Total (France), CNPC (China) and the National Iranian Oil Company signed a contract to develop Phase 11 of South Pars, the world’s largest gas field. In August, Unit International (Turkey), Zarubezhneft (Russia) and the local Ghadir Investment Holdings agreed jointly to invest $7 billion in three oilfields and a gas field,” reads part of UNCTAD’s latest report “World Investment Report 2018”.
“The Turkish company has also reached an agreement with the Iranian government to build seven power plants in the country. However, the United States’ decision to withdraw from the Iran nuclear deal has led to uncertain prospects for these investment projects.”
A major challenge facing Iran’s economic prospects is the US stated intention of reimposing sanctions on the Islamic Republic.
US President Donald Trump announced on May 8 his withdrawal from the Joint Comprehensive Plan of Action–the formal name of the nuclear deal–and promised to reimpose sanctions against Iran.
The European Union, together with Iran’s major eastern partners China and Russia, are working to salvage JCPOA in the absence of the United States. It remains to be seen how their efforts will pay off and how reimposition of US sanctions will affect Iran’s economic growth.