Iran (unrated) has significant economic growth potential, and structural reforms have helped strengthen its fiscal foundation, Moody’s Investors Service has said in a report published today.
Moody’s report, entitled “Sovereign Credit Profile Set to Improve in Aftermath of Sanctions” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.
“Sanctions relief will grant Iran access to an estimated USD150 billion 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”, says Atsi Sheth, an Associate Managing Director at Moody’s.
Iran’s USD417 billion economy, the second largest in the Middle East after Saudi Arabia (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 USD90 billion 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,” Ms Sheth adds.
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 Federal 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.
The rating agency’s report is an update to the markets and does not constitute a rating action.