Economists: Iran faces barriers to strong growth

Chris Papadopoullos
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The lifting of sanctions will not erase uncertainty or solve deep-seated structural problems, economists said (Source: Getty)

The lifting of sanctions against Iran has not erased pessimism over the future of its economic growth.

Iran’s economic growth plummeted after sanctions relating to its nuclear programme were put in place. Yet some are warning the removal of restrictions may not mark a return to high levels of pre-sanctions growth for a sustained period.

“Given the large amount of spare capacity created by the impact of sanctions, we think it’s plausible that the Iranian economy could enjoy a period of growth of somewhere in the range of six per cent to eight per cent a year for a few years,” said economist Jason Tuvey from Capital Economics.

“However, once this spare capacity is used up, we fear that the economy’s growth prospects will be hindered by deep-seated structural problems.”

The lifting of sanctions gives Iran access to the global oil market and unfreezes billions of dollars held in foreign bank accounts. However, another factor that is likely to hinder its post-sanction recovery is its limitied access to global currency markets and the threat of sanctions returning.

“A degree of trust has been built between Iran and the West around Iran’s nuclear programme, however there is the potential for sanctions to ‘snap back’ into place if the agreement fails,” said Neal Dawson, head of anti-money laundering and sanctions at financial services giant KPMG.

“If this happened it could leave investors unable to make or receive payments relating to Iran, and leave lenders with a credit exposure that cannot easily be managed.”

While many of the restrictions that cause Iran’s economy to suffer so heavily have been lifted, many important ones remain in place. There are still restrictions on its ability to process foreign currency payments.

“Until Iran has free access to global payment systems corporates will find it problematic to conduct business with the country. International traders and investors will want to see reduced exchange rate volatility and rationalization of the current system of official and free market rates,” said economist Ludovic Subran from Euler Hermes.

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