World Bank on Iran’s Economy and Business Regulations

October 29, 2015

Iran’s economy is projected to grow by 1.7 percent in 2015 and 6.1 percent in 2016, according to a new World Bank report. “The medium-term outlook is positive though risks remain from oil prices and geopolitical considerations,” according to the October edition of the Middle East and North Africa Economic Monitor. But starting a business is still relatively difficult in Iran. It ranked 118 out of 189 economies for ease of doing business in the Doing Business 2016 report by the World Bank. The following are excerpts from the two reports.

A nuclear deal was negotiated in July and has since been ratified by several bodies. On July 14 2015, the P5+1 group (China, France, Germany, Russia, United Kingdom and United States) and Iran announced they had reached a Joint Comprehensive Plan of Action (JCPOA) relating to Iran’s nuclear program. The UN Security Council met on July 20, 2015 and voted unanimously to endorse the JCPOA. The European Union approved the JCPOA on the same date. It also now appears that the agreement will not be blocked by the US Congress. Implementation of the JCPOA will involve lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear program. The final adoption and implementation of the JCPOA could lead to the lifting of sanctions on Iran by the first quarter of 2016 thereby improving Iran’s access to trade, technology and finance.
 
Following two years of recession, the economy recovered during Iranian FY2014 (March 2014-March 2015). Despite the sharp drop in the price of oil, Iran’s main export, the economy expanded by 4.3 percent in 2014, after contracting by 6.6 percent and 1.9 percent in 2012 and 2013, respectively. This was due to the confidence-boosting impact of a new government (elected in July 2013), the initiation of talks to get a nuclear agreement, and the partial lifting of some sanctions in advance of a full agreement. As of August, 2015, the official and parallel market exchange rates were trading just 13 percent apart as compared to a gap of roughly 190 percent in the second quarter of 2012 when sanctions were tightened. The inflation rate declined from 45.1percent in 2012 to 15.6 percent in June 2015.
 
The fiscal and external positions are sound despite the collapse in oil prices. The deficit of the central government was 1.2 percent of GDP in 2014, which represents a marginal deterioration compared to the deficit of 0.9 percent of GDP recorded in 2013. Government revenue rose by 21.1 percent to reach 14.6 percent of GDP in 2014. Meanwhile, as the value of oil exports declined, the current account surplus deteriorated from a surplus of 6.0 percent of GDP in 2013 to 3.8 percent in 2014. Foreign exchange reserves are estimated at US$126.5 billion in 2014, which was equivalent to 18 months of imports.
 
The medium-term outlook is positive though risks remain from oil prices and geopolitical considerations. While growth will slow to 1.7 percent in 2015 due to low oil prices it is expected to soar to 6.1 percent in 2016 as the confidence-boosting effects of a succcessful nuclear agreement kick in. Much of the fillip to growth will come from increased oil production (rising to 3.6 million barrels per day in 2016) and from increased foreign and domestic investment. At the same time, the ongoing conflicts in Syria and Iraq will also determine how economic prospects change as will the pace of implementation of the JCPOA.
 
Key Economic Indicators
 
2014e
2015f
2016f
Real GDP Growth (percent)
4.3
1.7
6.1
Inflation Rate (Percent)
15.6
15
12.5
Fiscal Balance (Percent of GDP)
-1.2
-2.6
-1.5
Current Account Balance (Percent of GDP)
3.8
-0.3
.8
 
Click here for the full report.
 
Doing Business 2016 Rank: 118

Doing Business 2015 Rank: 119
 
Topics
DB 2016 Rank
DB 2015 Rank
Change in Rank
Starting a Business
87
82
-5
Dealing with Construction Permits
69
98
+29
Getting Electricity
88
94
6
Registering Property
91
89
-2
Getting Credit
97
90
-7
Protecting Minority Investors
150
149
-1
Paying Taxes
123
122
-1
Trading Across Borders
167
166
-1
Enforcing Contracts
62
62
No change
Resolving Insolvency
140
137
+3
 
Click here for the full report.