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Iran Economy Update
Issue 74/2017 WEDNESDAY JULY 19TH
Iran says acts accordingly in response to US new sanctions over missile program Zarif: It’s become a rather tired routine After the US announced on Tuesday its new non-nuclear sanctions against 18 individuals and entities in Iran, the IRGC called them
"worthless" and "illegal" and announced its own sanctions "against American people and entities that have acted against the Iranian people and other Muslim peoples of the region." AFP on Tuesday quoted General Amir Ali Hajizadeh, who heads the IRGC’s aerospace wing and missile program as saying that the guards will propose ―reciprocal actions with high cost‖.
Minister of Foreign Affairs Javad Zarif similarly criticized the measure, and having called the new sanctions ―illegal‖, accused the Trump administration of ―poisoning the international atmosphere‖ with new sanctions. ―The international community has read this very loud and clear and continues to deal with Iran without much attention to this theater.‖ The Iranian Foreign minister also promised acting ―accordingly‖ if Iran makes sure that the new sanctions violate the letter of the deal. "It violates the spirit of the deal. We will see whether it violates the letter of the deal, and we will act accordingly," added Zarif.
journalists in New York, Zarif reiterated his line that America tries to undermine the nuclear deal and prevent Iran from having economic benefits, saying ―Each time they want to certify [Iranian compliance] they make sure to do something negative. It is obviously a sign of bad faith. [...] It’s become a rather tired routine.‖
Threats for tit-for-tat measures by the Iranian and US officials have intensified in the past month, especially after the US
Senate approved a bill on June 15 on
―Countering Iran’s Destabilizing Activities Act‖ that would impose financial restrictions on people involved with Iran’s ballistic missile development and with the IRGC. In response to the bill, the Iranian lawmakers started working on a plan which eyes allocating 2 trillion tomans (about $615 million at the official exchange rate) in total to developing IRGC’s missile and overseas activities.
Meanwhile, the Majles National Security &
Foreign Policy Commission released its second report on JCPOA implementing last week, in which it criticized the US’ alleged efforts to prevent Iran from getting full economic benefits of the nuclear deal. In the end of its report, the commission asks the government to prepare reports on the reciprocal actions it takes against such hostile attitudes. ―Currently, the US’ hostile attitude in putting obstacles which prevents a full implementation of the JCPOA and elimination of all financial and banking sanctions poses a challenge to the Islamic Republic. Therefore the parliament obliges the government to take timely and clear action in accordance with the nine articles of the Law of Reciprocal Actions of the Islamic Republic in JCPOA Implementation (approved by the Majles in October 2015), and along with the regular quarterly reports it prepares on JCPOA implementation, it should submit reports to the Majles on the reciprocal actions it takes, and in parallel, the Majles Research Center and the Majles National Security & Foreign Policy Commission will jointly prepare the
“Comprehensive Plan on Islamic Republic’s Act against the US and other Potential Violators of the JCPOA.‖
Rouhani’s economic adviser says domestic industry should focus on export markets to survive
2 President Rouhani’s senior economic adviser has warned about a gap between the domestic demand for home-made products –which has been shrunk due to declining purchasing power of families—and the industrial sector’s production capacity, which has grown in the past decade. Having referred to the 22% and 38% decline in the income level of Iranian urban and rural families from 2007-2013 on the one hand and the shrinking budget of government on the other, Dr. Massoud Nili states that the industrial sector’s production does not have adequate domestic demand and hence needs to focus on developing exports to foreign markets in order to survive. Nili explains that the squeezed purchasing power of the Iranian families and government has driven the current demand for domestic products down to the levels of the early 2000s, while during this time the production capacity of the industrial sector has grown twofold. Therefore, he said, there are no demands for about half of the products manufactured domestically that in the long run, will shrink the industrial sector if foreign target markets don’t compensate the declined domestic demand. ―The only way for boosting demand [for domestic products] is developing exports markets, and Iranian industrialists should give priority to exports. But the issue is not that easy and many hurdles need to be surmounted.
[...] an industry that has [so far] only focused on the domestic customers cannot easily hit the export markets, without technology and other requirements.‖ ―if a remedy is not found to recover the damaged industry, the capacities of this sector will be shrunk to half and unemployment and other problems will emerge,‖ he warned.
On 9 September 2014, Minster of Labor Ali Rabiei had warned about the emergence of an unemployed population of around 10 million people by 2021, if preventive measures are not taken. At that time, Rabiei put the number of unemployed people at 6 million and warned about a ―dangerous‖
situation under which the figure increase to 10 million. The officials of the Rouhani
government believe that while the previous administration (2005-2013) enjoyed an oil revenue windfalls of more than $700 billion in eight years thanks to the high prices, small amounts of the money was spent on job creation capacities and instead, the petrodollars were spent on the populist policies of the then administration.
Vice President Eshagh Jahangiri said on Tuesday this week that the country faces
―serious super-challenges‖ in employment, environment and water sectors.
Iran’s oil output and exports stand at 3.8 and 2.2 mm bps, respectively
The Islamic Republic News Agency (IRNA) on Tuesday published some statistics about the country’s volume of crude oil, condensates and natural gas production and exports. Currently, Iran on average produces 3.8 million bpd of crude oil of which about 1.6 million bpd is refined and consumed domestically and about 2.2 million bpd is exported. IRNA has not given any figure about the volume of condensate produced in the country but states that its production has registered a 55 percent increase over a three year period from 2013 to 2016. According to IRNA, Iran exports 500-700 thousand bpd of condensates.
The news agency puts the figure of the country’s current natural gas production at 800 million cubic meters per day which will be increased to 1 billion cubic meters per day by March 2018. Without giving an exact figure about the coutnry’s current level of natural gas exports, IRNA states that the level should outpace Qatar by 2021 and reach 365 million cubic meters per day.
According to IRNA, Iran also exported 450,000 bpd of oil products in March 2017, which hits a new record high in years.
Iran’s airport development needs 200 trillion rials in investment
The managing director of Iran’s Airports &
Air Navigation Company said the country needs some 200 trillion rials ($6.1 billion at
3 the official exchange rate) in investment in the airport sector and also requires $250 million investment for the purchase of navigation, technical and engineering equipment, IRNA reported on Tuesday.
Rahmatollah Mahabadi said the company needs foreign finance to purchase navigation equipment.
Iran CBI to decide on bank interest rate cut to 12%
An Iranian banking official confirmed that the government plans reducing deposit interest rate to about 12%, local media reported last Friday. Mohammadreza Hosseinzadeh, the CEO of Bank Melli said the government of President Rouhani pursues the policy of gradually reducing bank interest rates. He said the banks are waiting for the CBI’s final decision in this regard to announce the rates.
If approved, this would be the second time that after successfully bringing the inflation rate to a single digit, the government of President Rouhani obliges state and private banks to reduce their interest rate.
Presently, the deposit interest rate in Iran is 15%, versus the loan interest rate of 18%. It was on 28 June 2016, the CBI published a directive letter, announcing that deposit rate on one-year savings has declined to 15%, and that the business loan rate ceiling would be 18%.
Fars news agency wrote last Friday that most of Iranian banks currently don’t abide by the 15-percent interest rate ceiling enforced by the CBI and pay an interest rate of 20% and above on bank savings. High interest rates in Iran is considered as one of the factors that have led to the huge capital flows to the banking system, which instead of being invested in development and construction projects, are spent by banks on buying illiquid fixed/physical assets such as real estate. Last summer, a banking official confirmed that the heavy engagement of Iranian banks on non-banking activities such as transaction of real estate have
caused them being entangled in a quagmire of toxic assets.
