Domestic Economy
0

2017: Iran’s Economy in Review

2017: Iran’s Economy in Review
2017: Iran’s Economy in Review
The release of inflation rates for each of the 10 deciles will enable the government to locate the target population of its welfare policies and help develop better plans for both high- and low-income households

The year 2017 has come to an end with Iran's economy having witnessed a host of developments, most of which resulted from the removal of international nuclear-related sanctions against the country a year earlier.

The World Bank had estimated a 3.6% GDP growth at constant market prices and 3.5% at constant factor prices for the Iranian economy in 2017 while the International Monetary Fund and the United Nations put the economic growth in the past year at 3.5% and 5.3% respectively.

Inflation was hovering around 10%. The latest report by the Statistical Center of Iran shows the goods and services Consumer Price Index in the 12-month period ending Dec. 21, which marks the end of the Iranian month of Azar, increased by 8% compared with last year’s corresponding period. SCI put urban and rural inflation for Azar at 7.8% and 9.2% respectively. This is while the Central Bank of Iran has put the inflation for the same month at 10%.

> Inflation Rates for 10 Deciles

Notably, SCI set out to release inflation rates for each of the 10 deciles in which Iranian households are categorized on the basis of their income for the first time last month, indicating that low-income households are taking the brunt of rising prices.

According to Javad Hosseinzadeh, the deputy head of SCI, the initiative will enable the government to locate the target population of its welfare policies and develop better plans for both high- and low-income households’ consumer basket—a sample of consumer goods and services used to track prices.

The new SCI data show the average goods and services CPI in the 12-month period ending Dec. 21 increased by 8.8% for the first decile (those with the lowest income), whereas it rose by 7.4% for the 10th decile (those with the highest income), compared with last year’s corresponding period. The inflation rate for the second to ninth decile stood at 8.8%, 8.7%, 8.6%, 8.5%, 8.4%, 8.3%, 8.2% and 8% respectively.

According to Hosseinzadeh, food, beverages and tobacco account for 43.3% of low-income households’ consumer basket whereas they constitute 17.22% of that of rich households'. Non-food items and services’ share in the consumer basket of households in the first decile was 56.7% against the 10th decile's 82.78%.

Unemployment remained a major challenge for the Iranian economy last year and foreseeably in 2018. IMF is expecting Iran's unemployment rate to stand at 12.4% in 2017 and 2018. The UN is expecting an 11.3% rate for 2017.

President Hassan Rouhani presented the budget bill for the fiscal 2018-19 to the parliament on Dec. 10, a document he called a blueprint for generating employment, eliminating poverty and promoting equality.

The total amount of general revenues in the budget bill stands at 4.24 quadrillion rials, 6.5% more compared to the budget law for the current year. Revenues for ministries and governmental institutes are projected to constitute 5.68 quadrillion rials of the overall general revenues.

Majlis Joint Commission approved the outlines of the budget bill on Sunday and will weigh the details of the bill in the coming weeks. It is expected to present the reviewed version of the bill to the open session of parliament in about three weeks.

The parliament-approved budget needs the final endorsement of the Guardians Council—the body in charge of ascertaining the constitutional and Islamic nature of all laws.

> Foreign Finance Inflow

Iran signed its biggest credit line deal in recent years with South Korea’s Eximbank in August. The deal envisages as much as €8 billion in loans provided by South Korean companies to finance various projects in Iran.

Another agreement was signed between China’s CITIC Trust and five Iranian banks in Beijing in October for the company to extend a credit line worth $10 billion for supporting projects in Iran.

In what were the first finance deals clinched with cautious European banks after the implementation of the nuclear deal, Iran signed two agreements worth a total of €1.5 billion ($1.8 billion) with Austria’s Oberbank and Denmark’s Danske Bank on Sept. 21.

And more recently, four Iranian banks signed an "unlimited finance deal" with the Eximbank of Russia last month. Bank Sepah, the Export Development Bank of Iran, Parsian Bank and Bank Pasargad signed the deal, based on which the Russian Exim-bank will provide funds "without a ceiling" to the four lenders to finance development projects in Iran, according to the Central Bank of Iran.

> 11 Brand New Jets Delivered to Iran Air

After the signing of the nuclear deal, otherwise known as Joint Comprehensive Plan of Action, Iranian transportation authorities did not hesitate to address the issue of the country's dilapidated air fleet battered by years of sanctions.

Multibillion dollar deals were signed soon after the JCPOA was signed with major plane-makers, including Airbus and Boeing.

Iranian airlines have ordered a total of 323 (with the option of adding 50 more) new passenger jets post JCPOA.

The first delivery–an Airbus A321–was made to flag carrier Iran Air days before the anniversary of the JCPOA implementation on Jan. 16, 2016. Later in March, two A330 jets landed in Tehran’s Mehrabad International Airport.

ATR also delivered eight turboprops to Iran Air in 2017 and is expected to deliver the remaining 12 planes by the end of 2018.

Iran Aseman Airlines signed a final contract with Boeing on June 11 to purchase 30 B737-Max passenger jets worth $3 billion based on catalog prices with the option of adding 30 more in the future.

The aircraft, which have yet to be licensed by the US Treasury Department's Office of Foreign Assets Control, are scheduled to be delivered by 2022.

A number of other Iranian airlines also signed agreements with Airbus and Boeing last year, though the contracts have yet to be finalized.

Two private Iranian airlines signed memoranda of understanding with European aerospace giant Airbus to purchase 73 new jets at the Paris Air Show in June.

Iran Airtour signed a deal for 45 A320neo aircraft while Zagros Airlines committed to purchasing 28 new planes, comprising 20 A320neo and 8 A330neo aircraft.

Iran’s Qeshm Air also unveiled a preliminary agreement last year with Boeing to buy 10 B737Max passenger jets.

Qeshm Free Trade Zone announced last year that it was planning to launch a new airline called Fly Qeshm, saying the Canadian government would provide $100 million in finance for a deal between Montreal-based multinational aerospace and transportation company, Bombardier Inc., and Iran’s Qeshm Free Zone Organization for purchasing 10 passenger planes.

In August, Iran’s Kish Airlines unveiled a preliminary agreement with Boeing to purchase 10 737Max jets.

And last month, Iran’s fourth largest airline, ATA, took delivery of its first Embraer ERJ 145 jet. The secondhand 50-seat jet was the first of 15 aircraft the airline has ordered.

The Health Ministry announced back in August that it was holding talks to purchase 45 HEMS (Helicopter Emergency Medical Service) helicopters, noting that Iran wants to include the helicopter order into the Iran Air-Airbus contract signed in December 2016.

Two EC-145 emergency choppers were delivered at Tehran’s Imam Khomeini International Airport, in September.

> Rail Revolution

With the aim of reducing road traffic and battling air pollution, the Ministry of Roads and Urban Development has placed the development of Iran's rail sector on top of its agenda.

Besides expanding Iran's rail network and increasing connectivity both inside and outside the country, the ministry has moved to renew the country's aging rail fleet.

French company Alstom signed a trilateral "shareholders agreement" with the Industrial Development and Renovation Organization of Iran and Iranian Rail Industries Development Company in July to manufacture 1,000 subway wagons at IRICO's facilities within three years.

An IDRO source told Financial Tribune that about €1.3 billion will be invested in the joint venture whose main shareholder is Alstom with 60%, while the Iranian companies each will own 20% stakes.

Later in December, South Korean rolling stock manufacturer Hyundai Rotem signed a contract worth €720 million with the Islamic Republic of Iran Railways to produce 450 suburban railbus wagons in Iran.

And a few days later, Russia signed a €3 billion finance deal with Iran for the joint manufacture of 20,000 freight cars, 1,000 passenger cars, 350 locomotives and rail transportation equipment.

Iran has another agreement worth €2.5 billion with Russia’s CJSC Transmashholding for the joint production of rolling stock in Iran. Based on this contract signed in late July, a joint venture is to be formed between IDRO and the Russian company, with the Russian side holding an 80% stake and the Iranian side 20%.

Transmashholding CEO Kirill V. Lipa told Financial Tribune after the signing of the contract that the capacity of the joint venture will depend on the depth of localization.

“For assembling, we’re thinking about 300-400 units per year,” he said.

China has also played a major role in developing Iran's rail sector, as Iran lies in the heart of the so-called New Silk Road–a 3,200-kilometer railroad project that ultimately sees Urumqi, the capital of China's western Xinjiang Province linked to the Iranian capital Tehran, connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way.

China signed a contract with Iran in July to finance the electrification of a 926-km railroad from Tehran to the eastern city of Mashhad in Khorasan Razavi Province with a $1.5 billion loan.

> "International Gateway" inaugurated

President Hassan Rouhani inaugurated the first phase of Chabahar’s Shahid Beheshti Port in the southeastern province of Sistan-Baluchestan, in the presence of some 70 visiting dignitaries from 17 countries on Dec. 3.

Billed as “International Gateway” by Iranian officials, the opening of the first phase has tripled the port's capacity to 8.5 million tons (equal to that of all the northern ports of the country), will allow the docking of super-large container ships (between 100,000 DWT and 120,000 DWT) and increase India’s connectivity with Afghanistan.

It will allow the docking of super-large container ships (between 100,000 DWT and 120,000 DWT) and increase India’s connectivity with Afghanistan.

"Transit via Chabahar’s Shahid Beheshti Port is $1,000 cheaper than ports of Pakistan and even 15 million rials ($375) cheaper than Shahid Rajaee Port, Iran’s biggest container port at the mouth of the Strait of Hormuz," director general of Ports and Maritime Organization of Sistan-Baluchestan Province, Behrouz Aqaei, said.

The Indian government has committed $500 million to Chabahar, with the aim of joining an increasingly important transport corridor to resource-rich regional countries.

India sent the first consignment of wheat to Afghanistan through Chabahar Port last year.

Add new comment

Read our comment policy before posting your viewpoints

Financialtribune.com