The domestic economy is at a turning point, which will open the way for sustainable development and help unleash immense potential, Valiollah Seif, governor of the Central Bank of Iran said Saturday.
“This historic opening can elevate Iran’s economic position to the level of the emerging economies,” he said at the Second Iran-Europe Business Forum in Tehran, IRNA reported.
Iran welcomes expanding ties with the EU and will create the space for investors to seize the unique opportunities Iran’s economy is now offering. “With the investment and presence of foreign businesses, Iran’s economy can and will absorb investment and accelerate its development and growth process.”
Pointing to the slowdown in global economic growth in 2015, the governor was of the opinion that prospects for Iran’s economy in the coming years are bright. The economy is poised to grow “more than 5% in 2016” he stressed. “This should serve as a step forward in realizing sustainable growth and development.”
Risk Reduced
Pointing to the implementation of the nuclear accord between Iran and the six world powers in January, the senior official said the lifting of sanctions is indeed the biggest change in Iran’s recent economic history. “The sanctions were among the hurdles to economic development. They also deprived many countries, including EU members, from building close cooperation with Iran.”
Implementation of the nuclear accord improved Iran’s foreign relations, more so with Europe, and also opened new venues for building and expanding bilateral and multilateral collaboration, he told the conferees. “Implementation of the nuclear deal has visibly reduced the economic and political risk” of doing business with Iran.
The lifting of sanctions will help expand foreign trade, end the credit crunch, and improve foreign and domestic investment which will contribute to decent levels of economic growth, according to Seif.
Reforms
The CBI governor reiterated that the government’s focus has been on reforming monetary, financial and foreign exchange policies in the interest of economic stability and growth. “By controlling the monetary base and curbing liquidity growth we have managed to curb inflation to a significant extent.”
Preserving stability in the foreign exchange market, minimizing volatility and efficiently injecting foreign exchange into markets and businesses have been the highlights of CBI policy in the key currency market, according to the senior official.
Regarding financial policies, he said the government has cut spending and decreased the budget deficit at a time when oil prices have plunged to historic lows. “The government’s financial policy has prioritized economic stability.”
He called for policy reform and an overhaul of economic structures simultaneously saying these two are paramount to better economic results.
Heavy dependence on oil revenues has been, and is, one of the serious handicaps of the economy. “Reforming the composition and structure of the government budget to reduce the share of oil (export earnings) and revising tax laws” are among the government’s declared priorities.
The CBI governor noted that the government is focused also improving the business climate. “Iran’s ranking for ‘Ease of Doing Business’ has improved. Now it is 118 from 130 in 2015 and 153 in 2014.”
Downsizing the government and reforming the banking system will be followed by economic liberalization and reducing cumbersome rules and regulations to prepare the ground for a competitive economy.
Upgrading Standards
Pointing to the decade-plus sanctions imposed on Iran, he said the ensuing disconnect between Iranian banks and international banking had hurt the banking industry and contributed to its “underdevelopment.” “There is a relatively wide gap between the quality of banking services in Iran and international banking.”
The pile of non-performing loans, low levels of CAR, government debt to banks, banks’ lack of resources to lend and their outdated standards are the major ills visiting the domestic banking sector, he recalled.
Seif called on Iranian banks to upgrade their standards and services stressing the importance of “Transparency in financial ventures and balance sheets of banks as a prerequisite for normal international business.”
According to the governor, the CBI has taken the preliminary steps to improve transparency in the banking system and upgrade banking standards through “reforming the banks’ balance sheets and bringing them in line with (International Financial Reporting Standards (IFRS) and Basel II --which have been done to a good extent.”
Moving toward acquiring the standards of Basel III is among the CBI’s priorities.
Iran’s huge market offers immense prospects for closer ties between Iranian and European banks. Europe’s financial institutions can help develop banking infrastructure like risk management. Investment banks can access a new market and cooperate in establishing branches, representative offices and joint banks, Seif was quoted as saying.
“We invite foreign investors to come to Iran and use the opportunities in Iran’s economy. An educated workforce, rich natural resources, cheap energy sources, a big consumer market and access to the consumer markets of the Middle East and Central Asia…are among Iran’s emerging economic landscape.”
