Moody’s Highlights Challenges to Iran’s Budget Plans

Iran’s budget plans for the post-sanctions era are supportive of growth, but the incoming US administration and oil prices could present obstacles, Moody’s said.

Iran received a de facto economic stimulus in January when the United Nations verified compliance with a multilateral nuclear agreement brokered in 2015. Sanctions imposed by the European Union and some in the United States, have eased as a result and the government started reporting economic growth in early 2016.

Though sanctions relief means more Iranian oil on the market, the Iranian government has tried to make its economy less dependent on oil for revenue. Moody’s Investor’s Service found the Iranian economy is more diverse than other oil exporters in the region, UPI reported.

Iranian President Hassan Rouhani last week submitted a budget of around $338 billion for next year, which is based in part on a 50% increase in oil revenue with oil priced at around $50 per barrel.

Brent crude oil was trading early Thursday at around $53.40 per barrel.

Under the terms of a production agreement from members of the Organization of Petroleum Exporting Countries, Iran can keep working to regain its market share, while other producers are expected to make cuts. Rouhani said that means his country can sell as much oil as it deems fit.

In its latest report, Moody’s finds Iran faces some economic risks that depend in part on sanctions. Washington recently extended a sanctions program and, if US president-elect, Donald Trump, backs out of the UN-backed nuclear deal, it could make some of those sanctions tougher.

“Many of the government’s key budget assumptions are reliant on the agreement staying in force including, for example, Iran’s ability to sell 2.42 million barrels of oil per day as well as its ability to access the international payments system to receive payments for those exports,” the emailed report read.

The International Monetary Fund expects Iran will continue to run a small deficit through the beginning of the next decade. Non-oil revenues, meanwhile, account for about 13% of the total planned revenue stream and Moody’s says Iran’s budget estimate of $50 per barrel for oil overshoots its forecast for 2017 by $5 per barrel.

“Iran’s budgets always target a balance, but revenues have fallen short of expectations since 2012 because of international sanctions and, more recently, low oil prices,” Moody’s said.