Despite increased international isolation and diplomatic tensions, the OECD has an optimistic view on Iran. Sebastian Shehadi reports.

The OECD has upgraded Iran’s country credit risk rating to 5 from 6 (out of 7), putting it on par with Brazil and Jordan, among others, the Paris-based institution said in a statement on January 26.

‘Country risk’ encompasses unforeseeable circumstances, such as political unrest and natural disasters, and transfer and convertibility risk, such as governments’ imposing capital or exchange controls (that is, banning foreign remittances). The methodology classifies “countries in connection with their agreement on minimum premium fees for official export credits”, according to the OECD website.

“A better risk rating will serve to boost Iran's financial and credit status in international markets, as well as provide potential incentives for Asian and European partners to deepen their respective levels of engagement with the Islamic Republic,” said James Appleyard, managing consultant at global risk and strategic consulting firm Verisk Maplecroft.

Iran’s ranking previously moved up a grade in June 2016, from 7 to 6. Iran’s investment promotion agency, the Organization for Investment Economic and Technical Assistance (OIETA), said the country’s economic performance accounts for the upgrades, along with the efforts made by its central bank, foreign ministry, the Export Guarantee Fund of Iran, and the OIETA. As a result, Iran’s exports soared by an estimated 41.3% in 2016, while imports remained around the more usual mark of 6%, according to the World Bank.  

The OECD’s decision comes amid rising sociopolitical unrest in Iran and growing concerns over the future of the 2016 nuclear agreement signed by Iran and the P5+1 group. In 2017, US president Donald Trump threatened to abandon the deal unless certain conditions were met.

In early January 2018, Iran experienced its worst bout of political unrest since 2009, resulting in dozens of deaths and hundreds of arrests. The protesters claimed to be rallying against rampant corruption, rising fuel and food prices, as well as dashed hopes following the lifting of UN and EU (but not US) sanctions against Iran in 2015 and 2016, after which the public expected better economic development.

The main factor behind the OECD’s upgrade was Iran’s positive macroeconomic indicators, as evidenced by the IMF, which projected Iran’s real GDP to expand by 3.5% and 3.8% in 2017 and 2018, respectively, according to Dr Arshin Adib-Moghaddam, an expert on Iran at the School of Oriental and African Studies. In 2022, the IMF estimates Iran’s economic growth will stand at 4.1%. “The [recent] protests were about the mismanagement of distribution of some of these economic gains, rather than the economy itself,” he added.

Dr Scott Lucas, professor of international politics at the UK’s University of Birmingham, said the OECD’s risk ratings can be rather bullish and positive. Like any international organisation, it may also have an agenda: in this case, keeping the Iran nuclear deal in place.

The World Bank’s latest Iran report (October 2017) also gave a positive, albeit tempered, outlook. “The Iranian economy strongly recovered in 2016, on the back of a significant rise in oil production and exports, following the removal of nuclear related international sanctions,” it said. “However, unemployment remains high and non-oil sector activity remains subdued, as anticipated foreign investment flows have not materialised, in the absence of a full integration of the banking sector with the global banking system and continued uncertainties regarding full implementation of the [nuclear deal]. Growth prospects in the medium term are modest.”

Following the nuclear deal and the lifting of sanctions in 2016, Iran’s inbound greenfield investment soared, reaching a record high of $12.18bn, according to greenfield investment monitor fDi Markets. In 2017, this figure returned to Iran’s more usual FDI mark of $2.13bn.

This article is sourced from fDi Magazine
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