Rating agency sees stronger Iran recovery
A view of northern Tehran with the snow-capped Alborz mountains in the background. (File photo).
International credit rating agency Capital Intelligence has revised its outlook on Iran’s sovereign ratings to “stable” from “positive”.
A credit rating is an assessment of a business or government’s ability to pay its financial obligations.
In its latest evaluation, the Cyprus-based agency upgraded Iran’s long-term foreign and local currency ratings to ‘B+’ from ‘B’. For the short term, it affirmed the ratings at ‘B’.
“The upgrade reflects the progressive improvement in the external environment of the Islamic Republic of Iran and its positive impact on the sovereign creditworthiness,” Capital Intelligence said.
It cited US and Iran’s recent endorsement of a nuclear accord reached in July, calling it “positive events” that pave the way for the removal of sanctions.
The agreement also paves the way for the release of frozen financial assets, the restoration of Iran’s access to cross-border funding, and a significant improvement in trade and investment, the agency said.
Consequently, full implementation of the Joint Comprehensive Plan of Action (JCPOA), as the nuclear accord is called, is expected to improve Iran’s medium-term economic growth prospects and reduce sovereign risk, it added.
Tabiat Bridge, the largest pedestrian overpass in Tehran
Capital Intelligence issued the improved ratings with a caveat of risk to its assessment given “the uncertainty surrounding the timeline for implementation” of the JCPOA.
According to the agency, the short- to medium-term growth prospects for the Iranian economy have improved since the last review.
It saw Iran’s real GDP increasing by about 4% in 2016 after a 0.8% growth in 2015 and expanding by at least 4% in the medium-term if sanctions are lifted.
Inflation is expected to decline to 11.5% in 2016 after falling to around 15% in 2015 from above 40% at the start of President Hassan Rouhani’s office in 2013.
The agency factored in Iran’s low public debt and its “sizable” official foreign assets but also touched on the government budget deficits of “increasing magnitude” in 2014 and 2015, reaching about 2.9% of GDP, after a decade of surpluses.
Assuming a reversal of sanctions in the short- to medium-term, the agency expects the budget deficit to decline to an average of 1% of GDP during 2016-2017, it said.
The government intends to strengthen the budget structure and reduce the budget deficit by revising non-oil taxes, improving tax administration and pressing ahead with planned cuts in fuel and food subsidies.
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