The Institute of International Finance has warned that president-elect Hassan Rouhani faces tough economic hurdles that will not be solved easily or quickly. Its new report says that rolling back sanctions is far off. The following are key points from the report issued on June 20.
• The recent election of Hassan Rouhani signals the possibility of a softened stance in Iran’s external relations
• We estimate the economy to have contracted by 3.5% and the 12-month CPI (consumer price index) inflation rate to have surged to above 60% in FY2012/13, ending March
•State institutions have been politicized and the data they have been producing has often been tainted
• The sharp rial depreciation has fed into higher CPI inflation, which according to our estimates exceeded 60% in May 2013
• Continuation of the sanctions combined with average oil prices at $108 per barrel could drain official reserves to below $50 billion by end-2014 (but still adequate)
• Iran’s fiscal breakeven price of oil has risen from $107 per barrel in 2010 to around $144 per barrel in 2012 due to the sanctions
• As long as oil prices remain above $100 per barrel, the current sanctions will continue to provide Iran with large foreign exchange receipts and therefore limit the impact of the sanctions on the Iranian economy
• Sanctions, combined with lower oil prices, would pose serious challenges to the authorities in managing the economy and, possibly, in maintaining internal political stability