Azernews.Az

By Sara Rajabova

Iran is keen to regain its lost place in the global market, now that world powers and the Islamic Republic are to reach a tantalizing final nuclear deal. Upon the signature of the historic agreement, Iran is set to see all sanctions against it economy lifted.

The Lausanne framework accord, reached on April 2 after marathon talks between P5+1 countries and Iran has heated up a discussion on just how much will Iran deal will affect the world market and how the lifting of sanction will affect Iran's economic recovery.

Experts and analysts have widely discussed the advantages and disadvantages of such possible Iran nuclear deal and the removal of international sanctions.

It is very important to review the impacts such a deal could have on Iran, especially since its economy has been severely battered by international sanctions over the years, most especially since the European Union and the United States tightened their restrictions against the country.

Iran certainly will be the big winner of this nuclear deal since world powers will end Iran isolation and welcome the Islamic Republic back into the global market fold.

The lifting of financial and economic sanctions will bring huge investments to the country, and automatically fuel recovery and growth. It will also enable the country to get back its frozen assets, which are estimated to be worth $100 billion, according to reports.

Sanctions have paralyzed Iran's economy and hindered the flow of huge wealth that the country could obtain from its oil and gas exports. In 2013, Iranian GDP shrank 5 percent, while unemployment, as Iranian media reported, rose to about 40 percent. A U.S. Congressional study indicated that the Iranian economy is 20 percent smaller today than it would have been without sanctions.

Besides, the return of foreign companies to the country will trigger a revival in the country’s economy and increase local companies' competitiveness. Foreign companies have already voiced their readiness to return to Iran once all restrictions are removed. Such a situation will also normalize the country’s currency market.

Analysts have predicted the country’s national currency -rial, which dramatically dropped against the dollar after the EU and U.S. bans in 2012, will strengthen on the back of such political breakthrough.

But the sudden flow of incomes to the country as a result of the sanctions removal could also lead to economic problems, if not realized under proper control, experts have warned.

Some in Iran are wary of “the Dutch Disease”, should the country fail to properly exploit the expected flow of petrodollars once sanctions will be removed and revenues increased.

Ali Tayebnia, the Iranian minister of economic affairs and finance has recently voiced concern that the Dutch Disease, which Iran experienced several times before, could return again.

The Dutch Disease is defined as a development through which a large inflow of foreign currency into a given country makes its manufacturing sector less competitive.

However, he also noted that the Iranian government has devised serious plans to cushion the economy against what is internationally known as “the Dutch Disease”.

As fears of “the Dutch Disease” have already been considered by the government, then questions have risen in view of what threat such a phenomenon can really pose the Islamic Republic.

Commenting on the issue, Kamran Dadkhah, a professor of economics at Northeastern University in Boston city of Massachusetts State told AzerNews that Iran has always faced this problem - the phenomenon that was caused not from earning foreign exchange but because of the wrongheaded policy of the government to keep foreign exchange rates low.

He went on to say that though such a situation is possible, the government will be able to prevent the threat to become a reality.

“Thus, if the government pours the increased oil revenues in the foreign exchange market and lowers the value of the dollar below current market value of 3200 tumans, it would have negative effects on the country’s balance of payments. Indeed, those close to the centers of power and in the business of importing foreign goods may push for such a policy,” Dadkhah said.

He, however, noted that it seems that Hassan Rouhani’s economic advisers are cognizant of the issue and may resist such wrong policies.

“As long as the foreign exchange rates are allowed to be determined by market forces, and the government desists from pouring oil money to lower the exchange rates, there is no reason to worry about the Dutch disease,” Dadkhah said.

He added that the main point is to treat oil revenue as capital and use it for long term investment and not for current expenditures.

Moreover, though the nuclear deal could be significantly beneficial for Iran, it will not wipe out all its economic problems immediately. There are many problems in the economy that sanctions have nothing to do with.

Tayebnia said in his recent remarks that “it is very simplistic to think that all of the problems will be resolved once the sanctions are lifted.”

“The sanctions were imposed as the government was at the peak of its dependency on oil revenues. The removal of sanctions will create better conditions for our economy but will not necessarily terminate chronic stagflation,” Jahan-e-Sanat Daily quoted him as saying.

He blamed imbalanced structure, wrong policies as well as dependence on oil revenues as the root causes of Iran’s economic problems.

Therefore, it’s crucial for the government to learn from past experiences and be ready for any scenario - whether it will reach a nuclear deal or not.

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Sara Rajabova is AzerNews’ staff journalist, follow her on Twitter: @SaraRajabova

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