Azernews.Az

By Sara Rajabova

Though sanctions will be removed gradually, Iran has already begun to revitalize its ailing economy.

Hit hard by sanctions over many years, Iran is expected to take great benefits from relief under the P5+1-Iran nuclear agreement.

The removal of sanctions promises an economic windfall for an economy that has steadily declined over many years, restore the country’s relations with the world, return frozen petro dollars, and attract huge investments to country, which is in dire need of renovation of its outdated technology, especially in the energy field.

Following the long-awaited nuclear deal, economic indicators show that the country is back on track for growth.

The appreciation by international financial institutions and organizations of Iran’s economic growth also give ground for the possibility of quick revival of the Islamic Republic’s sanctions-hit economy.

Though their estimates differ, majority of them predicted significant growth in the country after removal of sanctions.

Iran’s GDP growth in 2015, for example, has been predicted to be 1.4 percent, compared to 1.2 percent in 2014, according to Business Monitor report. The report also predicted a 2.7 percent rise in Iran’s average long-run GDP by 2019.

The World Bank, however, expects the removal of sanctions against Iran to expedite the country’s economic growth next year by an even greater amount.

The WB forecasted in its latest report that Iran’s economic growth will surge to about five percent next year from three percent this year after the sanctions are lifted.

"Just as the tightening of sanctions in 2012 led to a sharp decline in Iran's oil exports and two years of negative growth, we expect the removal of sanctions to boost exports and revive the economy," said Shanta Devarajan, World Bank Chief Economist for the Middle East and North Africa region.

The Bank’s report estimated that exports from Iran will eventually increase, too, by about $17 billion, which is about 3.5 percent of its GDP.

“Since the framework agreement of April 2015, we have seen increased interest from multinational companies in investing in Iran, especially in the oil and gas sector. That trend is likely to accelerate with the lifting of sanctions, providing much-needed capital and upgrading of technology to Iran’s oil sector,” said World Bank MENA Economist Lili Mottaghi and the author of the report.

Along with estimates from international organizations, Hassan Rouhani’s government predicted an eight percent growth in 2016.

On the other hand, the return of petrodollars to the country and an inflow of investments after the removal of sanctions are expected by some to have negative effect on the Iranian economy.

A potential increase in trade activity following sanctions relief raised concerns that a more open economy would result in greater imports of foreign goods to the country.

Taking into account the fact that the Islamic Republic has been in isolation over the years and had to provide its markets with domestically produced goods, then one can expect that the new foreign products could be more alluring to Iranian buyers.

This will negatively impact Iran’s production and could eventually lead to a rise in unemployment, according to experts.

Iran’s president Rouhani admitted to this fact in a recent interview, saying such concerns are indeed valid.

Experts believe that this expectation may come true if the government fails to properly manage the economy after the removal of sanctions.

Seyyed Mohammad-Ali Abrishami, the deputy minister of Industries, Mines, and Trade said the termination of sanctions should not lead to a rise in imports, as this will lead to annihilation of domestic products.

“Unbridled imports will deal to severe blows to national industries,” IRNA news agency quoted him as saying.

Abrishami added that the Iranian manufacturers and industrialists suffered greatly over the past ten years as the sanctions were just a part of the pressure exerted on them, while the incessant imports in 2011 and 2012 created a lot of problems for the manufacturers.

However, he considered that resolving the nuclear problem will result in easy access to modern machines for Iranian industries, tighter competition among Iranian manufacturers, and the production of higher quality goods to compete in international markets.

Despite these facts, much depends on the government’s decision and how its moves can prevent the economy from the side effects of a sudden surge after the lifting of sanctions.

The World Bank said in its report that governments facing such economic windfalls have the opportunity to put in place a policy framework that puts the economy on a path of sustained growth.

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

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