Comments on the Iranian Economy - May 9th, 2014

(drawn from press reports and official publications)

By Dr. M. Javad Ardalan (ardalan@oxpe.co.uk)

Director of Oxford Persian Institute (www.oxpe.co.uk)

Economy

The Iranian government plans to distribute food credit cards, in an attempt to control inflation. The plan intends that about 13 million people will be eligible to receive food credit cards, which are similar to a gift card but only for use in purchasing food items from designated stores. As yet it is unknown how much the value of each food credit card is to be. Also the government is to distribute housing rent vouchers to cover 60 percent of the rent for low income families. It is expected that 700,000 families would benefit from the plan.

Trade

Iranian and Indian officials have finally agreed that the outstanding balance of Iranian oil money in India to be paid through Omani intermediaries. According to the plan a total of US$1.6 billion will be paid between now and July.

Oil and Gas

Oil exports are still problematic as, according to Mohammad Bagher Nowbakht, the President's deputy in strategic affairs, Iran cannot export more than 25 percent of its oil production, due to sanctions.

exports as a part of Joint Action Plan. He said that Iran is determined to increase its oil exports rapidly. Iran is currently in need of US$50 billion investment for the development of the South Pars field.

[Note. In December 2013, John Kerry, the US Secretary of State, in giving evidence before a Hearing of the House of Representatives Foreign Affairs Committee, indicated that there were over US$100 million of Iran's oil monies in frozen accounts].

Plans have been finalised for building 8 small refineries in Asaluyeh. The Oil Ministry will only provide 20 percent of the required investment for these projects and the rest will be provided by the private sector. The overall required investments for these plans could be up to US$24 billion. These projects are intended to bridge the gap between petrol consumption and usage in Iran. However, it is estimated by 2016 Iran will be able to export 2 to 3 million litres of petrol. EUR 2.6 billion, which is required for the development of the Abadan Refinery, will be supplied by Chinese investors.

Iranian officials have recently agreed to export 400,000 barrels a day of crude to China for the next year. 140,000 barrels a day will be exported to Japan.

Transport

Alireza Jahangirian, director of the Iranian Civil Aviation Organisation, said that there are 250 civil aeroplanes in Iran, of which 100 cannot fly due to technical problems. The government has allocated US$500 million for buying new aeroplanes or repairing the existing fleet. Under the terms of the Joint Action Plan, Iran is entitled to buy parts to repair aircraft. However, problems remain in transferring money for this purpose. Iran plans to buy 30 new aeroplanes.

The production line of Scania coaches in Iran has been closed, due to the outcome of the investigation which was ordered by the parliament about safety standards of the coach.

Technology and Telecoms

Muzaffar Pourranjbar, the CEO of the Iranian Telecommunication Company announced that the income of the company in the last Iranian year (20 March 2013- 20 March 2014) was IRR11,600 billion (US$454 million) of which IRR2,300 billion (US$90 million) was the net profit.

Health Care and Pharmaceuticals

While there are currently 400 Iranian companies who produce medical equipment, Iranian health officials warned that counterfeit medical equipment had been imported from Pakistan.

Banking and Financial Service

The Central Bank of Iran is determined to strictly control banking products which pay an interest rate more than the official rate. Banks and financial institutions are now required to obtain CBI approval for interest-paying products.

Shareholders from the Aria Bank, whose licence was cancelled by the CBI, can now receive their investment back from the Aria Bank reserves in the CBI. The CBI had frozen the accounts of Aria Bank at the request of the judiciary. The public bought IRR2 Trillion (US$782million) of the Aria Bank shares. However, the bank's activities never began as the main owner, Mahafarid Khusravi, founding member of Aria Group and some of his close associates were arrested in a fraud case.

Currency Market

The official (CBI) exchange rate is GBP 1 equals IRR 43,246, €1 equals 35,501 and US$ 1 equals IRR25,51. As at 9th May 2014, the market price is GBP1 equals IRR 55,970, €1 equals IRR 45,780 and US$1 equals IRR 32,880. While the official exchange rate is little different from a month ago, the Rial fell by about 9 percent in the market. This was against the expectations of the CBI and other market predictors who expected an increase in the value of the Rial following the release of some Iranian frozen assets. Some analysts believe that the government is buying Rials at market price to generate more Rials for subsidy payments.

This content does not necessarily express the views of The British Iranian Chamber of Commerce. The views and opinions expressed are those of the author.