The global growth outlook holds challenging economic and political downside risks, despite its goal for a continued recovery. There are little chances that in future, the global economy will be a driving force to uplift emerging economies for Iran, as it was in the past. The reason lies in the sharp fall in commodity prices in Iran, with oil prices at the top of the list (Imf.org, 2015). The balancing sheets are hurting due to the global slowdown, and for Iran, the financing environments have tightened significantly.
Iran has a currency depreciation risk that may add up to inflation pressure for the country, arising from supporting non-oil exports (Imf.org, 2015). The inflation is at its lowest level since the monetary crises, emerging markets’ core inflation, falling below the central bank’s targets. Some of the risks are blamed on China’s slower growth (Derby, 2017).
The governments model of oil spending and sharing the oil wealth through public employment and price subsidies pose a danger to its currency. The problem is mutual to all other countries that rely on the global oil market. The model does not provide adequate jobs for the population (Imf.org, 2015). The danger is evident based on the fact that there is a constant increase in unemployed population, which slows the economic growth rate.
Iran’s external environment is also a threat to its currency. The country has sanctions that make it experience system wide stress on its banking sector (Imf.org, 2015). A significant part of the effect is the withdrawal of correspondent banks and a weaker economic environment, in response to the suctions. The restrictions deny a country the opportunity to receive funding from potential investors. Most investors fear such a situation, in consideration of the investment risk involved (Derby, 2017). The complication arises when the suctions are prolonged.
- Derby, M. (2017). Fed Mulls Impact on Economy of Raising Rates. WSJ.
- Imf.org. (2015). Regional Economic Outlook Middle East and Central Asia; May 2015 Update. IMF.