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Financial Outlook

The outlook for the Iranian economy improved significantly following an interim agreement to curb Iran’s nuclear program, which entered into force in January 2014. The deal, agreed in talks with world powers in November 2013, envisaged an easing of some of the international sanctions on Tehran. The first US$550 million installment of US$4.2 billion in frozen Iranian assets was released in February 2014. The economy certainly needs relief. Despite a new government under the moderate President Hassan Rouhani taking office in August 2013, Iranians have seen little improvement. According to the central bank, GDP shrank by 5.8% in 2013. A full percentage point of growth in 2013 would be due to the onset of natural gas production at the offshore Tamar field, it said. Inflation is also running at around 25%, with the Iranian rial falling in value against the US dollar by around 30% overall during 2012 and 2013. On taking office, Rouhani discovered that the government’s finances were in far worse condition than his predecessor, Mahmoud Ahmadinejad, had admitted. The new government has thus been forced to cut spending. It began phasing out subsidies on energy in 2014, the start of a process that will send the prices of gasoline and electricity, and other utilities, soaring by nearly 90%. The government is also closing down a system of $12 monthly payments to nearly 60 million Iranians, with only the poorest remaining eligible. Further information about the problems the economy faces can be found in this IMF statement (February 2014) and the 2014 budget is discussed in an Al-Monitor article.

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