Iran is the second largest economy in the Middle East and North Africa (MENA) region after Saudi Arabia, with an estimated Gross Domestic Product (GDP) in 2015 of US$393.7 billion. It also has the second largest population of the region after Egypt, with an estimated 78.8 million  people in 2015. Iran’s economy is characterized by a large hydrocarbon sector, small scale agriculture and services sectors, and a noticeable state presence in manufacturing and financial services. Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. Economic activity and government revenues still depend to a large extent on oil revenues and therefore remain volatile.
Due to the lift of the sanctions and a more business-oriented environment, real GDP growth is projected to reach 4.2 percent and 4.6 percent in 2016 and 2017, respectively. On the production side, growth will be mainly driven by higher hydrocarbon production. On the expenditure side, consumption, investment and exports are expected to be the main drivers. Notwithstanding the narrowing of the output gap over the coming years, inflation is forecast to remain moderate, by Iran’s standard. The lifting of sanctions, and in particular the positive impact this will have on the banking system, will significantly reduce international transaction costs. Strong capital inflows, including FDI and the  repatriation of part of the frozen assets, could put upward pressure on  the Iranian rial which will help contain imported inflation. Fiscal policy, is projected to be slightly contractionary with the deficit projected to narrow to 1.8 and 1 percent in 2016 and 2017, respectively, mostly on account of improved oil revenues. Iran’s current account position is expected to turn into a surplus in 2017, also primarily driven by rising oil exports.
World Bank, April 2016

 

 

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