World Bank Anticipates Iranian Economy to Bounce Back in 2021

In its June edition of Global Economic Prospects report, World Bank has revised down its forecast for Iran's growth in 2020. The previous such report had estimated 0% growth in 2020.

However, the forecast for next year has been revised up, as the previous report had forecast 1% growth in 2021.

According to World Bank, Iran experienced respective growth rates of -8.2%, -4.7% and 3.8% in 2019, 2018 and 2017.

"Iran’s GDP, which had already fallen in each of the previous two years, is expected to shrink again in 2020, by 5.3%, partly reflecting the effects of the large-scale Covid-19 outbreak on domestic consumption and the services sectors [such as tourism]," reads the latest report, adding that in many oil exporters, growth will be significantly constrained by renewed policy cuts in oil production.

"US-Iran tensions have not eased appreciably even as both countries attempt to cope with the effects of the pandemic," it said.

Economic Challenges

Eight main challenges will face Iran’s economy in the current Iranian year that started on March 20, according to the Ministry of Economic Affairs and Finance.

As reported by Fars News Agency, the most biting of these challenges is the escalation of US sanctions and depletion of Iran’s foreign exchange reserves combined with economic losses resulting from coronavirus outbreak and disruptions it has caused for businesses that would lead to leaner tax revenues.

Friction between Tehran and Washington has increased since 2018, when US President Donald Trump pulled the United States out of Tehran’s 2015 nuclear deal with six nations and reimposed sanctions, crippling Iran’s economy.

On March 24, the United Nations called on the world to lift sanctions on countries, such as Iran, with a coronavirus crisis.  

“At this crucial time, both for global public health reasons, and to support the rights and lives of millions of people in these countries, sectoral sanctions should be eased or suspended. In a context of global pandemic, impeding medical efforts in one country heightens the risk for all of us,” said Michelle Bachelet, UN High Commissioner for Human Rights. 

Bachelet emphasized the need for “prompt, flexible authorization for essential medical equipment and supplies”. At least four countries have also urged the United States to ease sanctions against Iran.

In November 2018, US President Donald Trump reimposed US sanctions that had been lifted in 2016, as part of the nuclear deal struck in 2015. By the end of 2018, Washington had also imposed 20 other types of sanctions as part of its "maximum pressure" campaign on Iran.

Humanitarian goods, such as medical, educational and humanitarian supplies, have always been exempt from US sanctions. But foreign banks have been hesitant to finance business with Iran, in turn limiting Iran’s ability to buy and ship goods not limited by sanctions.

Iranian leaders have called US sanctions “economic terrorism” that impedes their response to Covid-19. 

“US sanctions against Iran-and following them by other nations-are not only illegal and contrary to UN Security Council resolution, but also unethical and inhumane,” President Hassan Rouhani said in a letter to world leaders on March 14. 

“It’s inhumane dimension today concerns no longer only the Iranian people, but the people of the region, and it encompasses other countries as well. This is not a collective punishment of the Iranian people, but a collective punishment against all humanity.”

China, Iran’s most important trading partner, was the first country to call for the easing of sanctions. 

"Continued sanction on Iran was against humanitarianism and hampers Iran's epidemic response & delivery of humanitarian aid by the UN and other organizations," China’s Ministry of Foreign Affairs tweeted on March 16.

Other challenges facing the economy according to the Economy Ministry include: The continuation of the decline in oil, petroleum products and petrochemical prices due to global recession; deepening recession in services sector" due to the coronavirus pandemic; withering global demand for minerals and decrease in metal prices; decline in consumption due to the shrinkage of people’s purchasing power; government’s rising expenses due to the impacts of coronavirus spread and widening budget deficit in fiscal 2020-21.