Imminent Upgrade in Iran Risk Rating by OECD

EghtesadOnline: The Organization for Economic Cooperation and Development will upgrade Iran's rating in the country risk classification of the Participants to the Arrangement on Officially Supported Export Credits by two points in the next fiscal year that begins in March, a deputy economy minister predicted.

News ID: ۷۳۹۵۷۸

02 February 2017

"Evidence shows that the risk classification of Iran will improve to five and subsequently to four in the next fiscal year," Mohammad Khazaei was also quoted as saying by IBENA.

"The upgrade in the country risk classification will show that excluding a number of political issues, Iran's economic and political risks have decreased while safety rankings in general and those of banks in particular have improved."

Khazaei reminded that as a result of not having substantial ties after international sanctions, the risk factor of Iran had been set at seven by OECD, which is the lowest rating possible, according to Financial Tribune.

“Many efforts were undertaken to resolve the issues such as paying back the Hermes cover debt, which led to the improvement of the country’s risk factor,” he said.

Last June, OECD updated its risk classification and improved Iran’s ranking by one notch, moving it from seven to six.

As OECD puts it, the classification is meant to reflect a country risk, which is composed of transfer and convertibility risks (i.e. the risk a government imposes through capital or exchange controls that prevent an entity from converting local currency into foreign currency and/or transferring funds to creditors based overseas) and cases of force majeure (e.g. war, expropriation, revolution, civil disturbance, floods and earthquakes).

Khazaei said Iran expected a two-notch improvement at the latest OECD meeting, which did not happen because “a number of problems still persist” and it is not customary for a country’s rating to drop by two points at once.

“Usually when the risk factor of a country is supposed to increase, they may do it through back-to-back sessions, but if the risk rating is supposed to improve, it usually happens more slowly and after further scrutiny,” he said.

The official pointed out that an upgrade in the risk rating would curb financial costs associated with using finance.

When the rating for an economy improves from seven to five, he said, “The costs of insurance, interest and borrowing conditions” would improve.

Khazaei also announced that “the halt in Iran’s collaboration with the World Bank as a major member has ended and cooperation with this entity has resumed within the framework of Iranian interests”.