In its latest report assessing Iran's economy, CI predicts on its website that "provided nuclear-related sanctions are not reimposed on Iran, we forecast the current account surplus to stay in the range of 4-5% of GDP during 2018-20".
Iran’s external position benefits from a large net external creditor position and substantial current account surpluses, it says. However, the country's international liquidity position is constrained by difficulties to improve the processing of international payments through the global banking system, as this curtails Iran’s ability to repatriate export earnings and access forex reserves.
While the lifting of nuclear-related sanctions in January 2016 allowed for a strong expansion of Iranian oil exports, Iran’s ability to repatriate export earnings from trading partner countries is hampered by its limited integration in the international banking system, Financial Tribune reported.
According to IMF estimates, Iran accumulated trade credits of $14.1 billion (3.5% of GDP) and $27.2 billion (6.3%) during 2016 and 2017 respectively, due to difficulties in repatriating oil export proceeds.
Iran appears to exhibit unrecorded capital outflows since the errors and omissions sub-account of the balance of payments has continuously displayed negative net balances for the past 13 years.
In 2016, the net balance of the errors and omissions sub-account amounted to $5.8 billion (1.4% of GDP).
CI views Iran’s low level of external debt as an important rating strength. Total gross external debt stood at $8.8 billion (2% of GDP) at the fiscal 2017 yearend.
Public external debt amounted to a mere 1.3% of GDP. As a result of substantial current account surpluses over the past 20 years, Iran has incurred a large net external creditor position.
Liquidity Position
A detailed analysis of Iran’s international liquidity position, however, is complicated by uncertainties regarding official foreign reserves since Iran does not publish data on the current size and composition of foreign exchange reserves.
The IMF estimates gross official foreign exchange reserves at a high $111.7 billion in 2017, which was $120.7 billion in 2016, but cautions that these reserves are not fully accessible as a result of limited correspondent banking relations.
Despite substantial current account surpluses in the past two years, official foreign exchange reserves declined to $111.7 billion in 2017 compared to $128.4 billion in 2015.
This is largely attributable to the above-mentioned difficulties in repatriating export earnings from trading partner countries.
Foreign exchange reserves decreased in 2017, as CBI intervened in foreign exchange markets to limit the strong depreciation of the rial since late 2017.
In April 2018, the Iranian government announced forex rate unification in a move designed to stabilize the Iranian currency.
"At present, we do not expect further decreases of official exchange reserves in 2018 and 2019. In view of the increase in external political risks, however, we do not envisage a substantial progress in expanding international banking relations which, in turn, will limit Iran’s ability to repatriate export earnings," CI says.
"Therefore, we forecast only a slight increase of official reserves to $119 billion at fiscal 2019 yearend."
As part of its report, CI has also affirmed Iran's Long-Term Foreign and Local Currency Sovereign Ratings at 'BB-' and its Short-Term Foreign and Local Currency Sovereign Ratings at 'B'.
At the same time, the outlook for Iran's ratings was revised by the agency to 'Negative' from 'Stable'.
According to CI's report, Iran’s ratings are supported by very low public external debt, large external assets due to persistent current account surpluses, substantial hydrocarbon resources and comparatively high skills of workforce.