Fitch Ratings has assigned a long-term foreign currency rating of B+ to the €375 million eurobond issued by the Islamic Republic of Iran. The rating outlook is stable.
With oil generating 50 percent of government revenues and 80 percent of export receipts, the Iranian economy continues to benefit from high international oil prices. For 2002, Fitch projects gross domestic product (GDP) growth of 5.2 percent and a current account surplus of $3.5 billion, equivalent to 3.3 percent of GDP.
Consistent current account surpluses and the accumulation of foreign exchange reserves facilitated the establishment of the Oil Stabilization Fund (OSF) in 2000. Fitch estimates OSF assets will be about $ 8.9 billion by the end of the current fiscal year in March 2003. The agency indicated that the OSF and Iran's very strong net external position underpin the sovereign ratings.
"As a large net external creditor, Iran compares well not only with its rating peers, but in fact with all rated sovereigns," said James McCormack, Senior Director of Sovereigns at Fitch.
The agency believes the successful unification of the dual exchange rate earlier this year marked the most significant achievement with regard to structural economic reform since the revolution.
While enhancing fiscal transparency, however, unification has led to a deterioration of the fiscal balance. Previously implicit subsidies equivalent to as much as four percent of GDP are now explicit expenditures, and the government will assume public enterprise losses associated with higher external liabilities due to a less favorable exchange rate.
Fitch expects the 2001 fiscal surplus of 2.2 percent of GDP to be transformed into a 2.1 percent deficit this year. Further expenditure growth in 2003 is forecast to raise the deficit to more than four percent of GDP, and the agency expects government debt to increase - albeit to a comparatively low 19 percent of GDP - for the first time in five years.
Iran's sovereign ratings are constrained primarily by the interaction of complex international and domestic political developments. Domestically, the debate between reformist and conservative elements of the political structure centers on the relative balance of power. This has important implications for economic policy, Fitch believes.
Given severe demographic pressures to generate employment, the authorities must foster higher economic growth in order to avoid possible widespread social dissatisfaction. A slower approach to economic reform and liberalization, which is more closely associated with the conservatives, makes growth and employment objectives more difficult to achieve.
The heightened risk of military conflict involving the United States and Iraq reinforces Fitch's view that international security issues and their implications for Iran remain unpredictable and prone to change quickly. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
