Can The Revival Of JCPOA Save Iran's Economy?

Economic columnist Mohammad Mehdi Hatami in Tehran says Iran's economy cannot be saved even if the 2015 nuclear agreement is revived and sanctions are lifted.

Hatami argued in an analysis published by proreform Fararu website in Tehran that based on official assessments made by the Iranian parliament's research center, the Iranian government has a net debt of 10,000 trillion rials half of which should be paid during the next three years.

At current exchange rates this figure is around $40,000 billion, or more than twice the total annual oil exports at current levels.

According to Hatami, even if Iran makes a deal with the United States and frees its frozen assets abroad and can sell more oil and repatriate its revenues, it must use the petrodollars to pay debts.

Hatami added that although there are promising signals coming from the nuclear talks in Vienna to revive the JCPOA, one cannot take those seriously as long as Iran has many problems in its relations with the international community.

"Let us assume there is an agreement and Iran's assets abroad are freed. What comes next", Hatami asked. The answer is, it depends on many factors, including the extent of Iran's access to those assets, Iran's foreign relations and the balance of power in the region. On the other hand, in the domestic front, the Iranian government is so deeply plunged into debt that petrodollars cannot save its economy.

Iran's foreign debt is less than $10 billion, but its debts to domestic institutions amount to $40 billion. In that sense, Iran owes a lot of money to next generations of Iranians as governments have borrowed from both the Central Bank and the foreign currency and gold reserve that belongs to the coming generations. As an example, next year, the government should pay 1,500 trillion rials of its debts as well as 500 trillion rials of interest on the bonds it has sold to cover its budget deficit.

The Islamic Republic has not been able to generate sufficient economic growth in its more than 40 years of existence. Average growth has barely reached 3 percent. With US sanctions since 2018, it has resorted to two dangerous methods to finance its budget, borrowing from its own banks and printing money. Both have led to a nearly 50 percent inflation.

A report prepared by the previous government (which was denied later by the Planning and Budget Organization) said that the Iranian government will be on the verge of bankruptcy in case there is no agreement in Vienna.

Meanwhile, a more optimistic report published by Iran Diplomacy website, which is close to the Iranian Foreign Ministry, says regardless of the current situation that isolates Iran from international markets and banking systems, the country's economy is still relatively resilient.

The website's over-optimism portrayed an outlook in which Iran's "Looking East" policy and its partnership with China, Russia and Iran's neighbors in Central Asia has made Tehran capable of making its "Jihadist Economy" work.

The author, Ardavan Amir Aslani warned that if Iran fails to end its isolation, within a few years, Tehran will be in a situation that its economy cannot be saved by any reformist or conservative government.