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Low Foreign Debt Is Not Necessarily Good News For Iran

IRAN -- A man exchanges Iranian Rials against US Dollars at an exchange shop in the capital Tehran, August 8, 2018

World Bank says Iran’s total foreign net debt reached $6.276 billion in 2017, about 15% more than the previous year, which is still much lower than other developing countries.

The value is equal to 1.4 percent of Iran’s gross national income (GNI, which stood at $440.5 billion in 2017).

This is not necessarily good news for Tehran, as isolation and sanctions have limited its ability to receive foreign investment or borrow funds for growth.

The ratio of foreign debt to GNI in Iran is the lowest among low & middle income countries, showing that the country hasn’t succeeded in attracting foreign loans due to various reasons, including international isolation, sanctions, lack of economic transparency, corruption, etc.

Alongside various long-running sanctions imposed during the past 40 years, Iran ranked 130 among 180 countries in terms of corruption perceptions in 2017, according to Transparency International. It is also the only nation after Noth Korea that hasn’t yet joined the international conventions against money laundering and financing terrorism.

Borrowings from foreign financial entities are vital for countries to drive their economy by improving and developing their infrastructures, especially for Iran which suffers from lack of foreign investments.

For instance, the ratio of debts stock to GNI in Turkey, India and China is 54%, 20% and 14% respectively.

It is not clear how Iran would keep attracting foreign credits in future, while US has withdrawn from the 2015 nuclear deal and re-imposed tough sanctions on Iran since May.

The report says that Iran’s GNI (at current US dollar prices) increased by $20.5 billion year-on-year to around $440.8 billion. This is mostly due to rising volume and value of oil exports.

Last year, Iran’s oil export revenues increased by about $13.9 billion year-on-year to $63.7 billion due to rising both export volume (400,000 b/d) and oil prices (33%).

Iran's GDP At Current US Dollar Prices(billion $)
Iran's GDP At Current US Dollar Prices(billion $)

GNI is the sum of a nation's gross domestic product (GDP) and the net income it receives from overseas, but considering the country’s isolated economy, Iran’s GNI and GDP are almost equal.

The report doesn’t estimate the country’s GNI for the current or coming years, but the International Monetary Fund has predicted that Iran’s GDP (almost equal to GNI) would reach $430 billion in 2018 (at current US dollar rate), but would plunge to $333 billion in 2019.

After withdrawing from the nuclear deal in May, the U.S. resumed oil-related sanctions on November 5. As of now, Iran’s oil exports have declined from 2.8 million barrels daily (mb/d) in April to below 1.5 mb/d currently, but US plans to eventually prevent all of Iran's oil exports by renewing waivers it has given to some of Iran's customers, on the condition they gradually reduce their purchases.

IMF predicted on November 14 that Iran’s GDP (at market prices, based on Iranian rials, which stood at 12,723 trillion rial last year) would decrease by 1.6% and 3.6% in 2018 and 2019 respectively.

However, GDP, based on current US dollar rate would decline significantly as mentioned above, because the national currency (rial) has lost most of its value against US dollar in 2018.