From an economic perspective Iran is doing very well. The relatively well-diversified economy has strong growth potential thanks to prudent macroeconomic policies and the gains of the nuclear sanctions relief in January 2016. Inflation has fallen to single digits and public finances are sound. The current account balance has deteriorated and is expected to register a small deficit in 2016 but is likely to show a surplus again in the coming years. In addition, the country has low external debt and a high level of foreign exchange reserves. The major challenges for the economy remain the rather difficult Iranian business environment, continuing non-nuclear sanctions and re-engagement with the West, notably with international banks, due to residual sanctions.

Iran is also fairly politically stable in a volatile region despite rising political faction rivalry since the nuclear deal was signed last year. In addition, the country is adhering to the nuclear deal, reducing the risk of a snapback. The forthcoming US presidential elections, the perceived inability to extract satisfactory economic gains from the nuclear deal and rising political faction tensions put pressure on the nuclear deal. Nevertheless, the nuclear deal is unlikely to collapse. In addition, Iran has been significantly reducing the substantial payment arrears it incurred during the intensification of the sanctions in 2012.

Taking into account the strong macro-economic fundamentals, political stability, adherence to the nuclear deal and significant reduction in payment arrears, Credendo Group has decided to upgrade Iran´s MLT political risk classification to category 5.