(MENAFN- Gulf Times) Just over a fortnight after a decade of crippling economic sanctions on Iran ended, President Hassan Rouhani is being treated to red carpets, dinners with top CEOs and billion-dollar deals in Europe.
In Italy, accords worth $22bn covered industries from natural gas to high-speed rail, while in France on Friday Rouhani purchased Airbus Group jetliners. The speed with which the president travelled to Europe once July's nuclear deal finally came into force underscored the depth of Iran's economic problems.
Here's a look at the state of Iran's economy, and the $102bn budget Rouhani proposed to parliament before leaving Tehran, urging the nation to "seize the opportunity for an economic leap" forward.
Why Iran's Economy Matters
The $400bn economy is the second-largest in the Middle East after Saudi Arabia. With a population of 77mn, for years cut off from trade with the West and its financial services, Iran is a major attraction for investors struggling with slow growth at home.
While Iran's central bank predicts expansion of less than 3% in the current financial year ending March 20, it sees that accelerating to between 5% and 6% in the following 12 months. The government is targeting average annual growth of 8% up to 2020.
Iran has been trying for years to diminish its reliance on oil revenue. Amid the slump in oil prices, the budget projects greater revenue from taxes than from sales of crude.
The government expects 680tn rials ($22.6bn) in oil revenue, less than 25% of the proposed budget and down from about 33% in the current year. Its calculations are based on an oil price of $40 per barrel, and an exchange rate of 29,970 rials to the dollar.
That's the price Iran needs to balance its budget but the estimates are "optimistic" since it's selling oil at around $25 a barrel, said Pouya Jabal-Ameli, an economist who teaches financial management at Tehran's Amir Kabir university.
Oil remains the bedrock of the economy and Iran plans to boost output to levels last seen during the reign of the last Shah. Its cheap crude, costing almost two-thirds less to extract than in the US, is the prime draw for international majors.
Europe had been Iran's second-biggest oil customer before sanctions were introduced, purchasing nearly 600,000 bpd from the Middle East nation in 2011, according to the US Energy Information Administration.
Taxing, exporting more
Officials plan to increase tax revenue by almost 15% in the new Iranian year to 1,010tn rials ($33.5bn). The focus is on expanding the tax base and targeting entities currently exempt rather than raising taxes for those already paying, Vice-President Mohammad Bagher Nobakht said on January 18.
In Europe, Rouhani said the Islamic Republic wants to export at least 30% of its products, not just woo foreign investment, which the country's central bank governor says could reach $50bn a year.
But Djavad Salehi-Isfahani, an economics professor at Virginia Tech in Blacksburg, who specialises in Iranian affairs, says the proposed budget was "very conservative" and reliant on foreign investors making the first moves.
Authorities are waiting for "the nuclear deal to jump start the economy," Salehi-Isfahani said. "They don't believe the government should stimulate, they believe they should improve the environment for others, they count on foreign investment, on a lower cost of transactions."
Cash coming home Oil revenues totalling about $32bn previously frozen in accounts overseas due to sanctions are now accessible, Iran central bank governor Valiollah Seif said in an interview the past week, money that should help support the rial.
The coming months will also see moves toward normalisation of Iran's currency regime and financial system, Seif said. He said dual exchange rates to the dollar - one set by the central bank and a more competitive unofficial market rate - should be unified within six months.
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