Bijan Khajehpour writes:  The Iranian economy has embarked on 2015 with a number of challenges that will directly influence the overall economic performance of the country. Low and falling oil prices as well as the wait-and-see mode in the nuclear negotations are inducing massive uncertainties into Iran’s economic outlook.

Since the extension of the nuclear talks in November, the Iranian rial has lost 7% of its value on the free currency market.  Concern about the outcome of negotiations as well as worries about the negative impact of a low oil price on the government’s financial position are driving the market, despite reassurances by the Central Bank of Iran (CBI) that a collapse of the rial would not be on the horizon.

While the government projected a per barrel oil price of $72 in the submitted budget bill, the parliamentarians will have to revise the price in the final budget law for the next Iranian year that will start March 21.

As far as next year’s budget is concerned, the government has already tried to reduce the dependence on oil export revenues by increasing the planned proceeds from taxation and privatization.   The government has two other main sources to ease the emerging financial tensions: First and foremost, it can privatize some large state-owned enterprises.  For the next Iranian year, the administration has projected some $38 billion in privatization proceeds if some of the lucrative state companies are privatized.

Another potential for easing the financial pressure will be the policy on cash handouts within the continued subsidy reform process. It is now well established that the government wishes to remove higher income classes from the list of cash handout recipients.

Privatization proceeds and subsidy reforms, while significant in the short run, will not be a sustainable phenomenon in Iranian budgeting and all signs are that the government will have to focus its efforts on increasing its tax revenues.

Evidently, a full reliance of state budgets on tax revenues would require major legal, structural and political reforms that would pave the way for greater economic activity in the country.

It is projected that the non-oil export performance will continue to grow adding to the country’s trade surplus and helping to create jobs. The respected economic magazine Iran Economics projects Iran’s non-oil exports to grow by 12% next year. In addition, increased revenues from tourism are helping the economy compensate for some of the lost hard currency proceeds in the petroleum sector.

All in all, despite a major decline in oil export revenues and the government’s tense financial position, the country’s economy will continue its slow growth. .

What can be expected in the current oil price environment is a greater drive toward reforms that will reduce the government’s role in the economy and help release the country’s economic potential.