Fitch cuts Iran outlook to negative

Fitch Ratings said it revised the outlook on the Islamic Republic of Iran's ratings to negative from stable, including the BB- foreign currency and local currency issuer default ratings, the BB- country ceiling and B short-term rating.

The negative outlook balances the improvement in many of Iran's external indicators, due to current high oil prices, against a deterioration in political risk manifest both in weaker macroeconomic policy settings and the escalation of the dispute over Iran's nuclear program, which heightens the risk of damaging sanctions being imposed, the agency said.

The macroeconomic policy stance has also taken a turn for the worse over the past year, Moody's said. A large proportion of windfall oil revenues is being spent instead of going into the Oil Stabilization Fund, where it would be used as a countercyclical device; current spending rose 37% in the first half of Iranian year 2005/6 and was almost a quarter over budget; and the Majlis' decision to freeze already low petroleum prices and some utility prices increased the cost of subsidies, which already account for a quarter of all spending.

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