The ratings balance Iran’s strengthening external creditor position, and comfortable debt service and liquidity ratios against a weakening macro-policy framework, increasing vulnerability to lower oil prices and still-high political risk, Fitch was quoted by Forbes as saying.

Iran’s ratings are vulnerable to any major weakening of the oil price or material deterioration in relations with the international community. However, the stable outlook reflects Fitch’s judgment that such deterioration is unlikely for the foreseeable future, Fars news agency said.

Iran’s fiscal position is much weaker than the external position, with Iran one of only two major oil exporters running a budget deficit at current high oil prices. Although Iran’s budget deficit is estimated to be only just over one pct of GDP this year, it is likely to widen, even with unchanged oil prices, as spending continues to rise rapidly, Fitch said.

Fitch also noted that interest rates remain negative in real terms and the monetary authorities have come under political pressure to cut rates further, despite inflation that reached 18.1 pct last month and which is likely to increase further in the absence of tighter fiscal and monetary policies.

Fitch said political risk remains high and is a key rating constraint with elections to the Majlis (parliament) scheduled for March 2008 and presidential elections slated for 2009.