The Forum for Partners in Iran's Marketplace
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     

June 2019, No. 91


Economy

Iranian Economy
A Perspective!
 

Christine Lagarde, IMFís Managing Director


In its latest review of Iran, the World Bank has forecast a period of stagflation in medium term for the Iranian economy. The WBís reason for this forecast is the continued decline in oil output over the next year, and escalation of external shocks of the Iranian economy.

Accordingly, the average growth rate of Iranís economy for the calendar years 1397 and 1398 is projected to decline by 2%, before it returns to its boom in the coming years. According to the forecast, Iranís inflation rate will reach 30 percent by the end of the calendar year 1397 (20 March 2019). Due to the effect of depreciation of the local currency (rial), the inflation rate will continue to rise this year.

Furthermore, with the continued decline in government revenues - due to the reduction in tax revenues resulting from the recession in economic activities and cut in oil exports - the governmentís fiscal deficit will continue to drop.

In the foreign sector, the decline in exports in both sectors of goods and services will cause the trade surplus in the Iranian economy go down and reach very low levels in the upcoming years. The shrinking of the current account balance along with the expectation of exacerbating outflow in financial accounts creates challenges for the Central Bank of Iran to maintain the value of the local currency and control the inflation.

The decline in real GDP per capita due to the increase in inflation from various channels - including the labor market and the weakening of the value of the cash subsidies - exacerbates poverty in Iran. Accordingly, the WB has forecast that the trend of rising poverty in Iran would continue to reach 12.8% by 2021. Of course, a more precise trend in poverty depends on the policy response of the government. In this regard, increasing the amount of cash subsidies, along with the introduction of more precise targeting mechanisms can help the poor population at risk of economic and social shocks. 

Risks and Challenges

The assumption for the mid-term outlook of the Iranian economy is based on continuation of oil exports at a level of at least one million barrels per day in the coming years. The continuation of the trade of non-oil commodities needed for economic activities facilitated by banks is another assumption in this forecast.

Of course, these assumptions are faced with negative risks. Among these risks is the export of oil below the expected levels due to the escalation of the US sanctions or falling demand from Iranís trading partners, especially from traditional partners such as China, India, Russia, Turkey and Iraq. Further restrictions on foreign trade, barter chambers of trade and debts can also increase the cost of financing and inflationary pressures.

 

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  June 2019
No. 91