PHOTO: Iranian President Hassan Rouhani


The International Monetary Fund has given Iran’s Rouhani Government a boost with a positive report about the state of the Iranian economy — but there are also cautions of problems ahead.

The IMF’s headline — eagerly picked up by Iranian State outlets on Tuesday — is that “economic conditions are improving substantially in 2016/17”. It supports the Government’s claim of a growth in GDP, projected at 4.5% for this Iranian year, following years of stagnation and decline. It backs up President Rouhani’s success in bring inflation down from more than 40% when he took office to 9.5% now — with a further small decline projected in the next six months.

Part of the reason for the endorsement is the IMF’s belief that the Government is pursuing fiscal and monetary policy which fits its conception of necessary reform, “critical if Iran is to harness its re-integration into the global economy to spur growth and become a more market-based, diversified economy”.

The Problems Ahead

But it is in the IMF’s recommendations that the significant — and arguably much more important — cautions creep into the report.

The IMF quietly but effectively knocks down the Government’s claim that it can ensure recovery by diversifying Iran’s economy, estimating non-oil trade will have a greater deficit this year, rather than moving towards profit. And, with global oil prices still far beyond what Iran needs to balance its books, the IMF says:

The overall fiscal deficit is expected to deteriorate to 2.7 percent of GDP in 2016/17 from 1.7 percent of GDP in 2015/16. Moreover, this year’s [Government] budget requires additional financing…to proceed with the planned clearance of arrears.

The Government’s safety net is shrinking, the IMF notes, with foreign reserves falling about $7 billion since March 2016.

From the IMF’s point of view, this is manageable providing its priority — reducing inflation — is met “to preserve the credibility of Iran’s reform efforts”. But the warning signals continue: issues about excess liquidity in the economy, the need to ensure collection of Government revenues; the subsidies for all Iranians; including high-income households; the cumbersome bureaucracy of Iran’s banking sector. The IMF notes, far down in the report, “Public debt could be as high as 40% of GDP once government arrears to the private sector are recognized.”

Perhaps unsurprisingly, State outlet Press TV ignores all these cautions. The Government will be hoping that the headline, “IMF Staff Report Substantial Improvement in Iran Economic Conditions”, is a reality rather than wish which eventually pays the price of ignorance.