DUBAI: Iran is facing a double financial meltdown, with soaring inflation and an economy expected to shrink by 6 percent in 2019, the International Monetary Fund said on Monday.
In addition, the IMF’s projection was calculated before US President Donald Trump this month told buyers of Iranian oil to halt purchases by May or face sanctions, ending six months of exemptions that allowed Iran’s eight biggest customers to continue with imports.
That move followed the resumption of sanctions against Iran’s oil exports last November.
“Clearly the re-imposition of sanctions and the removal of the waivers will have additional negative impact on the Iranian economy both in terms of growth and in terms of inflation, and inflation could reach 40 percent or even more this year,” said Jihad Azour, director of the IMF’s Middle East and Central Asia department.
US sanctions against Iran have already cost the regime in Tehran more than $10 billion in lost oil revenue.
Meanwhile the Iranian currency, the rial, lost more than 60 percent of its value last year, disrupting Iran’s foreign trade and increasing annual inflation even further.
The official exchange rate is set at 42,000 Iranian rials to the US dollar, but the real market rate is currently about 144,000. Iran needs to work to eliminate the gap between the market exchange rate and the official exchange rate, said Azour.
The currency’s slide, from about 43,000 at the end of last year, has eroded the value of ordinary Iranians’ savings, triggering panic buying of dollars. In addition, Tehran’s bazaar traders and businessmen, traditional supporters of the regime, have complained that they are unable to operate their businesses because of the fluctuating dollar exchange rate.
The weak currency and soaring inflation have led to outbreaks of sporadic street protests in Tehran and elsewhere since late 2017.
Despite the negative economic outlook for Iran, Azour said there was little chance of “contagion” spreading to the rest of the region as a result of Iranian problems because the country was relatively disconnected from trading patterns in the region.