BLBG:Iran’s Currency Crisis May Worsen GDP Shrinkage: IMF Says
Iran’s currency crisis will probably deepen the Islamic republic’s economic contraction this year by more than the International Monetary Fund had estimated, the fund’s Middle East chief said.
The IMF had forecast the Iranian economy would shrink 0.9 percent this year based on data before the rial slumped against the dollar, Masood Ahmed, head of the Middle East and Central Asia department said in an interview in Dubai yesterday. Inflation may accelerate to 25.2 percent, the highest level in four years, according to the estimates.
The “most recent round of currency depreciation and the associated uncertainty will likely have a further negative impact on economic outcomes in the coming year,” Ahmed said. “So what we have to do now is to go back and see what is going to be that impact and what that means in terms of the management of the currency.”
The Iranian rial has tumbled about 40 percent against the dollar since August as the U.S. and the European Union starve the country of foreign currency by blocking sales of oil, its main export. Iranian lawmakers will summon President Mahmoud Ahmadinejad to question him about the plunge in the value of the nation’s currency, state-run Press TV reported Nov. 4.
Israel, which has accused Iran of trying to develop atomic weapons, has threatened to attack to halt the Islamic Republic’s nuclear program if sanctions don’t succeed. Iranian leaders, who insist that their atomic work is peaceful, say they won’t bow to the pressure even as crude output plunges to the lowest in more than two decades.
IMF Visit
“The Iranians are not going to give in on any aspect of the sanctions regime,” Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai said by phone Nov. 11. “Despite negative growth and indicators, this will not affect their path.”
The IMF plans to send a team to Iran in the first half of next year for regular consultations and will evaluate the country’s economy and foreign-currency reserves, Ahmed said.
Even without a revision in IMF’s forecast, this year’s contraction will be the worst since 1993 when the economy shrank by 1.6 percent, the fund’s data show. The Economist Intelligence Unit, a London-based think tank, estimates Iran’s foreign reserves will drop to $70 billion this year from $80 billion in 2011 as sanctions reduce oil exports.
Ahmadinejad’s critics accuse the government of harming the economy through mismanagement. While the central bank’s inflation rate for September was 24 percent, economists say the measure may be three times higher.
In response to the currency crisis, Iranian authorities have raised interest rates on deposits and opened an exchange center to stabilize the foreign-exchange market.
Iran’s move to a “flexible exchange rate” needs to be supported by “tighter monetary policy and policy coordination to be able to contain the inflationary pressures that might come from it and to ensure that there is an orderly foreign exchange market,” Ahmed said. The government is also “consolidating spending in response to lower oil export volumes,” the IMF said in a report released yesterday.
To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Dana El Baltaji in Dubai at delbaltaji@bloomberg.net
To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net
