IMF: Sharp Decline in Iran’s Foreign Exchange Reserves

The International Monetary Fund in its report on the situation of Middle Eastern countries states that Iran’s accessible foreign exchange reserves were around 121.6 billion dollars in 2018, but fell to 12.7 billion dollars last year and will decline to 8.8 billion dollars this year.

In the latest report of this international monetary institution published on Monday, October 20 on its website, foreign exchange reserve statistics include only resources available to the government. Accordingly, Iran’s blocked foreign resources abroad are not calculated in the International Monetary Fund’s statistics.

In the IMF’s previous report, which was published in early spring, Iran’s blocked foreign currency resources abroad were also calculated, and Iran’s total foreign exchange reserves were estimated at 85 billion dollars, which was approximately 19 billion dollars less than 2019, and it was expected that this figure would fall to 69 billion dollars in the following year. A major portion of these reserves is located abroad.

The new report does not state the total foreign exchange reserves, both domestic and foreign, including Iran’s blocked resources, but the decline in accessible foreign exchange reserves for the Islamic Republic to 8.8 billion dollars shows that the country faces a currency crisis.

The dollar exchange rate doubled during the current year and reached above 32,000 rials. The main reason for the dollar price increase is the government’s inability to supply sufficient dollars to the market to preserve the rial’s value by creating a balance in foreign exchange supply and demand.

Exports and Gross Domestic Product

The International Monetary Fund has predicted that Iran’s oil exports, non-oil exports, and services combined will reach 52.7 billion dollars in the current calendar year. This figure was more than 103 billion dollars in 2018.

The major part of the decline in Iran’s exports is related to the collapse of the country’s crude oil exports.

This international institution states that both Iran’s oil and non-oil gross domestic product will sharply decline in the current year.

According to this report, it is expected that the country’s oil gross domestic product will decline by approximately 8.5 percent and the country’s non-oil gross domestic product will decline by 4.5 percent compared to last year. In total, Iran’s entire economy will shrink by 5 percent compared to last year.

For the third consecutive year, Iran faces negative economic growth. Over the past three years, according to the International Monetary Fund’s assessment, Iran’s economy has shrunk by approximately 17 percent combined.

Of course, this international institution’s assessment is based on the prerequisite that Iran can export 500,000 barrels of crude oil daily in the current year, while statistics from tanker-tracking companies show that Iran has so far been able to export between 300,000 to 400,000 barrels daily, and it is not clear whether the Islamic Republic has been able to receive payment for its exported oil.

For example, based on Chinese customs statistics, that country purchased an average of 77,000 barrels of oil from Iran daily during the first seven months of the current calendar year. However, based on statistics from tanker-tracking companies such as Kpler and Tanker Trackers, Iran has also secretly sold approximately the same amount of oil to China under the names of Indonesian and Malaysian oil.

On the other hand, Iran settles its 5 billion dollar debt to China’s “CNPC” and “Sinopec” companies for the development of the Yadavaran and Azadegan fields through oil delivery, and it is not clear how much of Iran’s oil exported to China was for paying off Iran’s debt to Chinese oil companies.

Syria and Venezuela are also customers of Iranian oil, and at least in the case of Syria, it is not clear whether payment is made for the delivery of Iranian oil.

In any case, the International Monetary Fund has predicted that next year Iran’s oil exports will decline to 400,000 barrels per day. Before American sanctions, Iran had a daily oil export of 2.5 million barrels.

Debt and Budget Deficit

This international institution states that the Iranian government needs the price of each barrel of oil to be 521 dollars in order to not face a budget deficit, while the current price of oil is around 40 dollars.

Otherwise, based on the International Monetary Fund’s forecast, Iran’s total budget deficit in the current calendar year is expected to be equivalent to 9.6 percent of total gross domestic product, approximately 58 billion dollars.

Also, it is expected that Iran’s government net debt in the current year will peak at 44 percent of gross domestic product, approximately 258 billion dollars.

In 2018, Iran’s government net debt was below 27 percent of gross domestic product, showing that over the two years since sanctions have been in effect, the government’s net debt has peaked.

The IMF’s Optimistic View

A look at the International Monetary Fund’s statistics shows that although this international institution has reported the collapse of Iran’s economic components, it has still looked at Iran’s economy very leniently and optimistically.

Apart from predicting Iran’s daily oil export of 500,000 barrels in the current year, Iran’s total exports have also been estimated very optimistically.

For example, based on Iran’s customs statistics, the country’s total non-oil exports in the first half of the current solar year were only 13.5 billion dollars, which represents a 35 percent decline compared to the similar period last year. Of course, Iran for the first time included gasoline exports in the list of “non-oil exports,” and interestingly, based on the statements of Mehdi Mirashrafi, Iran’s customs chief, “gasoline was at the top of the country’s non-oil export goods.”

Recently, Iraj Harir Chian, head of the Iran-China Chamber of Commerce, told ILNA news agency that the country’s total oil and non-oil exports are expected to be 35 billion dollars in the current solar year.

Accordingly, the International Monetary Fund’s forecast of 52.7 billion dollars in exports of oil, oil products, non-oil goods, and services from Iran appears to be very optimistic.

Source: DW