Iran economy to shrink 9.5%: IMF

Egypt expected to grow 5.9%

DUBAI, Oct 15, (RTRS): Iran’s economy is expected to shrink by 9.5% this year, the International Monetary Fund (IMF) said, down from a previous estimate of a 6% contraction, as the country feels the impact of tighter US sanctions.

The IMF forecasts, published on Tuesday in the fund’s World Economic Outlook report, are not far from estimates given last week by the World Bank, which said the Iranian economy by the end of the 2019/20 financial year would be 90% smaller than it was just two years ago.

Iran, a large oil producer, saw its oil revenues surge after a 2015 nuclear pact agreed with six major powers that ended a sanctions regime imposed three years earlier over its disputed nuclear programme.

But new sanctions brought in after President Donald Trump withdrew from that deal in 2018 are the most painful imposed by Washington, targeting nearly all sectors of Iran’s economy.

The IMF had previously forecast Iran’s economy to shrink by 6% this year, but that estimate preceded Washington’s decision in April to end six months of waivers which had allowed Iran’s eight biggest oil buyers to continue importing limited volumes. The fund said Iran, along with other emerging market economies, continues to experience “very severe macroeconomic distress.”

A drop in the Iranian currency following the re-imposition of sanctions has disrupted Iran’s foreign trade and boosted annual inflation, which the IMF forecasts at 35.7% this year.

The Iranian rial official rate is set at 42,000 rials to the US dollar, but its market rate stood at around 115,000 against the dollar on Tuesday, according to foreign exchange website Bonbast.com.

Unchanged

Meanwhile, Egypt’s economy is expected to grow 5.9% in the year ending in June, the International Monetary Fund said on Tuesday – unchanged from its April forecast but below the government’s target of 6% to 7%.

Analysts have hailed Egypt for tough economic reforms tied to a three-year, $12 billion loan programme with the IMF agreed in late 2016, which has been disbursed in full.

The reforms included devaluing the currency by about half, cutting energy subsidies and introducing a value-added tax. Those changes have left many of Egypt’s nearly 100 million citizens struggling to make ends meet.

In its World Economic Outlook, the Fund brought down its 2019/2020 forecast for consumer price inflation to 10% from 12.3% six months ago.

Egypt said its economy grew by 5.6% in the 2018/19 year, slightly above the IMF’s estimate of 5.5%, unchanged from April.

The World Bank forecast on Thursday that Egypt’s economy would grow by 5.8% this fiscal year and estimated it grew 5.6% in 2018/2019, matching the government’s figure.

The IMF forecast Egypt’s current account deficit would widen to 2.8% of GDP this fiscal year from its 1.7% estimate in April. It also widened its estimate for last year’s current account deficit to 3.1% from 2.4%.

The IMF improved its expectations for unemployment in Egypt, predicting it would fall to 7.9% this fiscal year, down from its estimate of 8.3% six months ago. It also estimated unemployment in 2018/19 at 8.6%, below its April expectation of 9.6%.

“A loss of reform momentum would reduce growth and potential output and put pressure on unemployment, given the fast-increasing labor force,” the IMF said in its final review of Egypt’s reform programme, written in July and released this month.