The severe strain that US sanctions have placed on Iran was spelt out by the IMF this week when it forecast that the economy would contract by 9.5 per cent this year, although the government of Hassan Rouhani insists that the worst is over.
The IMF said that Iran had seen "a dramatic worsening of macroeconomic conditions" in the past two years and had experienced "severe distress".
"This is a rare [episode of] low economic growth in Iran's contemporary history," said one Iranian economist. "We didn't have this in much of the war with Iraq [in the 1980s] and before that perhaps only when Iran was occupied by the Anglo-Soviet forces in the second world war."
But the IMF forecast of zero economic growth for 2020 chimed with the Iranian government's assertion that it has successfully curbed the crippling impact of sanctions.
The World Bank last week also forecast that Iran's economy had bottomed out, saying it would experience 0.5 per cent growth annually over the next two years.
Iran's economy was rocked in May 2018 when US president Donald Trump pulled out of the nuclear accord and imposed the toughest ever sanctions against the Islamic republic.
The national currency, the rial, declined by around 60 per cent last year, inflation jumped and oil exports - the country's lifeline - declined from a peak of 2.8m barrels a day before the sanctions to an estimated few hundred thousands of barrels a day now.
But macroeconomic data improved in the first six months of the Iranian calendar year, from late March to September, Iranian officials said. Excluding the oil industry, the rest of the economy grew 0.4 per cent in the first quarter of the Iranian year. Although the consumer price index is projected to rise by 35.7 per cent year on year in 2019, according to the IMF, that is down from 47.5 per cent in late 2018.
Mr Rouhani acknowledged this week that people still felt under massive economic pressure. However, he said his government had successfully come out of "the storm" and "this big psychological, political and economic warfare" thanks to the country's "vigilance and resistance". He promised people would see tangible economic results soon.
As evidence, Iran cites the rial's 40 per cent appreciation in the year to September, rising prices on the Tehran Stock Exchange and an increase in agricultural and industrial production.
Some crucial industries that contracted last year have recovered this year, Reza Rahmani, Iran's industries minister, said this week. Although the car and aluminium sectors were still suffering, the production of foodstuffs, steel, copper, cement and tiles and ceramics all expanded in the first six months of the Iranian year, compared with the same period last year.
Meanwhile government revenues have stabilised, thanks to an increase in tax revenues, while a shortage of hard currency caused by the dramatic drop-off in petrodollar earnings has been compensated to some extent by an increase in non-oil exports, in particular to neighbours such as Iraq and Afghanistan.
Saeed Laylaz, a reform-minded political economy analyst, said the IMF's forecast did not reflect many people's experience.
"If the economy was contracting by 9.5 per cent this year, we should have been witnessing the collapse of the economy now but we do not see any signs of it," he said.
One explanation for the divergence between official data and the situation on the ground could be underground imports and exports, he added. These used to comprise between an estimated 30 and 50 per cent of Iran's economy, but after sanctions were levied they "probably surpassed 50 per cent".
Despite this, many workers are still suffering. Iran's unemployment rate will continue to rise over the next couple of years, from around 12 per cent, according to the IMF.
Mr Rouhani said on Wednesday that while Iran's economy could continue to meet people's daily needs, sanctions would deprive the country of economic development in the long run; for that, the Islamic republic needed to improve its relations with the outside world, he said.
The recession and high inflation have driven many Iranians out of big cities in search of cheaper living costs in smaller towns; others have cut down regular spending on choices such as red meat consumption.
Tehran has seen a rise in the number of men who cannot afford accommodation and are sleeping in their cars during the week in order to work as private taxi drivers, before returning home at weekends.
"It is a new phenomenon which shows how people are under economic pressure," said one Tehran-based taxi driver. "The fear is, what if this trend of getting poorer is not stopped in the coming years?"
All Rights Reserved © 2024
