IMF: Iran’s Accord to Lift Mideast Economy

DUBAI (Dispatches) -- Iran's landmark nuclear deal will lift economic growth in the war-plagued Middle East next year as the rolling back of sanctions brings a rebound in oil exports, the IMF said Tuesday.

Date: 06 October 2015 - 21:33

News ID: ۱۹۱۸۵

But the outlook for this year has worsened over the past six months, partly because of the conflicts raging in Yemen and Libya, the International Monetary Fund said in its semi-annual World Economic Outlook.
But growth in the Middle East and North Africa will "pick up substantially in 2016, supported by accelerated activity in the Islamic Republic of Iran", it said.
"The lifting of sanctions... should allow for a recovery in oil production and exports," it added, while predicting "a gradual improvement in the outlook for countries severely affected by conflicts, such as Iraq, Libya and Yemen".
Regional growth is seen slowing to 2.3% this year from 2.6% in 2014, before rebounding to 3.8% in 2016.
Oil exporters, which include the Persian Gulf states, Iran, Iraq, Yemen, Libya and Algeria, account for most of the weakness in growth this year.
"Spillovers from regional conflicts and intensified security and social tensions are weighing on confidence and holding back higher growth," the IMF said.
"Low oil prices are taking a toll on the outlook for oil exporters," it added, projecting oil prices will average $52 a barrel this year.
Iran's economy is set to grow a meager 0.8% this year but expand a healthy 4.4% in 2016 following the agreement reached between Tehran and major powers in July.
"Without sanctions, the Islamic Republic of Iran is expected to increase its capacity to 500,000 to 800,000 barrels a day within two years," IMF said.
Another bright spot for next year is Iraq, OPEC's second largest crude exporter, which is expected to see a 7.1% expansion, following zero growth this year.
OPEC kingpin Saudi Arabia, the largest economy in the region, is forecast to grow by 3.4% this year followed by 2.2% next year, the IMF said.
The economy of impoverished Yemen is expected to expand 11.6% in 2016 after a 28.1% crash this year.
In a letter, four Iranian government ministers warned of a possible economic crisis because of the plunge in prices of oil and other commodities.
In a letter sent to President Hassan Rouhani that was published by newspapers Monday, the ministers of economy, industry, labor and defense said "incompatible" policies were causing harm.
"If urgent action is not taken, stagnation could turn into crisis," the letter said, noting that capital was in short supply because of falling income from sales of oil, metals and minerals.
Iranian media reported that the letter was sent one month ago.
Rouhani's government in its first two years has prioritized tackling inflation, which spiked when money was printed after sanctions were imposed because of Iran's nuclear program.
However the letter appeared consistent with the views of some analysts who say with inflation now down to 15% -- it was 42% when Rouhani took office -- a change of policy is needed.
The government, fresh from the nuclear deal, is trying to attract foreign cash into sectors long starved of investment.
However, Muhammad Gholi Yousefi, an economics professor at Allameh Tabatabai University in Tehran, said the letter had exposed tensions over the allocation of cash from Iran's own banks.
"Almost half the banks' resources is practically blocked by the government, special customers and banks themselves," he told AFP, meaning it is not reaching businesses crucial to the economy.
"Part of the money is also blocked by banks that have invested the money in housing and malls, hoping for more return.
"The fact that ministers publicly wrote this letter shows the depth of the crisis and confirms what independent economists have been warning about for some time," he added.
After years of recession, Iran's economy grew by three percent last year, but with 25% of graduates unemployed and inflation still high, the recovery remains vulnerable.
Middle class and poor Iranians have seen their purchasing power plummet since 2012, when inflation peaked. The local rial currency had already lost two-thirds of its value before Rouhani took office.
Sanctions saw Iran cut off from the SWIFT banking system of transfers in 2012, leaving Iranian businesses isolated from international finance.