IMF says Iran rebounds after nuclear deal, but danger looms

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Posted: Feb 28, 2017 5:47 AM
IMF says Iran rebounds after nuclear deal, but danger looms

DUBAI, United Arab Emirates (AP) — Iran's economy rebounded out of a recession after the nuclear deal with world powers, the International Monetary Fund said on Tuesday, though uncertainty over future sanctions and problems plaguing the country's domestic banks could cause fiscal trouble ahead.

Iran's real gross domestic product grew by 7.4 percent, buoyed by the quick re-entry of Iranian oil on the international market, according to the IMF. Inflation also dropped to single digits while GDP growth is expected to stabilize around 4.5 percent, the IMF said.

But ordinary Iranians largely have yet to see any of the benefits from the nuclear accord, which saw some international sanctions lifted in exchange for Iran limiting its uranium enrichment. Meanwhile, concerns persist about what a harder line, promised by the administration of U.S. President Donald Trump, will mean for the Islamic Republic.

"The lifting of sanctions and (Iran's) ambitious reform agenda are yet to produce their full beneficial impact on the Iranian economy," Jafar Mojarrad, an IMF executive director, wrote in an addendum to the report. "Regrettably, remaining U.S. sanctions and related uncertainty have hindered the return of global banks to the Iranian market and continue to hamper large-scale investment and trade."

The IMF estimates Iran lost $185 billion in revenue from oil production due to sanctions since 2011. In the time since, global oil prices dropped by highs over $100 a barrel in mid-2014 before bottoming out below $30 a barrel in January 2016, representing a loss of $166 billion on its own to Iran, the IMF said.

It described the two events as "twin shocks" to Iran's economy.

While oil is now trading over $50 a barrel, that alone can't drive Iran's economy. The IMF cautioned that economic growth outside of the oil industry was just 0.9 percent, "reflecting continued difficulties in access to finance and depressed consumption."

Meanwhile, any changes to the nuclear deal and renewed tensions with the United States "could deter investment and trade with Iran and short-circuit the anticipated recovery," the IMF said.

These economic issues likely will play a big role in Iran's upcoming May presidential election. President Hassan Rouhani, whose administration negotiated the nuclear deal, is widely expected to seek re-election.

Iran also faces a challenge in its domestic banks, which have billions of dollars outstanding in bad loans. The IMF report suggested the amount of nonperforming loans in Iran reaches 12 percent of all outstanding debts, but could be even higher as recent laws allowed them to be rolled over if partial payment was made.

While Iran's banks have been reconnected to an international system, allowing for wire transfers, foreign banks remain hesitant to enter the market.

"The banking system is fragile," the IMF warned. "A legacy of government payment arrears, directed and connected lending, and poor risk management practices have left banks' balance sheets badly impaired and capital positions weak."

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