Iran Needs to Accelerate Reforms If Trump Quits Deal, IMF Says

(Bloomberg) -- Iran's government will need to accelerate economic reforms, including plans to overhaul its banking system, should President Donald Trump decide to quit the 2015 nuclear accord with the Islamic Republic, according to a senior International Monetary Fund official.

“The possibility that the U.S. walks out of the nuclear deal would increase uncertainty and uncertainty would require some measures to stabilize the market,” Jihad Azour, head of the IMF's Middle East and Central Asia department, said in an interview in Dubai on Monday.

Trump will decide whether to leave the deal, which curbed Iran's nuclear program in return for sanctions relief, by May 12. Speculation that he will pull out has added pressure on the Iranian economy, sending the rial down to a record low.

Read More: Dollars, Optimism in Short Supply as Iran Awaits Trump Move

Authorities responded with an attempt to unify its two-tier exchange rate, with police also detaining traders who sold dollars illegally. The central bank then halted its supply of foreign currency “for the time being,” while also banning exchange houses from carrying out cash transfers abroad through the popular havaleh system, known elsewhere as hawala, state-run media reported on April 14.

Unifying the exchange rate would help “eliminate distortions in the market” and “improve competitiveness,” Azour said. Gradually shrinking the budget deficit, which the IMF estimates may widen to 2.7 percent of gross domestic product next year, would also help the economy adjust, he said. The deficit stood at 1.9 percent in 2017.

Read More: Forget the Nuclear Deal, Iran's Big Concern Is a Banking Crisis

Azour said Iranian policy makers need to address problems within the country's banking system, which currently makes it hard for small-and-medium sized companies to borrow. The IMF has repeatedly urged the government to urgently recapitalize and restructure lenders.

“If you want to increase the level of growth you need to improve access to finance and this requires good banking system,” Azour said. “You need to have a certain level of stability on prices and you need to allow the private sector to be interested in investing.”

To contact the reporter on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams

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