Iran's `Impressive Recovery' Faces Uncertainty, IMF Says

(Bloomberg) -- The Iranian economy has had an “impressive recovery” following sanctions relief last year, though uncertainty regarding the fate of the nuclear deal and relations with the U.S. threaten to undermine it, the International Monetary Fund said.

Growth is expected to be 6.6 percent in the calendar year ending March 20, reflecting the rebound in oil production and exports, and stabilize at 4.5 percent “over the medium-term as the recovery broadens,” the IMF said in a report released on Monday. It also highlighted the government's ability to maintain inflation in single digits and stabilize the foreign exchange market.

The Washington-based lender warned, however, that “renewed uncertainty” surrounding the viability of the nuclear deal between Iran and six world powers and, in particular, relations with the U.S., “could deter investment and trade with Iran and short-circuit the anticipated recovery.”

President Donald Trump has called the deal that lifted some key economic sanctions against Iran in January 2016 a “disaster,” and Iranian officials have expressed concern that he may seek to revisit it.

“If the agreement is derailed, the economy could risk recession,” the IMF said.

While President Hassan Rouhani has highlighted benefits derived from the nuclear deal, including a doubling of oil exports and a more welcoming climate for foreign investors, his administration is also mindful of potential shortcomings caused partly by remaining U.S. sanctions that have deterred international banks' involvement with Iran and complicate project financing.

Falling Short

Foreign investment has fallen short of the $50 billion a year expected by officials. That creates a risk for Rouhani, who faces a presidential election in May with many ordinary Iranians yet to feel the benefits of the recovery.

With an average of 500,000 people joining the job market annually over the next five years, the pace of job creation in Iran is inadequate and an unemployment rate above 12 percent “remains high,” the IMF said. The female and youth unemployment rates are 21 percent and 30 percent respectively, though the rate of female labor participation has improved slightly, according to the report. Close to a fifth of university graduates are jobless.

Political uncertainty underlines the need to advance reforms to lessen Iran's reliance on oil and develop the private sector, the IMF said. It advised that priority be given to the restructuring and recapitalization of banks to sustain financial stability, fund growth and alleviate liquidity pressures.

To contact the reporter on this story: Ladane Nasseri in Dubai at lnasseri@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Stuart Biggs, Caroline Alexander