London, Asharq Al-Awsat—The International Monetary Fund (IMF) published a report on Wednesday describing the Iranian economy as “weak” but said it was growing, at a time when signs of progress towards an agreement between Iran and the US and its allies over the Islamic Republic’s controversial nuclear program have raised hopes of the eventual lifting of sanctions.
In its first review of the Iranian economy in three years, the IMF said the Iranian government needed to implement drastic reforms to stop serious economic decline caused by international sanctions and mismanagement by the previous government of President Mahmoud Ahmadinejad, who left office in 2013 after serving two full four-year terms.
Martin Cerisola, the IMF’s assistant director for the Middle East and Central Asia, was quoted in the report as saying that Iran’s problems stemmed in part from Ahmadinejad’s ambitious social programs, which were launched without the necessary funding, as well as the tightening of the international economic sanctions.
The report proposed that the Rouhani administration implement major economic reforms to increase stability, investment and economic efficiency. However, the report also painted a positive picture of the future of the Iranian economy and said the new government realized the challenges facing Iran and implemented measures to improve the economic situation.
The IMF pointed to the decline in the Iranian economy’s negative growth and a decrease in the annual inflation rate from 45 percent in July 2013 to 30 percent in December 2013 as grounds for optimism.
According to a recent report from Iran’s Central Bank, the Iranian economy contracted by 5.8 percent last year, a level not seen since the Iran–Iraq War in the 1980s. In contrast, the IMF has forecast growth of between 1–2 percent in 2014.
Bijan Bidabad, Islamic Finance and Banking senior advisor at Bank Melli Iran, told Asharq Al-Awsat: “Despite the IMF talking in its recent report about growth in the Iranian economy in the near future, according to objective views and comments by [members of] Iranian industry and mining, and Minister of Industry Mohammad Reza Nematzadeh, the industry sector has seen a negative growth of 9 percent, and even reached 12 percent.”
He added: “We must note that the second phase of the ‘objective monetary support’ plan will be implemented in the future and this will affect the economic and productive sectors in Iran . . . if the government fails to implement its economic policies correctly, the Iranian economy could face total bankruptcy.”
However, Bidabad pointed to the effects of the ongoing nuclear talks in fostering a positive outlook. He said: “We expect Iran to come out of isolation following the improvement in the diplomatic situation.”
While perceptions of the outlook for the Iranian economy have improved lately, these gains remain fragile and dependent on progress on the diplomatic front. In particular, sanctions remain in place on Iran’s key oil and gas exports, the country’s single biggest source of revenue.
Economic expert and lecturer at the Allameh Tabatabaii University, Mahmoud Qilli Yousefi, told Asharq Al-Awsat: “We cannot consider the IMF report as a complete and appropriate report on the Iranian economy, because the larger sector of the Iranian economy is rooted [in trade] inside the country, and while these roots remain in the Iranian economy, we will not see an appropriate and growing economy in Iran.”
He added: “According to agreements at the nuclear negotiations, a bright future has been forecast for the Iranian economy. However, we must wait and see whether Iran’s internal policies are in harmony with international aspirations.”
He further added that the government was introducing experienced managers into the economic field to revive the economic infrastructure which was destroyed during the Ahmadinejad administration, and if they succeed, the development of the Iranian economy will become possible.
Yousefi also said: “Iran, by using natural and energy resources, and with its presence in a strategic area, can achieve growth and development by planning . . . However, if it does the same as previous governments and ignores some violations, the fate of Iranian economy will not be as forecast by the IMF in its report.”
Iran’s Minister of Economy and Finance Ali Tayebnia recently announced that inflation was at 40 percent when the new government took office, adding that this was an unprecedented level in Iran’s history.