世界发展银行-Iran-Economic-Monitor,-Spring-2020-_-Mitigation-and-Adaptation-to-Sanctions-and-the-Pandemic_52页_1mb

Iran Economic Monitor Summary

Core Content

The Iran Economic Monitor (IEM) provides an in-depth analysis of Iran's economic developments, policy responses, and the impact of sanctions and the pandemic. The sixth edition, published in Spring 2020, focuses on two special topics: the economic impact of the COVID-19 pandemic and poverty trends in Iran during 2016/17-2018/19. The report uses macroeconomic data, policy assessments, and micro-simulations to evaluate the country's economic performance and social implications.

Main Views

• Economic Recession: Iran's economy faced a severe recession in 2019/20, with GDP contracting by 7.6% YoY due to the full impact of US sanctions, particularly in the oil sector. The contraction was driven by a 37% YoY decline in oil and gas value-added.

• Sanctions Impact: The reintroduction of US sanctions in May 2018 led to a sharp decline in oil production, reaching a 3-decade low of 2 mbpd. Sanctions also affected non-oil sectors such as construction, basic metals, and petrochemicals, contributing to stagnation in non-oil activity.

• Inflation and Currency Depreciation: Inflation surged to 52% in May 2019 due to the sharp depreciation of the Iranian Rial. However, inflation declined in subsequent months as the depreciation slowed, though it remained high.

• Fiscal Challenges: The fiscal deficit widened significantly due to declining oil revenues, which accounted for 38% of total government revenues. Only 18% of the 2019/20 budget was realized in the first 8 months, and the government increasingly relied on Islamic bonds and the National Development Fund of Iran (NDFI) to finance deficits.

• Current Account: The current account surplus declined from US$26.7 billion in 2018/19 to a deficit of US$2.4 billion in 2018/19, primarily due to a sharp decline in goods imports. Despite this, the surplus remained at a high level in 2018/19 due to a decline in imports.

• Impact of the Pandemic: The pandemic exacerbated the economic downturn, with significant disruptions to trade, tourism, and retail during the Iranian New Year period. The economic impact was assessed through scenario-based analysis, showing that the recession could persist and deepen if the pandemic's effects are prolonged.

• Poverty Trends: Poverty increased in Iran during 2016/17-2018/19, with the headcount poverty rate rising from 16.8% to 20.3%. The gasoline price hike in 2019 had a disproportionate impact on the poor, especially as the real value of cash transfers eroded due to high inflation. The report highlights the need for more targeted and increased cash transfers to mitigate poverty.

• Sectoral Performance:

  • Agriculture: Showed some resilience with a 3.2% YoY growth in the first 9 months of 2019/20.
  • Industry: Continued to contract, with manufacturing and petrochemicals being particularly affected.
  • Services: Experienced a 0.2% contraction in 2019/20, though some sub-sectors saw growth.
  • Construction: Grew at 9.6% YoY, contributing positively to GDP growth but remaining smaller than in 2011/12.

• Policy Responses:

  • The government implemented measures to restrict non-essential imports and increase domestic production.
  • Cash transfer and loan programs were introduced to support vulnerable households, though they are seen as insufficient to fully counteract the effects of inflation and economic contraction.
  • The Central Bank of Iran (CBI) and other institutions were involved in managing the economic impact of the pandemic and sanctions.

Key Information

Economic Indicators (2016/17-2019/20)

• Real GDP at factor cost: Declined from 12.5% in 2016/17 to -7.3% in 2019/20.
• Consumer Price Inflation: Rose from 9% in 2016/17 to 34.8% in 2019/20, with a peak of 47.5% at the end of 2018/19.
• Current Account Balance: Shifted from a surplus of US$26.7 billion in 2018/19 to a deficit of US$2.4 billion in 2018/19.
• Fiscal Balance: Deteriorated from -1.9% of GDP in 2016/17 to -5.4% in 2019/20.
• Oil Exports: Declined by 5 billion USD in 2018/19, reaching US$60.7 billion, with a significant drop in exports to India and China.

Poverty and Inequality

• Headcount Poverty Rate: Increased from 16.8% in 2016/17 to 20.3% in 2018/19.
• Poverty Simulation: Shows that the gasoline price increase in 2019 had a severe impact on lower-income households, with the poorest deciles experiencing the most significant income reductions.
• Gini Index: Suggests increasing inequality in income and consumption per capita, with the poorest experiencing the most adverse effects.

Trade and Foreign Exchange

• Export Destinations: China became a more significant export partner, with its share increasing from 29% in 2018 to 48% in Q4 2019.
• Import Origins: China, UAE, and the Euro Area remained the top import partners, while Turkey's share increased to 9% in Q4 2019.
• Foreign Exchange Reserves: Were under pressure due to declining oil exports, leading to restrictions on non-essential imports.

Outlook and Risks

• GDP Growth Outlook: Iran is expected to contract for the third consecutive year in 2020/21, with a moderate recovery anticipated in the following years.
• Downside Risks: Include a more severe impact of the pandemic, prolonged sanctions, and low oil prices. These risks could lead to a deeper recession and higher fiscal deficits.
• Structural Challenges: The economic situation could provide an opportunity to address long-standing issues in the banking and fiscal sectors.

Conclusion

The IEM highlights the profound economic and social challenges faced by Iran, particularly due to the combination of sanctions, the pandemic, and structural weaknesses. While the government has introduced measures to support households and manage the external sector, these efforts are seen as insufficient to counteract the ongoing crisis. The report emphasizes the need for more comprehensive and targeted policies to address poverty and economic instability in the long term.