Iran GDP shrinking due to currency crisis – IMF

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iran rial
Iranian currency suffered from unprecedented devaluation over the last few months due to US-led economic sanctions and speculation by currency traders. Photo – Reuters

The International Monetary Fund’s Middle East chief said on Sunday Iran’s economy may contract more than expected earlier this year because of weakness in the exchange rate.

“The most recent round of currency depreciation and the associated uncertainty will likely have a further negative impact on economic outcomes in the coming year,” Masood Ahmed, an economist told Bloomberg in an interview on Sunday, while adding that a contraction of 0.9% will take place this year based on data from before the currency declined.

The Iranian rial has lost about 40% against the dollar since August. Many economists rejected the central bank’s 24% inflation rate for September and insist it may be three times higher than the official rate. Iran has taken serious efforts to combat the fall of rial, including the raising of interest rates on deposits and opening of an exchange centre to stabilise the currency market.

Senior economists believe Iran needs a tighter monetary policy to support its flexible exchange rate mechanism in order to be able to contain the inflationary pressures and bring stability to its foreign exchange market. Reports suggest the IMF plans to send a team to Iran in the first half of 2013 to evaluate its economy and foreign-currency reserves. According to The Economist Intelligence Unit, Iran’s foreign reserves will hit $70 billion this year, down from $80 billion in 2011 as sanctions reduce oil exports.

Iran is being squeezed out by the US and the EU who are blocking the sales of oil, its main export, and other transactions in dollars and euros. Israel, the only nation in the Middle East which possesses atomic weapons, says it will attack the Islamic Republic’s nuclear installations to stop its arch rival from working on its atomic programme.

Iranian leadership has so far refused to stop enriching uranium, and insisted that their nuclear programme is peaceful and for civilian purposes.

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