IMF's recent report overestimates economic growth in Iran

The recent report of the International Monetary Fund (IMF), most likely based on data provided by the Iranian government, overestimates the economic growth and underestimates the actual rate of inflation in Iran, experts believe.

"It is near impossible, without serious economic declines, to have massive subsidies taken away from the population of a country and not have inflation except when prices are controlled, which is just another way of delaying the inevitable inflation," Paul Sullivan, Professor of Economics at the U.S. National Defense University and Georgetown University, wrote Trend in an email.

On Thursday, August 4, the IMF published a report saying Iran’s economic growth has accelerated and cuts in subsidies have been achieved without sharp increases in inflation, improving the outlook for further gains, Bloomberg reported.

Growth accelerated to 3.2 percent in 2010-2011 from 0.6 percent two years earlier, the report said. According to it, the inflation rate only rose by about 4 percentage points in the first five months of this year, to 14.2 percent, even after subsidies for energy and food were scrapped.

The measures will remove as much as $60 billion in subsidies, or 15 percent of Iran’s gross domestic product (GDP), the IMF said. That will "increase the efficiency and competitiveness of the economy, improve income distribution, reduce poverty and help Iran unlock its full growth potential," the IMF said.

In December, Iran's President Mahmoud Ahmadinejad launched the economic reform plan in an effort to overhaul the country's economy through shelving energy and food subsidies.

According to Sullivan, it is quite likely that these data are supplied by the Iranian authorities and that some of them have been "creatively developed".

"The IMF normally takes its data from the government of the country they are looking at. There could be other sources, such as international bank data, etc., but given how restricted trade and financial transactions are for Iran these would not be easily found," he told.

As to the nature of figures provided by the Iranian authorities, Sullivan said: "Iran is having great difficulties getting paid for its oil, and I wonder if they are simply putting the expected payments in as part of their economic estimates and are not putting in the actual received amounts."

U.S. sanctions do not ban purchases of Iranian crude, but they pose obstacles for foreign banks to pay Iran the hard currency that makes up around 50 percent of government total revenue. This week, Indian refiners began paying oil debts after a seven-month attempts to find a way to get their overdue money to Tehran.

Since December, 2010, India and Iran try to find ways for New Delhi to pay for imports of 400,000 barrels per day or 12 percent of its oil demand after the Reserve Bank of India halted a clearing mechanism under U.S. pressure.

On August 1, the National Iranian Oil Company said the two sides had agreed to settle the bill as soon as possible and the payments would be made in two parts, with the first being paid in the coming days.

Later, on August 3, Korean government sources with direct knowledge of the situation told Iran could have nearly $5 billion of cash trapped in South Korea by the end of the year as sanctions stop it repatriating money from oil sales, Reuters reported.

Furthermore, Sullivan thinks, given the sanctions and other constraints Iran finds itself under a large amount of its economy is not registered, untaxed, and either in the gray or black markets.

"Therefore, most official data has limited meaning," he said.

According to Professor Reza Taghizadeh, the IMF recent report has highly exaggerated the success of the Iranian government's efforts to control inflation, and the improved outlook of the country's GDP for 2011.

"It also contradicts so sharply, its own estimation of Iran's economic performance, prepared about 6 month ago, predicting 0 economic growth in 2011," Taghizadeh, a member of Trend Expert Council, wrote in an email.

He thinks this report has been made only after two short visits to Tehran by Dominique Guillaume, a deputy division manager of IMF, and his consultation with Iranian government's representatives.

"In other words, IMF report shares Iranian government false optimism and not the hard facts about Iran's macro and micro economic performances," Taghizadeh told.

The expert says the Iranian government has refused, in the course of last three years, to publish data about Iran's annual economic growth even on the face of media and parliamentary members frequent demands.

"Now, after two short visits in May and June to Tehran, IMF representative has come to the conclusion that Iran, all of a sudden, has made 3.5 per cent economic growth out of nowhere," Taghizadeh told. "All economic observers familiar with Iran's economy have treated the IMF recent report with deep skepticism."

IMF has long been an advocate of cutting subsidies by the developing countries, so the recent report is an effort by IMF to help the Iranian government to carry on with its plan, regardless of the midterm consequences, the expert believes.

"But Iran's industrial output in the course of last six month has been down and unemployment increased while stagnation affected further price increase," Taghizadeh wrote.

Early July, the Head of the Parliament's Energy Commission Hamidreza Katouzian said that Iran's oil production decreased by 72,000 bpd compared to 2008.

The Organization of Petroleum Exporting Countries has released a report saying Nigeria with 2,248,000 barrels output daily has replaced Iran, the second largest oil producer. However, later, Iranian OPEC Governor Mohammad Ali Khatibi rejected reports that Iran is listed after Nigeria in the oil cartel ranking.

This week the U.S. Government Accountability Office published a 26-page report found 20 of the 41 companies, known to have worked in the Iranian energy sector and listed in a 2010 report, recently halted commercial work there. Those that withdrew said it was becoming too difficult to do business in Iran.

Taghizadeh noted Iran's economic performances depend highly on the oil prices. "The high oil prices in the international markets have increased the government's hard currency earnings, and IMF has simply converted the income into the increased GDP," he said.

"Such a report is not saying where has it got the indicators, stating Iranian's improved living standards? The report is also wrong about the recipients of the Iranian government's direct payment as it says that the poorest sector of the society receive the cash payouts, where as the right to receive the cash is equal for every one," Taghizadeh concluded.


/Trend/