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Iran Faces Slower Oil Exports And GDP Decline, IMF Projects

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Iran will face a slowdown in economic growth in the coming years, the International Monetary Fund’s latest report suggests, as US sanctions and mismanagement decrease national income.

While the country’s GDP increased by 4.7% last year due to a 19% increase in oil production, GDP growth is projected to decline to 3.3% in 2024 and 3.1% in 2025, according to the IMF.

Iran’s oil production increased by 0.5 million barrels per day (mb/d) to 3.1 mb/d last year, but it is projected to increase by only 0.1 mb/d in both the current year and 2025.

The IMF has evaluated Iran’s economic performance based on official statistics and its own estimates, which include data from Iranian government sources that are not always considered reliable.

Notably, both the International Energy Agency and OPEC had projected Iran’s oil production growth for 2023 at 305,000 barrels per day, 40% less than the IMF’s estimates.

The IMF also estimated gas production growth for Iran in 2023 to exceed 6%, whereas the National Iranian Gas Company (NIGC) has reported a growth rate of approximately 1%.

The IMF also estimated a 9% increase in Iranian gas production for 2022, while BP and NIGC reported growth rates of about 1% and 1.7%, respectively, for the same year.

Before US sanctions, Iran’s crude oil output exceeded 3.8 mb/d in 2017. However, it declined to below 2 mb/d in 2020.

Iran has seen a rebound in oil production since Joe Biden assumed office at the White House, which has positively influenced its oil exports – reaching about 3.2 mb/d in March 2023, according to OPEC.

Kpler’s statistics also show that Iran’s oil exports have increased from 350,000 b/d in 2020 to about 1.5 mb/d in the first quarter of 2024.

Budget deficit

The IMF says the Iranian government needs $121/barrel oil price to avoid a budget deficit.

Currently, the Brent benchmark is sold at below $90, while the IMF predicted the average Brent price at $78.61 in 2024 and $73.68 in 2025.

Iran also offers a discount of at least $13 per barrel for Chinese refineries, a factor that the IMF did not account for in its calculation of the “breakeven oil price” for the Iranian government.

The report also says Iranian government and state enterprises’ debts would increase by $4 billion (based on NIMA exchange rate, or $1:410,000 rials) in 2024 to above $118 billion, equaling 25.5% of GDP.

NIMA is designed for exporters to sell foreign currencies at a lower rate and for importers to purchase what they need at the same low rate to finance their purchases from other countries. The official rate at NIMA is approximately 40% lower than in the foreign currency free market.

Since early 2023, the Iranian currency, the rial, has depreciated by approximately 33% in open markets, largely due to ongoing significant government budget deficits.

Recently, the Iranian Central Bank (CBI) reported that the government and state entities’ debts to the banking system increased by 56% year-on-year in 2023, reaching approximately 13,100 trillion rials, equivalent to $32 billion based on NIMA rates and $21.5 billion based on open market rates. Additionally, the Iranian government’s foreign debts stand at $5.8 billion, according to the CBI.

On the other hand, the National Development Fund (NDF) of Iran claims the government owes about $100 billion from this entity.

It appears that Iranian government debt is at least $11 billion higher than the IMF’s estimates for 2023.

With that, Iran’s financial stability remains precarious as it needs higher oil prices to prevent deficits while it grapples with mounting government debt, and contends with currency depreciation.

Inflation

The IMF estimated Iran’s inflation for 2023 at 41.5%, consistent with Iran’s Statistical Center’s official reports.

However, the Central Bank of Iran (CBI) recently released a report calculating the “payment of debt and dowry” based on a 52.3% inflation rate in 2023. This suggests that Iran’s actual inflation rate is significantly higher than the official statistics indicate.

Many field research studies conducted by local media indicate that the actual inflation in the country is much higher than the official data reported by the Statistics Center or submitted to the IMF and other international entities by the Iranian government.