Iran’s Financial Tightrope Walk: Soaring Debt and Reliance on High Oil Prices

Iran’s Financial Tightrope Walk: Soaring Debt and Reliance on High Oil Prices
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The International Monetary Fund (IMF) paints a concerning picture of Iran’s economic outlook in its latest report, “Regional Economic Outlook: Middle East and Central Asia.” Their analysis highlights the precarious situation the Iranian government faces due to a significant budget deficit and mounting debt.

According to the IMF, Iran needs a global oil price exceeding $121 per barrel to avoid a budget deficit in 2024. This threshold stands in stark contrast to the current , with Brent oil, a benchmark even more expensive than Iranian oil, trading below $90 . The IMF further predicts the average price of Brent oil to remain below $79 this year.

Complicating matters further, the IMF report does not factor in the discounts Iran offers to Chinese refineries, which according to Reuters, amount to roughly $13 per barrel.

While Iran’s daily oil production saw a significant increase of 500,000 barrels last year, reaching 1.3 million barrels, the IMF expects this growth to stagnate. Their forecast suggests only a 100,000-barrel increase in daily oil production by 2024.

The IMF also predicts a substantial rise in government and subsidiary debt, exceeding $118 billion this year, which represents more than a quarter of Iran’s entire economy. This figure marks an increase of over $4 billion compared to 2023.

Iran’s Nimai-dollar rate (Integrated currency trading system) serves as the IMF’s standard for calculating Iran’s economic indicators in dollars, with some data sourced directly from the Iranian government.

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Earlier reports from the Central Bank of Iran (CBI) echoed the IMF’s concerns, revealing a staggering 56% increase in government and state-owned company debt to the country’s banking system in 2023, reaching 1,310 trillion tumbas.

However, government debt to banks represents only a fraction of the total burden. The National Development Fund holds the largest share of government debt, exceeding $100 billion according to the Fund’s own report. Furthermore, the report acknowledges the government’s inability to settle these debts.

This substantial budget deficit has forced the Iranian government to rely heavily on fiat money printing by the central bank to borrow from domestic banks and financial institutions. This has led to a significant surge in liquidity within the country. The IMF estimates a 35% jump in liquidity over the last year, with a further 33% increase projected for 2024.

Such an exponential rise in liquidity has triggered a chain reaction, causing the depreciation of the Iranian rial and rampant inflation. The IMF assesses Iran’s inflation rate at 41.5% for 2023, with a projected decrease to 37.5% in 2024. However, it is crucial to note that this estimate is based on data provided by Iran’s Statistics Center. The CBI recently released a sub-report calculating debt and dowry payments, revealing a significantly higher inflation rate of over 52% for 2023.

In conclusion, the IMF report paints a grim picture of Iran’s economic trajectory. The reliance on high oil prices to avoid a budget deficit, coupled with soaring debt and rampant inflation, presents a major challenge for the Iranian government. The situation demands immediate and effective measures to address the underlying issues and stabilize the country’s economic outlook, something that has been rendered impossible under the rule of the current regime.

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