IMF Warns That Iran Cannot Rely on Oil Alone to Resuscitate Its Economy

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The International Monetary Fund (IMF) warned Iran that its oil industry couldn’t remain the key pillar of its economy if it wishes to return to prosperity. It also warned the nation that it has far greater challenges ahead, despite the lifting of international financial sanctions.

First Deputy Managing Director of the IMF David Lipton said on Tuesday "I speak here today at a pivotal moment for Iran's economy…With important sanctions lifted; your country has a new opportunity to deepen its integration into the global economy.

That process has the potential over time to support faster growth and rising living standards for Iranians…But positive results depend on overcoming two major obstacles as well. The first is navigating a difficult global economic situation. And the second is building a competitive and flexible domestic economy that will serve as a suitably strong platform for growth.”

The IMF wants Iran to consider moving away from oil production if it is to achieve sustainable growth. Iran returned to global economic affairs in January after years of sanctions imposed against the state to discourage its nuclear ambitions.

Following the lifting of sanctions, Iran has scrambled to reenter the global economy, and has seen oil as its primary export hope. It rejoined the oil market, however, at a time when prices are low and the market itself in great turbulence.

Lipton warned Iran that oil couldn’t serve as a cure-all remedy for its economy’s many woes. "Like other oil exporters, Iran has to manage the transition to lower oil prices. Although the impact of lower prices will be partly mitigated by higher oil export volumes, there are limited prospects for a large increase in Iran's oil revenue because of high global output and weak demand."

The IMF predicted in January that Iran's gross domestic product (GDP) could grow in 2016 by 4% to 5.5%, largely on the back of oil production. Unfortunately, oil has failed to recover so far, and the introduction of Iran’s oil has only further heightened the problem of surplus supply compared to flagging demand. "The bottom line for Iran is that in the near future the global economy is unlikely to be the driving force to lift up emerging economies that it was in the past.”

According to Lipton and the IMF, "Emerging and developing economies will still account for the lion's share of world growth. But their prospects remain subdued, particularly for two reasons that are important to Iran: the sharp fall in commodity prices led by oil, and China's economic rebalancing."

Although the IMF does not have an easy answer to aid Iran with its economic concerns, it believes a strong domestic focus may be a good place to start. Lipton said that while Iran "will gain from pursuing integration with the global economy, [its] ultimate success depends on what [it does] at home."