World Bank: Iran's Economy Shrinks More Than Previously Predicted

The World Bank in its latest report published on Monday, April 8, states that Iran's gross domestic product (GDP) will decrease more than previously predicted by this international organization. In January of this year, the World Bank assessed Iran's GDP growth for 2018 at negative 1.5 percent, but in the new report, this figure has been revised to negative 1.6 percent. The organization also predicted Iran's GDP growth for the current year to be negative 3.6 percent, but in the new report, this figure is mentioned as negative 3.8 percent. In other words, Iran's economy will shrink by 3.8 percent this year. This is the second consecutive time that the World Bank has lowered its economic growth forecast for Iran. The GDP growth predictions for Iran in the last three World Bank reports (percentages): Reports 2018 2019 2020 June 2018 report 4.1 4.1 4.2 January 2019 report -1.5 -3.6 1.1 April 2019 report -1.6 -3.8 0.9 There are two methods for calculating GDP: purchasing power parity (PPP) and based on US dollars. The World Bank has used the PPP method in its calculations, which is more common than the dollar-based method. GDP based on US dollars refers to the annual value of goods and services produced in Iran based on US dollars. Given the significant decline in the value of the rial, the drop in Iran's GDP based on US dollars will be much greater. The Iranian rial lost two-thirds of its value against the US dollar last year, and recently the dollar rate has started to rise again. According to the latest forecast from the International Monetary Fund (IMF) published in the second half of last year, Iran's GDP based on PPP will only decrease by 3.6 percent in 2019, but based on US dollars, it will decline by about 22.4 percent, falling from $430 billion in 2018 to below $334 billion this year. However, another method of estimating GDP is the PPP method, which is a more common way to assess a country's economy, as the value of a good or service, especially based on US dollars in the US and based on the rial equivalent of the dollar in Iran, is not equal. This is also true for other countries. For example, with one dollar, which is currently equivalent to 14,400 tomans, one can buy, for instance, five loaves of bread or pay for a taxi for a specific distance in Iran, but the value of those five loaves of bread or the taxi fare in the US could be three dollars, in the UK four dollars, and in China 1.5 dollars. The US exited the JCPOA in May of last year and implemented sanctions against Iran in the second half of the year, the most significant of which are the sanctions on Iran's oil exports. The World Bank has cited the decline in Iran's oil exports as the main factor in the reduction of the country's GDP. The US intends to decide next month on the extension of the exemption for the sale of Iranian oil to eight of its customer countries. In November of last year, the US granted exemptions to China, India, South Korea, Japan, Taiwan, Turkey, Greece, and Italy to continue purchasing oil from the Islamic Republic for six months in a limited manner, which reduced Iran's oil exports to less than half. Reports indicate that the US wants to extend the exemption for only five of Iran's customer countries for another six months, provided that they reduce their oil purchases, and reduce Iran's exports to about 850,000 barrels, which is approximately one-third of Iran's oil exports at the beginning of last year.