UNITED STATES (OBSERVATORY) – Iran’s decision last month to unify the currency exchange rate in both the official and free markets to support the riyal was “a step in the right direction,” an IMF official said.
The riyal has lost almost half of its value since September, partly because of concerns about a return to economic sanctions if US President Donald Trump threatens to break the nuclear deal with Tehran.
Iranian authorities said last month they were consolidating the official exchange rate of the riyal and its price in the free market for a flat rate of 42 thousand riyals against the US dollar.
Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund, said unification “helps to eliminate distortions and improves the competitiveness of the economy.”
“This must be accompanied by maintaining a fiscal adjustment to reduce the level of the budget deficit, reforming the banking system, in particular banks facing difficulties, and allowing the private sector to grow,” Azour said.
Trump is due to decide on May 12 whether the United States should break a nuclear deal with Iran, under which Tehran agreed to curb its nuclear program in exchange for economic sanctions.
Asked about the possible impact on the Iranian economy and the currency, Azour said, “Any step in this direction will increase risk exposure because of the uncertainty that will come with that kind of change.”
“There is a need for greater caution in terms of macroeconomic management in order to withstand any negative impact of these policies, and the best way to do this is to accelerate some of the reforms that are required to be applied.”