Foreign Exchange Reserves Are Melting Down in Iran

Foreign Exchange Reserves Are Melting Down in Iran
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Abdolnaser Hemmati, the governor of the Central Bank of Iran, reacted strongly on a social media platform to an International Monetary Fund (IMF) report, which includes predictions about the amount of Iran’s foreign exchange reserves. According to the IMF report, which focuses on Middle Eastern and Middle Asian countries, Iran’s gross foreign exchange reserves have regressed to 4 billion USD by the end of 2020. Graphic 1 illustrates Iran’s gross foreign exchange reserves after 2017-2022 in addition to the expectations towards the next two years, according to the IMF report. As stated in Graphic 1, the worth of Iran’s reserves was 122 billion USD in 2018, which is the year of US withdrawal from the Joint Comprehensive Plan of Action (JCPOA). After the US withdrawal from the agreement and the implementation of the sanctions, Iran’s reserves regressed rapidly to 12.4 billion USD by the end of 2019 and to 4 billion USD by the end of 2020. The reserves are estimated to recover slowly in the next two years. It is expected to rise to 12.2 billion by the end of 2021 and 21 billion USD by the end of 2022. Even though Donald Trump’s “maximum pressure policy” did not result in the expected political consequences, the economy of the country has been shaken by the policy. The Iranian economy has been bleeding for the past three years, and the economic life has worsened day by day in the country. In the first months of the last year, there were signs of recovery in the economy of the country. Nevertheless, the negative effects of the coronavirus pandemic since March 2020 and the closures as pandemic measures disposed of the weak signs of economic recovery. Global closures as the pandemic measures paved the way for a fall in the global oil demand. Moreover, the oil producers could not come to an agreement on cutting the oil production. Consequently, oil prices have dropped significantly. The recession of the oil prices and the fall of Iran’s oil export up to 70-80% due to the sanctions have hastened the decline of the foreign exchange reserves.

It is possible to argue that Iran’s reserves are not in an economically secure place. Regarding enterprises and states, even though they do not have any output/revenue from exchange transactions, a firm or a state is suggested to have operational capital / foreign exchange reserves, at least for the expenditures of the next six months. In this context, the current worth of the reserves is less than 17.5 billion USD which does not correspond to half of the imports in 2019, which is 35 billion USD. The current situation does not seem pleasant concerning economic security.

Graphic 1: The Amount of Gross Foreign Exchange Reserves in Iran (Billion USD)

Source: IMF (2021)


There have been several articles regarding the issue after the relevant IMF report. Radio Farda, an online radio channel, published an analytical essay with regard to the worth of the reserves in the IMF report. According to the analysis, the amount of Iran’s overall reserves, in fact, regressed to 40 billion USD in 2020. However, 36 billion USD out of 40 are blocked in the third countries because of the sanctions. In other words, even if Iran’s overall reserve amount possesses 40 billion USD, Iran is able to command only 4 billion USD.

Hemmati stated that the numbers in the report do not represent reality. However, he does not offer any detailed information. Another analysis that is written by Esfandyar Batmanghelidj, paints a different picture. Batmanghelidj interpreted the amount of the reserves according to numbers of the Central Bank of Iran (see Graphic 2). In Batmanghelidj's analysis, which considers the data of the Central Bank of Iran regarding the changes in the foreign exchange reserves, there is a significant recession in Iran’s gross foreign exchange reserves between 2017 and 2020 (1395-1399 in Iran’s calendar). Despite the fact that the four years period does not fully correspond with the period of sanctions, the melting down of the reserves in the four years is equal to 6.5 billion USD. There seemed no cumulative change between 1398 and 1399 when the effects of the sanctions were experienced excessively.

Graphic 2: The Changes in Iran’s Gross Foreign Exchange Reserves (Billion USD)

Source: It is prepared by Esfandyar Batmanghelidj with reference to the data of the Central Bank of Iran.


One of the major problems about Iran is the fact that the economic and strategic statistics are not submitted by the Islamic Republic of Iran. In contrast, the state either hides the statistics or gives different figures to cause confusion. These kinds of policies may be defended in the context of security. Due to the fact that there are no net figures, the reports about Iran’s economy take some assumptions into consideration in the analysis. Thus, the same statistics are interpreted in extremely different ways in the reports of several institutions. As stated in the analysis above, according to the IMF report, Iran has lost its reserves that were equal to almost 80 billion USD in the last three years. Nevertheless, calculations, which are based on the Central Bank of Iran's data, do not show any significant regression.

According to a report of the Iran Chamber of Commerce, Industries, Mines and Agriculture, in the last three years, the cash outflow to the third countries by Iranian citizens to purchase property or start an enterprise is equal to approximately 100 billion USD. It also should be underlined that there have been numerous news about the citizens of Iran purchasing many properties in Turkey and the United Arab Emirates. Another research, which was made by the Research Center of Islamic Legislative Assembly, shows that the capital flight reached 39 billion USD in the following year of the sanctions. Furthermore, Iran’s persistent ask for a loan from IMF to struggle with the pandemic, its negotiations with several countries to release at least a part of the frozen Iranian funds, and its attempts for undiplomatic ways (like the seizure of the South Korean ship) indicate a critical decline in the foreign exchange reserves. Apart from the perceivable decline in the imports for the last three years, a trade deficit has been seen as a result of the decrease in the export items’ and oil incomes. Moreover, withdrawal of the foreign investments and the significant amount of capital flight by Iranian citizens strengthen the claims regarding the critical regression of the foreign exchange reserves.

Considering the serious gap in the numbers that is stated above, it is difficult to paint a clear picture. It is certain that the maximum pressure policy has caused critical damages to Iran’s economy. The developments in the areas of national income, export, exchange rates, inflation, and many other variables indicate degradation in the economy. It is possible to predict that in the country where all economic variables represent a regression in addition to the negative effects of the sanctions, the foreign exchange reserves are growing worse day by day.