## 1. MENAP Oil-Exporting Countries: Transitioning to a Sustainable Fiscal Position and Higher Growth

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### Overview and growth outlook
- Growth is constrained by a slowdown in productivity, reduced FDI flows, and limited scope to improve allocation of fiscal resources.
- Expansionary fiscal policy would heighten fiscal vulnerabilities and have only a modest impact on growth in the current environment.
- A mix of macroeconomic and financial policies is required to strengthen resilience and promote private-sector-led, job-rich growth; reducing fiscal vulnerabilities is a priority and structural reforms are needed to spur growth.
- A lack of integration in global trade means that the sharp recession in Iran will probably have limited spillovers to the rest of the region.
- The largest impact will likely be in the international oil market, although geopolitical tensions, responses of other oil producers, and weakening global oil demand make the resultant price impact highly uncertain.
- Other specific markets—including tourism, agriculture, and electricity—in particular countries may also be moderately impacted.

### Near-term and medium-term growth projections and country outcomes
- GCC countries:
  - Growth projected to be 0.7 percent in 2019, down from 2 percent in 2018.
  - Growth in 2020 is expected to rebound to 2.5 percent, driven by a recovery in real oil GDP growth of 1.9 percent (compared to –1.4 percent in 2019 and 2.5 percent in 2018).
  - Non-oil GDP growth increasing to 2.8 percent in 2020 from 2.4 percent in 2019.
- Iran:
  - Output in 2019 is expected to shrink by 9.5 percent as US sanctions tighten.
  - Some stability expected in 2020, culminating in near-zero growth.
- Iraq:
  - Growth projected to be 3.4 percent in 2019, improving from –0.6 percent in 2018.
  - Growth projected to increase to 4.7 percent in 2020.
- Algeria:
  - Growth expected to reach 2.6 percent in 2019, up from 1.4 percent in 2018.
  - Growth expected to moderate to 2.4 percent in 2020.
- Libya and Yemen:
  - Security and political conditions in Libya have deteriorated since April 2019, adversely impacting performance.
  - Growth expected to decline slightly in Yemen.
- Regional medium-term outlook:
  - Real GDP growth expected to average about 2.4 percent for GCC countries and 2.3 percent for non-GCC oil exporters (excluding Iran and Libya) during 2021–24.
  - These growth levels are insufficient to create the approximately 1 million new jobs a year needed to absorb new entrants into labor markets.

### Drivers of weak potential growth and financial conditions
- Potential non-oil GDP growth has slowed due to:
  - Diminishing productivity growth in non-GCC oil exporters.
  - Persistently negative productivity growth in GCC oil exporters.
  - Declining capital accumulation across MENAP oil exporters.
- Financial conditions:
  - Supportive global financial conditions in 2019 (interest rate cuts by major central banks; inclusion of GCC countries in global equity and bond indices) boosted debt and equity flows.
  - Modest recovery in private credit growth in GCC countries, partly supported by lower domestic interest rates.
  - Real estate market pressures persist and warrant monitoring and macroprudential measures.
  - In Algeria, Iran, Yemen: monetary financing of fiscal deficits and exchange rate pressures have lowered real credit growth to the private sector; need to mop up liquidity injected by monetary financing.
  - In Iraq: bank balance sheets remain weak; public banking system requires restructuring.

### Comovements between oil prices and expenditures, and fiscal vulnerabilities
- Strong association between oil prices and government expenditures persists.
- Fiscal consolidation has slowed in some countries and reversed in others, largely due to increased spending.
- The spending effect on growth has been modest so far, partly because of spending composition.
- Fiscal vulnerabilities have increased compared to the pre-2014 period:
  - Gross financing needs and public debt have moved up.
  - Governments’ net financial positions have deteriorated.
- Countries with limited fiscal buffers (Bahrain, Iran, Iraq, Oman, Yemen) are particularly vulnerable to a decline in oil prices.
- The estimated gap between the non-hydrocarbon primary balance needed to ensure intergenerational equity and the projected primary balance in 2019 ranges between 5 and 23 percentage points of nonhydrocarbon GDP.

### Fiscal policy recommendations and elements of consolidation
- Pace and magnitude of fiscal consolidation should reflect individual countries’ fiscal space, economic conditions, and financing needs; countries with significant fiscal space (Kuwait, Qatar, United Arab Emirates) could undertake slower consolidation if cyclical conditions warrant.
- Key elements for effective fiscal consolidation:
  - Enhancing non-oil revenue collection:
    - Countries have taken steps to improve non-oil revenue mobilization, but scope remains for comprehensive tax reforms.
    - Prioritize broadening the tax base by gradually reducing exemptions, eliminating loopholes, and strengthening tax administration.
    - Consider introducing a value-added tax in Kuwait, Oman, and Qatar.
    - Expand and enhance consumption taxes in Iraq.
    - Consider introducing income and property taxes in some countries.
  - Containing wage bills and energy subsidies, and improving quality of spending:
    - Contain and streamline wage bills.
    - Reform energy subsidies with emphasis on cost-recovery and incentives to reduce energy intensity and inefficiencies.
    - Strengthen social protection while targeting subsidies.
    - Improve efficiency of public investment (procurement, transparency, appraisal and selection processes).
  - Strengthening fiscal frameworks:
    - Decouple public expenditures from volatile oil receipts using medium-term fiscal frameworks.
    - Strengthen fiscal institutions, improve transparency, and adopt credible medium-term fiscal frameworks.

### Structural and financial sector reforms to boost growth and inclusion
- Continued fiscal consolidation should be complemented by reforms to generate jobs and raise supply potential; growth must come from the private sector to ease fiscal adjustment burdens.
- Financial development and inclusion can raise growth:
  - Increased financial development could raise annual per capita income growth by 0.4–0.7 percentage point in GCC countries.
  - Increased financial inclusion could be associated with higher growth of some 0.3–0.7 percentage point.
- Strategies to improve financial development and inclusion:
  - Strengthen access to finance for young and growing companies by promoting financial sector competition, improving financial literacy, and enhancing insolvency frameworks.
  - Develop debt markets and broaden access to stock markets; improve corporate governance and investor protection.
- Structural reforms to support private-sector-led non-oil growth and raise productivity—four key objectives:
  - Improve the business environment to catalyze domestic and foreign direct investment; closing FDI gaps in GCC countries could raise real non-oil GDP per capita growth by as much as 1 percentage point.
  - Improve competition and discipline through privatization, effective public–private partnerships, better-enforced competition laws, and a level playing field between private sector and state enterprises; national industrial policies should target sectors rather than individual companies and be time-bound with performance criteria.
  - Incentivize private sector employment and improve competitiveness:
    - Address public-private wage gaps by linking compensation to performance and improving control over bonuses and allowances.
    - Communicate expectations of limited growth in public sector jobs where applicable.
    - Improve education and training to raise human capital and productivity.
  - Improve governance:
    - Strengthen legal frameworks to protect contractual, ownership, and creditor rights.
    - Increase transparency of corporate beneficial ownership.
    - Enhance asset declaration systems for senior public officials, criminalize bribery and embezzlement, and reduce corruption and rent seeking.

### Trade links, oil market impacts, and financial linkages
- Trade links and exposure:
  - Iran’s gross trade (imports plus exports) in 2017 was 47 percent of GDP, about half that of other MENA oil exporters (84 percent).
  - Few countries were dependent on Iranian demand for their exports prior to the latest round of sanctions.
  - Countries for which Iran’s share of exports is large are often insulated:
    - United Arab Emirates: role as reexporter.
    - Afghanistan, Tajikistan: small export sectors.
- Countries with significant exports to Iran (Goods exports to Iran, 2017) — top 10 listed in source with export shares and GDP shares, including:
  - Tajikistan — Iranian import share: 67.4 percent; US$ (millions): 20.0; Export share (percent): 60.0; GDP share (percent): 10.00
  - UAE — Iranian import share: 7,716.9 percent; US$ (millions): 40.0; Export share (percent): 40.0; GDP share (percent): 0.28; Major products: Motor vehicles
  - Armenia — Iranian import share: 84.1 percent; US$ (millions): 20.0; Export share (percent): 40.0; GDP share (percent): 0.10; Major products: Live animals
  - Georgia — Iranian import share: 76.3 percent; US$ (millions): 50.0; Export share (percent): 30.0; GDP share (percent): 0.10; Major products: Live animals
  - Uzbekistan — Iranian import share: 258.3 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.10
  - Afghanistan — Iranian import share: 32.3 percent; US$ (millions): 60.0; Export share (percent): 20.0; GDP share (percent): 0.00
  - Turkey — Iranian import share: 3,259.2 percent; US$ (millions): 70.0; Export share (percent): 20.0; GDP share (percent): 0.05; Major products: Metals
  - Oman — Iranian import share: 597.4 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.10; Major products: Tobacco
  - Sri Lanka — Iranian import share: 177.0 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.00; Major products: Tea, Coffee
  - Brazil — Iranian import share: 2,559.7 percent; US$ (millions): 70.0; Export share (percent): 10.0; GDP share (percent): 0.01; Major products: Corn seed
- Oil market impacts:
  - Iran’s share of global oil production dropped from 5.5 percent in 2017 to only 4 percent at the end of 2018.
  - Increased OPEC and US shale production has cushioned the loss of Iranian supply, but uncertainty over the timing of these adjustments and the extent of sanction exemptions contributed to higher oil price volatility since the first half of 2018.
  - The Persian Gulf is a critical global shipping lane for oil; oil shipments through the Strait of Hormuz were equivalent to more than 20 percent of global consumption in 2018.
- Financial linkages:
  - Iranian financial liabilities to foreign residents reported by the Bank for International Settlements: $1.9 billion in the third quarter of 2018.
  - Iranian assets held overseas rose above $25 billion—more than double 2017 levels—with much of the increase in Germany and Korea.
  - US sanctions triggered a decline in correspondent banking relationships, from about 350 relationships in 2017 to fewer than 60 in 2018.

### Specific country market exposures, tourism, migration, and geopolitical risks
- Iraq: relies on Iran for about one-third of its electricity, both as direct supplies and gas for power stations.
- Afghanistan: excess demand for US dollars in Iran has spilled over to Afghan currency markets, amplifying depreciation of the Afghani.
- Agricultural producers in the Caucasus: may be exposed to lower Iranian demand.
- Tourism and migration spillovers:
  - Lower incomes and a weaker rial are likely to reduce tourism from Iran.
  - Iranian residents made more than 10.5 million international trips in 2017, a rise of 60 percent since 2015.
  - Turkey received more than 2.5 million visits from Iranian residents in 2017.
  - Iran hosts nearly 1 million refugees, who may be more likely to return home.
  - The UN International Office of Migration reports that more than 500,000 undocumented Afghans returned from Iran in the first nine months of 2018, more than double the same period in 2017.
- Geopolitical risks to trade:
  - Recent tensions, including explosions aboard two oil tankers in June and the detention of a UK-registered ship in July, highlight the risk that increased geopolitical tensions could impact global trade, especially in oil.

### Key statistics and exact figures cited
- GCC growth: 0.7 percent in 2019; 2 percent in 2018; 2.5 percent projected in 2020.
- Real oil GDP growth: 1.9 percent in 2020 (compared to –1.4 percent in 2019 and 2.5 percent in 2018).
- Non-oil GDP growth: 2.4 percent in 2019; 2.8 percent in 2020.
- Iran: –9.5 percent in 2019; near-zero growth in 2020.
- Iraq: 3.4 percent in 2019; –0.6 percent in 2018; 4.7 percent in 2020.
- Algeria: 2.6 percent in 2019; 1.4 percent in 2018; 2.4 percent in 2020.
- Medium-term real GDP growth averages: 2.4 percent for GCC countries and 2.3 percent for non-GCC oil exporters (excluding Iran and Libya) during 2021–24.
- Jobs needed: approximately 1 million new jobs a year.
- Estimated non-hydrocarbon primary balance gap for intergenerational equity: between 5 and 23 percentage points of nonhydrocarbon GDP.
- Fiscal measures already implemented in the region (examples cited):
  - Saudi Arabia introduced a 5 percent value-added tax rate in January 2018, excises, and an expatriate levy.
  - United Arab Emirates introduced excises in late 2017, and a value-added tax in January 2018.
  - Bahrain introduced a value-added tax at a 5 percent rate in January 2019.
  - Qatar introduced excise taxes in 2019 (100 percent on tobacco, 50 percent on all carbonated drinks, and 100 percent on all energy drinks).
- Iran’s gross trade in 2017: 47 percent of GDP; other MENA oil exporters: 84 percent.
- Oil production share: Iran 5.5 percent in 2017; 4 percent at the end of 2018.
- Oil shipments through the Strait of Hormuz: equivalent to more than 20 percent of global consumption in 2018.
- Iranian financial liabilities to foreign residents: $1.9 billion in Q3 2018.
- Iranian assets held overseas: above $25 billion in 2018.
- Correspondent banking relationships: about 350 in 2017; fewer than 60 in 2018.
- Iranian international trips in 2017: more than 10.5 million; increase of 60 percent since 2015.
- Visits to Turkey from Iranian residents in 2017: more than 2.5 million.
- Undocumented Afghans returned from Iran in first nine months of 2018: more than 500,000; more than double the same period in 2017.

*Prepared by Philip Barrett. International Monetary Fund | October 2019*

### 1. MENAP Oil-Exporting Countries: Transitioning to

### 1. MENAP Oil-Exporting Countries: Transitioning to a Sustainable Fiscal Position and Higher Growth

### Overview and growth outlook
- Growth is constrained by a slowdown in productivity, reduced FDI flows, and limited scope to improve allocation of fiscal resources.
- Expansionary fiscal policy would heighten fiscal vulnerabilities and have only a modest impact on growth in the current environment.
- A mix of macroeconomic and financial policies is required to strengthen resilience and promote private-sector-led, job-rich growth; reducing fiscal vulnerabilities is a priority and structural reforms are needed to spur growth.

### Near-term and medium-term growth projections and country outcomes
- GCC countries:
  - Growth projected to be 0.7 percent in 2019, down from 2 percent in 2018.
  - Growth in 2020 is expected to rebound to 2.5 percent, driven by a recovery in real oil GDP growth of 1.9 percent (compared to –1.4 percent in 2019 and 2.5 percent in 2018).
  - Non-oil GDP growth increasing to 2.8 percent in 2020 from 2.4 percent in 2019.
- Iran:
  - Output in 2019 is expected to shrink by 9.5 percent as US sanctions tighten.
  - Some stability expected in 2020, culminating in near-zero growth.
- Iraq:
  - Growth projected to be 3.4 percent in 2019, improving from –0.6 percent in 2018.
  - Growth projected to increase to 4.7 percent in 2020.
- Algeria:
  - Growth expected to reach 2.6 percent in 2019, up from 1.4 percent in 2018.
  - Growth expected to moderate to 2.4 percent in 2020.
- Libya and Yemen:
  - Security and political conditions in Libya have deteriorated since April 2019, adversely impacting performance.
  - Growth expected to decline slightly in Yemen.
- Regional medium-term outlook:
  - Real GDP growth expected to average about 2.4 percent for GCC countries and 2.3 percent for non-GCC oil exporters (excluding Iran and Libya) during 2021–24.
  - These growth levels are insufficient to create the approximately 1 million new jobs a year needed to absorb new entrants into labor markets.

### Drivers of weak potential growth and financial conditions
- Potential non-oil GDP growth has slowed due to:
  - Diminishing productivity growth in non-GCC oil exporters.
  - Persistently negative productivity growth in GCC oil exporters.
  - Declining capital accumulation across MENAP oil exporters.
- Financial conditions:
  - Supportive global financial conditions in 2019 (interest rate cuts by major central banks; inclusion of GCC countries in global equity and bond indices) boosted debt and equity flows.
  - Modest recovery in private credit growth in GCC countries, partly supported by lower domestic interest rates.
  - Real estate market pressures persist and warrant monitoring and macroprudential measures.
  - In Algeria, Iran, Yemen: monetary financing of fiscal deficits and exchange rate pressures have lowered real credit growth to the private sector; need to mop up liquidity injected by monetary financing.
  - In Iraq: bank balance sheets remain weak; public banking system requires restructuring.

### Comovements between oil prices and expenditures, and fiscal vulnerabilities
- Strong association between oil prices and government expenditures persists.
- Fiscal consolidation has slowed in some countries and reversed in others, largely due to increased spending.
- The spending effect on growth has been modest so far, partly because of spending composition.
- Fiscal vulnerabilities have increased compared to the pre-2014 period:
  - Gross financing needs and public debt have moved up.
  - Governments’ net financial positions have deteriorated.
- Countries with limited fiscal buffers (Bahrain, Iran, Iraq, Oman, Yemen) are particularly vulnerable to a decline in oil prices.
- The estimated gap between the non-hydrocarbon primary balance needed to ensure intergenerational equity and the projected primary balance in 2019 ranges between 5 and 23 percentage points of nonhydrocarbon GDP.

### Fiscal policy recommendations and elements of consolidation
- Pace and magnitude of fiscal consolidation should reflect individual countries’ fiscal space, economic conditions, and financing needs; countries with significant fiscal space (Kuwait, Qatar, United Arab Emirates) could undertake slower consolidation if cyclical conditions warrant.
- Key elements for effective fiscal consolidation:
  - Enhancing non-oil revenue collection:
    - Countries have taken steps to improve non-oil revenue mobilization, but scope remains for comprehensive tax reforms.
    - Prioritize broadening the tax base by gradually reducing exemptions, eliminating loopholes, and strengthening tax administration.
    - Consider introducing a value-added tax in Kuwait, Oman, and Qatar.
    - Expand and enhance consumption taxes in Iraq.
    - Consider introducing income and property taxes in some countries.
  - Containing wage bills and energy subsidies, and improving quality of spending:
    - Contain and streamline wage bills.
    - Reform energy subsidies with emphasis on cost-recovery and incentives to reduce energy intensity and inefficiencies.
    - Strengthen social protection while targeting subsidies.
    - Improve efficiency of public investment (procurement, transparency, appraisal and selection processes).
  - Strengthening fiscal frameworks:
    - Decouple public expenditures from volatile oil receipts using medium-term fiscal frameworks.
    - Strengthen fiscal institutions, improve transparency, and adopt credible medium-term fiscal frameworks.

### Structural and financial sector reforms to boost growth and inclusion
- Continued fiscal consolidation should be complemented by reforms to generate jobs and raise supply potential; growth must come from the private sector to ease fiscal adjustment burdens.
- Financial development and inclusion can raise growth:
  - Increased financial development could raise annual per capita income growth by 0.4–0.7 percentage point in GCC countries.
  - Increased financial inclusion could be associated with higher growth of some 0.3–0.7 percentage point.
- Strategies to improve financial development and inclusion:
  - Strengthen access to finance for young and growing companies by promoting financial sector competition, improving financial literacy, and enhancing insolvency frameworks.
  - Develop debt markets and broaden access to stock markets; improve corporate governance and investor protection.
- Structural reforms to support private-sector-led non-oil growth and raise productivity—four key objectives:
  - Improve the business environment to catalyze domestic and foreign direct investment; closing FDI gaps in GCC countries could raise real non-oil GDP per capita growth by as much as 1 percentage point.
  - Improve competition and discipline through privatization, effective public–private partnerships, better-enforced competition laws, and a level playing field between private sector and state enterprises; national industrial policies should target sectors rather than individual companies and be time-bound with performance criteria.
  - Incentivize private sector employment and improve competitiveness:
    - Address public-private wage gaps by linking compensation to performance and improving control over bonuses and allowances.
    - Communicate expectations of limited growth in public sector jobs where applicable.
    - Improve education and training to raise human capital and productivity.
  - Improve governance:
    - Strengthen legal frameworks to protect contractual, ownership, and creditor rights.
    - Increase transparency of corporate beneficial ownership.
    - Enhance asset declaration systems for senior public officials, criminalize bribery and embezzlement, and reduce corruption and rent seeking.

### Key statistics and exact figures cited
- GCC growth: 0.7 percent in 2019; 2 percent in 2018; 2.5 percent projected in 2020.
- Real oil GDP growth: 1.9 percent in 2020 (compared to –1.4 percent in 2019 and 2.5 percent in 2018).
- Non-oil GDP growth: 2.4 percent in 2019; 2.8 percent in 2020.
- Iran: –9.5 percent in 2019; near-zero growth in 2020.
- Iraq: 3.4 percent in 2019; –0.6 percent in 2018; 4.7 percent in 2020.
- Algeria: 2.6 percent in 2019; 1.4 percent in 2018; 2.4 percent in 2020.
- Medium-term real GDP growth averages: 2.4 percent for GCC countries and 2.3 percent for non-GCC oil exporters (excluding Iran and Libya) during 2021–24.
- Jobs needed: approximately 1 million new jobs a year.
- Estimated non-hydrocarbon primary balance gap for intergenerational equity: between 5 and 23 percentage points of nonhydrocarbon GDP.
- Fiscal measures already implemented in the region (examples cited):
  - Saudi Arabia introduced a 5 percent value-added tax rate in January 2018, excises, and an expatriate levy.
  - United Arab Emirates introduced excises in late 2017, and a value-added tax in January 2018.
  - Bahrain introduced a value-added tax at a 5 percent rate in January 2019.
  - Qatar introduced excise taxes in 2019 (100 percent on tobacco, 50 percent on all carbonated drinks, and 100 percent on all energy drinks).

*Source: International Monetary Fund | October 2019*

### 1. MENAP OIL-ExPORTING COUNTRIEs: TRANsITIONING TO A sUsTAINAbLE FIsCAL POsITION ANd HIGHER GROwTH

### 1. MENAP OIL-EXPORTING COUNTRIES: TRANSITIONING TO A SUSTAINABLE FISCAL POSITION AND HIGHER GROWTH

### Overview
- A lack of integration in global trade means that the sharp recession in Iran will probably have limited spillovers to the rest of the region.
- The largest impact will likely be in the international oil market, although geopolitical tensions, responses of other oil producers, and weakening global oil demand make the resultant price impact highly uncertain.
- Other specific markets—including tourism, agriculture, and electricity—in particular countries may also be moderately impacted.

### Trade links and exposure
- Iran’s gross trade (imports plus exports) in 2017 was 47 percent of GDP, about half that of other MENA oil exporters (84 percent).
- Few countries were dependent on Iranian demand for their exports prior to the latest round of sanctions.
- Countries for which Iran’s share of exports is large are often insulated:
  - United Arab Emirates: role as reexporter.
  - Afghanistan, Tajikistan: small export sectors.

### Countries with significant exports to Iran (Goods exports to Iran, 2017)
- Tajikistan — Iranian import share: 67.4 percent; US$ (millions): 20.0; Export share (percent): 60.0; GDP share (percent): 10.00
- UAE — Iranian import share: 7,716.9 percent; US$ (millions): 40.0; Export share (percent): 40.0; GDP share (percent): 0.28; Major products: Motor vehicles
- Armenia — Iranian import share: 84.1 percent; US$ (millions): 20.0; Export share (percent): 40.0; GDP share (percent): 0.10; Major products: Live animals
- Georgia — Iranian import share: 76.3 percent; US$ (millions): 50.0; Export share (percent): 30.0; GDP share (percent): 0.10; Major products: Live animals
- Uzbekistan — Iranian import share: 258.3 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.10
- Afghanistan — Iranian import share: 32.3 percent; US$ (millions): 60.0; Export share (percent): 20.0; GDP share (percent): 0.00
- Turkey — Iranian import share: 3,259.2 percent; US$ (millions): 70.0; Export share (percent): 20.0; GDP share (percent): 0.05; Major products: Metals
- Oman — Iranian import share: 597.4 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.10; Major products: Tobacco
- Sri Lanka — Iranian import share: 177.0 percent; US$ (millions): 00.0; Export share (percent): 20.0; GDP share (percent): 0.00; Major products: Tea, Coffee
- Brazil — Iranian import share: 2,559.7 percent; US$ (millions): 70.0; Export share (percent): 10.0; GDP share (percent): 0.01; Major products: Corn seed
- Note: This table lists the 10 countries for which exports to Iran account for the largest fraction of total exports.

### Oil market impacts
- Iran’s share of global oil production dropped from 5.5 percent in 2017 to only 4 percent at the end of 2018.
- Increased OPEC and US shale production has cushioned the loss of Iranian supply, but uncertainty over the timing of these adjustments and the extent of sanction exemptions contributed to higher oil price volatility since the first half of 2018.
- The Persian Gulf is a critical global shipping lane for oil; oil shipments through the Strait of Hormuz were equivalent to more than 20 percent of global consumption in 2018.

### Financial linkages
- Foreign residents have relatively few claims on Iranian assets:
  - Iranian financial liabilities to foreign residents reported by the Bank for International Settlements: $1.9 billion in the third quarter of 2018.
  - Iranian assets held overseas rose above $25 billion—more than double 2017 levels—with much of the increase in Germany and Korea.
- US sanctions triggered a decline in correspondent banking relationships, from about 350 relationships in 2017 to fewer than 60 in 2018.

### Specific country market exposures
- Iraq: relies on Iran for about one-third of its electricity, both as direct supplies and gas for power stations.
- Afghanistan: excess demand for US dollars in Iran has spilled over to Afghan currency markets, amplifying depreciation of the Afghani.
- Agricultural producers in the Caucasus: may be exposed to lower Iranian demand.

### Tourism and migration spillovers
- Lower incomes and a weaker rial are likely to reduce tourism from Iran.
  - Iranian residents made more than 10.5 million international trips in 2017, a rise of 60 percent since 2015.
  - Turkey received more than 2.5 million visits from Iranian residents in 2017.
- Migration flows:
  - Iran hosts nearly 1 million refugees, who may be more likely to return home.
  - The UN International Office of Migration reports that more than 500,000 undocumented Afghans returned from Iran in the first nine months of 2018, more than double the same period in 2017.

### Geopolitical risks to trade
- Recent tensions, including explosions aboard two oil tankers in June and the detention of a UK-registered ship in July, highlight the risk that increased geopolitical tensions could impact global trade, especially in oil.

*Prepared by Philip Barrett. International Monetary Fund | October 2019*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/october/english/menap-chapter1.pdf_