IMF calls for greater reform

16 December 2005
The economy is set to grow by 6 per cent in the Iranian year, which ends in March, while inflation will fall to 13 per cent and unemployment will remain stable at 11 per cent, the IMF said in a 13 December statement following article IV consultations earlier in the month. The growth outstrips the 4.8 per cent achieved last year, but the fund urged Iran to accelerate economic reforms, further reduce inflation, better target subsidies and rein in government spending (MEED 25:11:05).

The IMF said that in the Iranian year 1384, starting 21 March 2005, growth has been 'strong and broad-based' and applauded the government's stated intention to continue reforms laid out in the 20-year vision and the fourth five-year development plan (FYDP). Reforms include privatisation of state-owned companies, promoting private sector growth and attracting foreign investment. The fund particularly welcomed reforms in the financial services sector.

But the IMF said that reforms should be accelerated to enhance growth and private sector job creation. Specifically, it called on the government to rethink its approach to subsidies. Limited petrol rationing will be introduced next March, but economists say the measures are too small to make a real impact on the state's estimated $7,000 million annual petrol subsidy bill.

The mission called on Tehran to 'give greater priority to reducing inflation', which it said was holding back longer-term growth and disproportionately affecting the poor. It said the government accepted that public spending must be contained to bring inflation down to single digits.

The mission praised Tehran for increasing economic transparency but said greater efforts were still needed. Other good news came with the balance of payments, which the fund said was in robust health. The report said the external sector had been strengthened by high oil prices and a rapid growth in non-oil exports.

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