Iran’s economy is expected to expand by at least 4.5 per cent in 2016/17 as it is boosted by relief from nuclear-related sanctions and increased oil production, according to the Washington-based IMF.

The fund said increased activity in agriculture, automotive production, trade and transport services have led the recovery in growth in the Islamic Republic’s non-oil sector.

Monetary and fiscal policies adopted in recent years, along with favourable international food prices, allowed inflation to decline to a low of 6.8 per cent in June 2016, the IMF said, estimating inflation would average 9.2 per cent in 2016/17.

The IMF detailed “far-reaching, ambitious reforms to support a sustained acceleration in growth”.

“To anchor inflation over the medium term, the authorities have proposed a fundamental overhaul of the monetary policy framework and plan to gradually reduce the non-oil fiscal deficit,” the IMF said in its report.

The government plans state government arrears, to recapitalise banks and strengthen supervisory powers, said the IMF, while new Combating the Financing of Terrorism (CFT) laws have been passed and Baghdad is committed to enhancing safeguards in the financial system to secure better access to the global financial system.

“The staff sees these reforms as critical if Iran is to harness its reintegration into the global economy to spur growth and become a more market-based, diversified economy,” the fund added.

Iran’s overall fiscal deficit is expected to deteriorate to 2.1 per cent of GDP in 2016/17, from 1.7 per cent of GDP in 2015/16. This is a result of the government having to repay the National Development Fund of Iran (NDFI) the funds that were borrowed last year.

The US-based World Bank estimates that Iran’s GDP expanded by just 0.5 per cent in the most recent Iranian calendar year, ending on 20 March.

The Islamic Republic’s sixth five-year development plan, covering 2016-21, calls for annual economic growth of 8 per cent and pushes for reforms of state-owned companies and the financial and banking sector, as well as the reallocation and management of oil and gas revenues.