Iran praised over subsidy reforms

16 June 2011

$60bn removed from annual subsidies due to price increases

Price increases of energy products, public transport, wheat and bread in Iran has removed about $60bn in annual subsidies to products.

This is about 15 per cent of Iran’s GDP, according to the International Monetary Fund (IMF). Iran began to implement its subsidy reform programme on 19 December 2010 (MEED 20:12:10).

The IMF praised the early success of Iran’s programme while on a mission to the country from 28 May to 9 June.

“The mission commended the authorities for the early success in the implementation of their ambitious subsidy reform programme. The increases in prices of energy products, public transport, wheat and bread adopted on 19 December 2010 are estimated to have removed close to $60bn (about 15 per cent of GDP) in annual implicit subsidies to products,” an IMF statement says.

The redistribution of the revenues from the price increases to households as cash transfers has been effective in reducing inequalities, improving living standards and supporting domestic demand in the economy.

“The mission reviewed recent economic developments and revised its macroeconomic estimates and projections in light of new data and discussions with the authorities. Real GDP growth recovered to an estimated 3.5 per cent in 2009/10, despite the drop in oil prices, reflecting strong non-oil growth and an exceptional agriculture crop,” says the IMF.

The positive growth momentum continued in 2010/11. The authorities’ monetary policy successfully brought down annual average inflation from 25.4 per cent in 2008/09 to 12.4 per cent in 2010/11. Gross external reserves also remain comfortable with improved prospects for the external sector on the back of higher oil prices.

Increases in energy prices are leading to a decline in excessive domestic energy consumption and related energy waste. Consumer price inflation has only increased from 10.1 per cent in December to 14.2 per cent at the end of May.

The IMF mission also reviewed Iran’s financial sector. Iran has the largest Islamic financial sector in the world with a solid banking sector and rapidly growing financial markets. Its recent strong performance of the stock market reflects high international commodity prices and Iran’s large-scale privatisation programme.

The Iranian Privatisation Organisation (IPO) divested a total of $80bn over the last five years.

The IMF mission was aimed at holding discussions for the Article IV Consultation, which are an important part of the IMF’s annual surveillance with all member countries.


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