The Iranian economy has performed well over the last three years of its as real gross domestic product (GDP) grew by 5.8 percent on average, despite declines in oil output during the past two years. According to the International Monetary Funds (IMF)’s recently concluded Article IV consultation with the Islamic Republic, non-oil GDP expanded by 7.9 percent, reflecting a positive impact of economic reforms during the same period.
The overall macroeconomic situation in the Islamic Republic improved significantly in the first three years of its third Five-Year Development Plan compared to the previous five-year development plan. The external current account was in surplus, the external debt was reduced to a very low level, international reserves increased significantly, and fiscal savings were accumulated in the Oil Stabilization Fund (OSF).
According to the consultation, this performance has taken place against the background of increased openness of the economy to international trade and investment, and increased economic reforms, but also benefited from sustained high oil prices and fiscal stimulus.
Notwithstanding these achievements, the IMF acknowledges that the Iranian economy continues to face important challenges: employment creation has not been sufficient to meet the rapid increase in the labor force, inflation is high and rising again, price subsidies and controls continue to hinder economic efficiency, and structural impediments for private sector development remain.
The overall fiscal balance is estimated to have shifted to a deficit of about 2.3 percent of GDP in 2002/03, compared to a surplus of 1.8 percent of GDP in 2001/02. This deterioration mainly reflects the budgetary cost of the exchange rate unification and rapid growth of capital expenditures, according to IMF. In the meantime, the non-oil deficit is estimated to have widened sharply by 5.4 percentage points to 19.3 percent of GDP, notwithstanding expenditure cuts.
Real GDP is projected to grow at 6.5 percent in 2003/04, but the risk of inflation acceleration remains. The fiscal policy stance based on the current budget could exacerbate demand pressures, and lead to high liquidity growth and inflation acceleration. To address these risks, authorities have approved a range of monetary policy measures and are considering revenue and expenditure measures to reduce the fiscal deficit with the ultimate objective of limiting inflation to 18 percent at most.
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and transmits it to the country's authorities. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
