IMF Executive Board Concludes 2018 Article IV Consultation with the Islamic Republic of Iran
IMF News, March 29, 2018
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- Published: March 29, 2018
Macroeconomic developments and near-term outcomes
- Following a strong rebound in the aftermath of the 2016 nuclear agreement, real GDP growth is expected to reach 4.3 percent in 2017/18.
- In the first half of 2017/18:
- Recovery broadened to the non-oil sector, aided by supportive fiscal and monetary policies and a recovery in construction and services activity.
- The unemployment rate declined to 11.7 percent, but remained particularly high for youth and women.
- Inflation averaged 9.9 percent during the first 11 months of 2017/18, aided by moderation in food prices and stable administered prices.
- The foreign exchange market experienced volatility in early 2018; following the increase in interest rates in February, the spread between the official and the market rate narrowed to under 20 percent.
Medium-term outlook and projections
- Real GDP growth is expected to:
- Ease to 4 percent in 2018/19, as oil production stabilizes in line with Iran’s OPEC cap.
- Average 4½ percent over the medium-term.
- External sector and reserves:
- The current account is expected to remain in surplus as improved oil prices and higher gas exports allow international reserve buffers to rise gradually.
- Investment and financial flows:
- On-going uncertainty is expected to keep FDI subdued and hamper the further expansion of Correspondent Bank Relations (CBRs).
- Inflation and labor market:
- Inflation is expected to be contained around 12 percent in 2018/19 as liquidity growth is curbed to limit second-round effects of the recent depreciation in the exchange rate.
- Pace of job creation lags the number needed to absorb new entrants, implying unemployment could remain above 11 percent.
Executive Board assessment — risks and priorities
- Directors welcomed macroeconomic progress, particularly in broadening the non-oil recovery, but noted risks from:
- A weak banking sector.
- Structural bottlenecks.
- Heightened uncertainty (domestic and geopolitical).
- Core priorities highlighted by Directors:
- Financial sector reform as a priority, including recapitalization and restructuring of viable banks, and resolution of non-viable ones.
- State-controlled banks should prepare and implement recovery plans while awaiting the planned Asset Quality Review.
- Strengthening the AML/CFT framework and timely passage and implementation of AML and CFT amendments in line with the FATF action plan to restore confidence and facilitate correspondent banking relationships.
- Continued efforts to unify the dual exchange rate, supported by a clear communication strategy and tighter monetary conditions, to transition to a market-based monetary policy framework.
- Securitization of government’s debt to the Central Bank of Iran (CBI) and providing the CBI full autonomy; the new Central Bank Law should enhance CBI’s autonomy and make price stability the core objective of monetary policy.
- Containment of the cash-based fiscal deficit, with a need for broad-based, growth-friendly measures to contain fiscal deficits and debt and to create space for higher social and investment spending.
- Adjustment measures should be gradual and focus on mobilizing tax revenue, removing exemptions, reducing fuel subsidies, and reforming the pension system.
- Targeting cash transfers to the poor to make the adjustment more equitable.
- Development of a medium-term debt management strategy.
- Deeper structural reforms to close the infrastructure gap, create more jobs, and reduce poverty, including:
- Diversifying the economy.
- Improving the business climate (especially reducing red tape).
- Modernizing regulations.
- Strengthening the bankruptcy framework and easing market entry.
- Facilitating greater female labor force participation by reducing barriers, subsidizing child care to low income women, and tackling informality.
- Improving the quality, timeliness, and availability of data.
Key statistics and selected macroeconomic indicators
- General and demographic:
- Quota: SDR 3,567.10 million
- Population: 80 million, 2016/17
- Per capita GDP: current US$5,027, PPP current US$17,366, 2016/17
- Poverty headcount ratio at $5.50 a day (2011 PPP): 10.5 percent, 2014/15
- Main exports: oil, gas, chemical and petrochemical products
- Projections (selected series, annual percentage change unless otherwise indicated):
- Nominal GDP at market prices (trillions of Iranian rials): 11,129 (2015/16); 12,723 (2016/17); 14,772 (2017/18); 17,926 (2018/19); 20,742 (2019/20); 23,811 (2020/21); 27,365 (2021/22); 31,464 (2022/23)
- Real GDP at factor cost: -1.6 (2015/16); 12.5 (2016/17); 4.3 (2017/18); 4.0 (2018/19); 4.1 (2019/20); 4.2 (2020/21); 4.4 (2021/22)
- Real oil GDP: 7.2 (2015/16); 61.6 (2016/17); 5.2 (2017/18); 4.6 (2018/19); 3.7 (2019/20); 3.8 (2020/21)
- Real non-oil GDP: -3.1 (2015/16); 3.3 (2016/17); 4.5 (2017/18)
- CPI inflation (average): 11.9 (2015/16); 9.1 (2016/17); 9.9 (2017/18); 12.1 (2018/19); 11.5 (2019/20); 11.7 (2020/21); 11.3 (2021/22); 10.8 (2022/23)
- CPI inflation (end of period): 8.4 (2015/16); 11.8 (2016/17); 10.2 (2017/18); 11.2 (2018/19); 13.4 (2019/20); 11.6 (2020/21); 11.0 (2021/22); 10.5 (2022/23)
- Unemployment rate (percent of labor force): 12.4 (2015/16); 11.4 (2016/17); 11.7 (first half of 2017/18, noted above)
- Saving–investment and fiscal (percent of GDP):
- Current account balance / Saving investment balance: 0.3 (2015/16); 7.0 (2016/17); 6.3 (2017/18); 5.8 (2018/19); 5.9 (2019/20)
- Investment: 34.9 (2015/16); 33.5 (2016/17); 36.2 (2017/18); 36.7 (2018/19); 37.2 (2019/20); 37.7 (2020/21); 38.2 (2021/22)
- Total fixed capital investment: 23.3 (2015/16); 20.9 (2016/17); 21.5 (2017/18); 22.5 (2018/19); 23.6 (2019/20); 24.7 (2020/21); 25.7 (2021/22)
- Public fixed capital investment: 2.5 (2015/16); 2.3 (2016/17); 2.6 (2017/18)
- Private fixed capital investment: 20.8 (2015/16); 17.7 (2016/17); 18.6 (2017/18); 17.8 (2018/19); 20.0 (2019/20); 21.1 (2020/21); 22.2 (2021/22); 23.1 (2022/23)
- Gross national savings: 35.2 (2015/16); 37.6 (2016/17); 40.4 (2017/18); 43.2 (2018/19); 43.0 (2019/20); 42.9 (2020/21); 43.5 (2021/22); 44.2 (2022/23)
- Central government revenue: 16.1 (2015/16); 17.3 (2016/17); 15.7 (2017/18); 18.7 (2018/19); 19.5 (2019/20)
- Tax revenue: 7.1 (2015/16); 8.0 (2016/17); 7.3 (2017/18); 7.4 (2018/19)
- Nontax revenue: 9.0 (2015/16); 9.3 (2016/17); 8.3 (2017/18); 12.3 (2018/19); 12.2 (2019/20)
- Of which: oil revenue: 6.0 (2015/16); 5.4 (2016/17); 9.5 (2017/18); 9.4 (2018/19)
- Expenditure: 17.9 (2015/16); 18.0 (2016/17); 22.4 (2017/18)
- Net lending/borrowing (budget): -1.8 (2015/16); -2.3 (2016/17); -1.4 (2017/18); -2.7 (2018/19); -2.8 (2019/20); -2.9 (2020/21)
- Non-oil net lending/borrowing (percent of non-oil GDP): -8.6 (2015/16); -9.2 (2016/17); -8.7 (2017/18); -12.9 (2018/19); -15.3 (2019/20); -15.0 (2020/21); -14.9 (2021/22); -14.8 (2022/23)
- Gross Public Debt: 42.3 (2015/16); 49.1 (2016/17); 40.9 (2017/18); 53.9 (2018/19); 49.2 (2019/20); 45.6 (2020/21); 40.0 (2021/22)
- Monetary sector (percent change or levels as indicated):
- Net foreign assets: 14.4 (2015/16); -3.9 (2016/17); -0.1 (2017/18); 36.4 (2018/19); 50.5 (2019/20); 22.8 (2020/21)
- Net domestic assets: 41.5 (2015/16); 39.3 (2016/17); 33.2 (2017/18); 9.7 (2018/19); 19.0 (2019/20); 15.4 (2020/21); 13.8 (2021/22)
- Credit to the private sector in rials: 21.0 (2015/16); 19.4 (2016/17); 15.8 (2017/18); 14.0 (2018/19)
- Base money: 16.4 (2015/16); 17.2 (2016/17); 20.7 (2017/18); 18.9 (2018/19); 18.2 (2019/20)
- Narrow money (M1): 13.2 (2015/16); 19.3 (2016/17); 19.2 (2017/18); 16.8 (2018/19); 17.5 (2019/20); 16.9 (2020/21); 15.5 (2021/22)
- Broad money (M2): 30.0 (2015/16); 23.2 (2016/17); 23.5 (2017/18); 23.8 (2018/19); 20.2 (2019/20); 19.9 (2020/21); 18.8 (2021/22)
- External sector (Billions of US$, unless otherwise indicated):
- Exports of goods and services: 74.4 (2015/16); 94.4 (2016/17); 109.5 (2017/18); 130.3 (2018/19); 127.5 (2019/20); 126.1 (2020/21); 129.7 (2021/22); 134.0 (2022/23)
- Imports of goods and services: -74.0 (2015/16); -79.5 (2016/17); -91.5 (2017/18); -103.3 (2018/19); -103.7 (2019/20); -105.4 (2020/21); -107.5 (2021/22); -110.0 (2022/23)
- External and publicly guaranteed debt: 10.0 (2015/16); 8.7 (2016/17); 9.6 (2017/18); 10.7 (2018/19)
- Of which: short-term debt: 2.0 (2015/16); 3.4 (2016/17); 3.5 (2017/18); 3.6 (2018/19); 3.9 (2019/20)
- Gross official assets/reserves: 128.4 (2015/16); 120.7 (2016/17); 111.7 (2017/18); 124.9 (2018/19); 143.5 (2019/20); 158.5 (2020/21); 181.4 (2021/22); 204.2 (2022/23)
- Oil and gas sector:
- Total oil and gas exports: 26.9 (2015/16); 49.8 (2016/17); 63.7 (2017/18); 78.3 (2018/19); 73.6 (2019/20); 69.2 (2020/21); 70.3 (2021/22); 72.3 (2022/23)
- Crude oil exports (millions of barrels/day): 1.4 (2015/16); 2.1 (2016/17); 2.7 (2017/18); 2.8 (2018/19); 2.9 (2019/20); 3.0 (2020/21); 3.1 (2021/22)
- Memorandum items:
- Average exchange rate, Official (Iranian rials per US$): 29,645 (2015/16); 31,457 (2016/17); …
- Average exchange rate, Market (Iranian rials per US$): 34,359 (2015/16); 36,328 (2016/17)
Sources: Iran authorities; and IMF staff estimates and projections.