## IMF Survey : Iran Presses Ahead with Economic Reforms

_IMF News, April 4, 2014_

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**Canonical URL:** [IMF Survey : Iran Presses Ahead with Economic Reforms](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar040414a)

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## Bibliographic details
- Published: April 4, 2014

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### Economic health check
- First annual health check of the economy in 2½ years.
- Near-term outlook remains uncertain.
- Real GDP growth is expected to begin to stabilize in the current fiscal year after two consecutive years of sharp contraction.
- Recovery is expected to benefit from potential improvements in the external environment and some early signs of modest revival in growth in domestic demand.
- The new Iranian administration took office in August 2013.
- The interim agreement with the P5+1 took effect in January 2014 and provides for a limited, temporary easing of sanctions that:
  - allows Iran to stabilize oil exports,
  - grants some access to Iran’s funds held abroad,
  - temporarily waives sanctions on petrochemical exports and the automobile industry.

### Addressing weaknesses
- Large shocks and weak macroeconomic management have significantly impacted economic stability and growth in recent years, despite earlier progress in raising per capita income and living standards.
- Contributing shocks identified:
  - implementation of the first phase of energy subsidy reform,
  - ambitious and inadequately funded social programs,
  - marked deterioration in the external environment stemming from the intensification of trade and financial sanctions.
- Monetary actions and inflation outcomes:
  - The central bank has kept tighter control over base money in the past seven months.
  - Agreement reached to remove the financing of the Mehr Housing Project—an ambitious affordable housing project launched in 2007—from the central bank’s balance sheet.
  - These measures, along with favorable global food prices and the appreciation of the currency, have allowed the country to lower the 12-month inflation rate to about 23 percent in early 2014, sharply down from 45 percent last June.

### Getting back on track — policy strategy and priorities
- The IMF stresses that more reforms are needed and warns the authorities should avoid postponing reforms and “muddling through” in the hope of an improved external environment.
- Recommended three-pronged strategy to address low growth and high inflation:
  - tightening monetary policy,
  - balanced fiscal consolidation,
  - structural reforms.
- Fiscal policy and revenue measures:
  - The 2014 budget is described as providing a good balance between disinflation and supporting the economy.
  - Measures to broaden the revenue base away from oil include the authorities’ decision to bring forward and increase the scheduled value-added tax (VAT) rate, and reforms to strengthen tax administration and reduce exemptions.
  - Reforms to the fiscal policy framework should strengthen its countercyclical role, limit fiscal risks, and enhance macroeconomic coordination.
- Monetary and exchange rate reforms:
  - Reforms to the monetary policy framework are essential to fully establish economic stability.
  - Intended move to unify the foreign exchange market by mid-2015.
  - Progress in simplifying and refocusing the central bank’s mandate toward price stability and steps to restructure institutional decision making are key.
- Structural and labor market reforms:
  - Reforms to boost productivity are needed to unleash entrepreneurial and human capital potential and create jobs.
  - High youth unemployment of about 24 percent requires labor market reforms.
  - Large scope to improve the business environment to boost productivity and growth.
- Subsidy reform:
  - Implementation of Iran’s subsidy reforms remains a priority.
  - Design of the reforms—replacing price subsidies with universal cash transfers to households—has been exemplary, though the first phase faced significant difficulties.
  - It will be key to ensure that the second phase proceeds with the right supporting framework and macroeconomic policies.

### Scenarios and outlook
- The report discusses two illustrative medium-term scenarios for the Iranian economy.
- These scenarios indicate that, in the absence of a sharp increase in oil prices or production and without solid progress on structural reforms, Iran will continue to face significant constraints in achieving sustainable growth and lower inflation.

*International Monetary Fund*

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## Content in this bundle

- [Cr1493pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2014/_cr1493pdf.pdf){rel="external" type="application/pdf"}
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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [In The News](https://www.imf.org/en/news/search)
- [Read press release](http://www.imf.org/external/np/sec/pr/2014/pr14152.htm)
- [IMF on subsidy reform](http://www.imf.org/external/pubs/ft/survey/so/2013/INT032713A.htm)
- [IMF on natural resource wealth](http://www.imf.org/external/pubs/ft/survey/so/2014/CAR032414B.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar040414a_