IMF says Iran GDP growth to be 4.5 per cent this year

The IMF said in a statement released today at the end of annual Article IV talks with Iran that the Islamic republic’s economy will expand robustly this year, inflation is moderating and the government is implementing major reforms to accelerate growth.

“Real GDP rebounded strongly over the first half of the year as sanctions eased post-JCPOA implementation,” the IMF said. “Oil production and exports rebounded quickly to pre-sanction levels, helping cushion the impact of low global oil prices. Increased activity in agriculture, auto production, trade and transport services has led the recovery in growth in the non-oil sector. Real GDP is projected to grow by at least 4.5 percent in 2016/17.”

The IMF said inflation is expected to average 9.2 percent in the year.

“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. “They plan to clear government arrears, recapitalize banks and strengthen supervisory powers. New CFT laws have been passed and the government is committed to enhancing safeguards in the financial system to secure better access to the global financial system.”

The IMF said it recommended action to manage credit growth, drain surplus liquidity from the financial system and fiscal restraint. It called for the reform of the Central Bank of Iran, including in the range of financial instruments it can issue.

“The central bank will also require instruments to intervene and manage liquidity to guide interest rates,” the IMF said. “The authorities should start issuing appropriate instruments, for example government bonds or central bank paper, for this purpose and allow for the possibility of an emergency liquidity facility at the CBI.”

The government should also gradually reduce the non-oil deficit in line with the permanent income norm. “Adopting a medium-term fiscal framework that is anchored on the non-oil deficit would contribute to better fiscal planning and management and allow for savings from oil revenues to be accumulated so to provide Iran a fiscal buffer against shocks,” the IMF said.

The IMF called for the government to pay-off arrears and overhaul the banking system.

“The financial sector reform strategy must ensure that the problems in the banking sector are fully addressed to lift financing constraints to growth,” the IMF said. “To enhance the commercial orientation of the state-owned banks, the burden of government-mandated credit policies should be moved to the budget and their recapitalization needs met via new long-term government bonds. A new corporate bankruptcy law would aid the reform. A comprehensive reform of this nature would enable the transition to Basel II and III reporting standards, boosting financial transparency.”