IMF Says Iran Economy Needs Reform to Build on Sanctions Relief

The International Monetary Fund said Iran’s economy needs fundamental reforms to recover from “large shocks and weak macroeconomic management” over the past several years.

Iran’s prospects for 2014/15 have improved with an interim nuclear deal with world powers that brings relief from some sanctions, said Martin Cerisola, assistant director for the Middle East and Central Asia, in a statement. The country’s economy may grow between 1-2 percent in the next Iranian year, which starts on March 20, after two years of contraction.

Inflation dropped to below 30 percent in December 2013, from about 45 percent in July. The IMF team which met Iranian officials said it now expects inflation to fall to as low as 15 percent in the 12 months from March.

The Washington-based group’s Article IV assessment of Iran also predicted a fall in the Persian Gulf country’s unemployment rate.

The IMF said Iranian President Hassan Rouhani, who was elected last June, was changing the nation’s foreign policy and reducing tensions with the West, and especially the U.S. However, challenges remain and Iran needed to conduct comprehensive reforms to prevent low growth combined with high inflation.

“A combination of shocks, associated with the implementation of the first phase of the subsidy reform, ambitious social-programs inadequately funded, and a marked deterioration in the external environment stemming from the intensification of trade and financial sanctions, have weakened the economy,” Cerisola said in a statement. “These shocks have exposed structural weaknesses in the economy and in the policy framework.”

In November, Iran and the so-called P5+1 group of countries -- China, France, Russia, the U.K., the U.S. and Germany -- reached an agreement to curb Iran’s nuclear program in return for the easing of some sanctions.

Under the agreement, the European Union and the U.S. agreed to allow Iran to access $4.2 billion in oil revenues held in frozen bank accounts and suspend sanctions on its petrochemical exports and imports of goods and services for its auto sector.

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