Press Release No. 08/108

Press Release: Statement at the Conclusion of the 2008 Article IV Consultation Mission to the Islamic Republic of Iran

May 12, 2008

An International Monetary Fund (IMF) mission team led by Mr. Vitali Kramarenko visited the Islamic Republic of Iran during April 28-May 11, 2008 to conduct discussions for the 2008 Article IV consultation. At the conclusion of the visit, the mission issued the following statement:

"Iran's economic growth has been robust and its external position has strengthened in recent years on the back of rising oil prices. Real GDP growth averaged 6.2 percent a year during 2005/06-2007/08 and gross official reserves reached $82 billion (11.5 months of imports) by end-2007/08. Inflation, however, has risen markedly, owing to strong domestic demand growth.

"Progress on structural reforms has been mixed. Implicit energy subsidies have been reduced, the preparatory work for implementing the VAT is close to completion, and tax collection agencies have been upgraded with new IT technology. Weaknesses in the business environment, however, represent an obstacle to private sector development. While the divestment process has gathered pace; given the small size of the private sector, many government-owned entities have been acquired by quasi-public institutions.

"The consultation discussions focused on policies to reduce inflation, which constitutes the key short-term challenge faced by the authorities. In this regard, the mission recommended strengthening the fiscal stance, increasing banking rates of return (which are becoming increasingly negative in real terms), and allowing for greater exchange rate flexibility.

"Over the medium term, the mission believes that priority should be given to further strengthening the public finances and improving the overall efficiency of the economy, including by phasing out the large subsidies on energy products and replacing them with targeted social assistance. The prospects for faster economic growth and employment creation would also be enhanced by deepening financial intermediation and improving the business climate.

"The mission team would like to thank the Iranian authorities for the informative and open discussions."