International Monetary Fund (IMF) concluded the Article IV consultation with the Islamic Republic of Iran


During the first four years of the Third Five-Year Development Plan (TFYDP) (2000/01- 2003/04), real GDP grew by 5.6 percent on average, the external current account was in surplus, external debt was reduced to a very low level, international reserves increased, and the unemployment rate declined. This performance has taken place against the background of increased openness of the economy to international trade and investment and economic reforms, but also sustained high oil prices and expansionary fiscal and monetary policies.

Notwithstanding these achievements, the Iranian economy faces the challenge of maintaining high growth and employment creation in a stable macroeconomic environment. The expansionary fiscal and monetary policies of recent years have maintained inflation at double-digit rates and led to a substantial reduction in the external current account surplus at a time when oil prices were high. Moreover, there is a pressing need to step up implementation of structural reforms to enhance economic efficiency and foster private sector development and growth. These include financial sector reform, privatization, further trade liberalization, and improvement of the business climate.

Real GDP grew by 6.7 percent in 2003/04 (fiscal year ending on March 20), with strong contribution from both the oil and non-oil sectors. The unemployment rate declined to 11.2 percent from 14.1 percent in 2000/01. Domestic demand continued to grow rapidly under the impetus of an expansionary policy mix, as reflected in high rates of growth of credit and money supply (M2). As a result, average CPI inflation remained at 15 ½ percent in 2003/04.

The external current account surplus declined to about 1½ percent of GDP in 2003/04 from 3.1 percent in 2002/03. Despite a significant increase in both oil and non-oil exports, imports continued to rise significantly, on the strength of domestic demand. The capital and financial account recorded a large surplus, largely on account of increasing FDI inflows—mainly in the energy sector—and short-term financing through letters of credit. Gross official reserves increased by $3.0 billion to $24.5 billion, equivalent to 6½ months of next year's imports of goods and services. External debt remained low at $11.9 billion, equivalent to 8.7 percent of GDP.

While fiscal policy was tightened in 2003/04, the fiscal stimulus was not fully withdrawn. The non-oil fiscal deficit was brought down to 16½ percent, or close to 2 percent of GDP lower than in the previous year, mainly through expenditure restraint, while non-oil revenue remained unchanged relative to GDP. The overall fiscal deficit also declined from 2.4 percent of GDP to 0.2 percent.

Monetary policy was expansionary in 2003/04. The average bank lending rates have remained broadly unchanged in both nominal and real terms. Unsterilized purchases of foreign exchange from the government by the central bank and increased central bank lending to commercial banks led to rapid growth of base money. This, together with a higher money multiplier, fueled private sector credit and M2 growth to the tune of 39 percent and 30 percent, 2 respectively. The managed float exchange regime has continued to operate smoothly.

Progress in structural reforms slowed down in 2003/04. While the preparation of medium-term reforms advanced and some progress was made in trade liberalization and banking supervision reforms, little progress was made in reforming the labor market, implementing privatization, or streamlining administrative procedures.

Real GDP is projected to grow at 6.5 percent in 2003/04 on account of high oil prices and the continuation of the current expansionary policy stance. The authorities aim at achieving a money growth target of 20-24 percent to reduce inflation.

Executive Board Assessment

Directors welcomed Iran's strong growth performance over the last four years, which has been supported by important structural reforms implemented at the beginning of the Third Five-Year Development Plan (2000-04), as well as by favorable oil market conditions. Directors noted with satisfaction that unemployment has declined, gross official reserves have continued to increase, and the external debt has remained low. These positive developments have been associated with strengthened confidence in the economy, and a rise in private sector activity and foreign direct investment, including in the non-hydrocarbon sector. Directors considered that key challenges going forward will be to further strengthen the foundations for strong and sustained economic growth and diversification to provide the basis for continued job creation in an environment of macroeconomic stability. Iran's pursuit of stronger macroeconomic policies and far reaching structural reforms will be crucial for underpinning its transition to a market economy and away from oil dependence.

The outlook for the Iranian economy remains favorable. Directors urged the authorities to use the opportunity of high oil prices and improved business confidence to better balance the policy mix by undertaking an upfront tightening of the fiscal and monetary policy stance to bring about a sustained reduction in inflation, which has persisted at double-digit levels. They considered that fiscal policy has a crucial role to play in assisting monetary policy to reduce inflation by containing the growth of domestic demand. In this regard, they welcomed the authorities' intention to scale down expenditure from the high level budgeted for 2004/05, and to improve revenue collections. They noted, however, that additional fiscal adjustment measures may be needed to ease demand pressures and reduce the liquidity effects of spending. To continue strengthening the fiscal position, especially for the medium term, they called for further containment of capital spending and net lending, the phasing out of explicit subsidies, early implementation of the Value Added Tax, and further strengthening of tax administration. Directors also underscored the need to increase savings in the Oil Stabilization Fund while oil prices are high, and encouraged the authorities to resist pressure to relax fiscal policy in the likely event of higher than expected oil revenue.

Directors stressed the importance of setting a medium-term framework for fiscal policy that aims to preserve an adequate level of wealth from non-renewable hydrocarbon resources, while ensuring that fiscal policy supports macroeconomic stability. Directors also encouraged the completion of the preparatory work on energy price reform, which aims at phasing out implicit energy subsidies while putting in place a well-targeted and integrated social safety net.

Directors endorsed the authorities' intention to tighten monetary policy, and welcomed the range of measures that have been approved to contain domestic liquidity growth, including stepped up sterilization operations. They urged the authorities to work toward establishing a clear monetary policy framework that serves to promote disinflation. This should be accompanied by further steps to strengthen indirect instruments of monetary policy, curtail the use of direct credit controls, introduce more market-based flexibility in setting rates of return, and limit the recourse by banks to the central bank's overdraft facilities. They looked forward to the establishment of central bank independence and to the further development of money markets.

Directors endorsed the efforts underway to strengthen Iran's financial system and improve its resilience to exogenous shocks. Directors welcomed the licensing of private banks and leasing companies and supported actions to restructure public banks and strengthen their capital base. They urged the authorities to move quickly to complete the establishment of a risk-based supervision framework to effectively monitor potential risks that may emerge from rapid credit growth, and to monitor developments in asset prices. Directors encouraged the authorities to seek early approval of the capital markets law, which aims at improving the regulatory framework for the issuance and trading of securities and strengthens the supervision of the Tehran Stock Exchange. They welcomed steps to improve transparency and oversight of charitable institutions, and called for early passage of a comprehensive anti-money laundering law covering the entire financial system.

Directors agreed that the managed floating exchange rate regime, which has been in place since the March 2002 exchange rate unification, has served Iran well, and that the current level of the exchange rate is broadly appropriate. They welcomed the assurance that, going forward, exchange rate policy will give considerably greater weight to monetary policy objectives. They commended the authorities for eliminating most exchange restrictions for current international transactions and their intention to phase out the remaining ones, and for accepting the obligations under Article VIII, Sections 2, 3, and 4 of the Fund's Articles of Agreement.

Directors welcomed the authorities' aim to develop the private sector as the major engine of growth and to further open the economy to international trade and foreign investment. Several Directors noted that the Fourth Five-Year Development Plan legislation containing key reforms is undergoing further deliberation, and welcomed the assurance that its approval is expected soon. They stressed the importance of further improving the business climate by streamlining administrative procedures, disengaging the government from commercial activities that can be carried out more efficiently by the private sector, and increasing labor market flexibility to raise the employment content of growth.

Directors noted the steps taken to improve data quality and transparency, including in the presentation of fiscal accounts and the oil sector, and encouraged the authorities to accelerate preparatory work on moving toward compliance with the Special Data Dissemination Standard.

Iran is a bilateral creditor for two heavily indebted countries. Directors commended the Iranian authorities' commitment to provide Iran's share of debt relief to these countries under the Heavily Indebted Poor Countries Initiative.

Islamic Republic of Iran: Selected Economic Indicators

  1. 2000/2001
  2. 2001/2002
  3. 2002/2003
  4. 2003/2004

Real GDP growth (factor cost, percentage change)

  1. 5.0
  2. 3.3
  3. 7.4
  4. 6.7

CPI inflation (period average, percentage change)

  1. 12.6
  2. 11.4
  3. 15.8
  4. 15.6

Unemployment rate (percent)

  1. 14.1
  2. 14.7
  3. 12.2
  4. 11.2

Central government balance (percent of GDP)

  1. 8.7
  2. 1.8
  3. -2.4
  4. -0.2

Broad money growth (percentage change)

  1. 30.5
  2. 25.8
  3. 30.1
  4. 30.0

Current account balance (percent of GDP)

  1. 13.1
  2. 5.3
  3. 3.1
  4. 1.5

Overall external balance (percent of GDP)

  1. 6.9
  2. 3.9
  3. 4.1
  4. 2.2

Gross international reserves (billions of U. S. dollars)

  1. 12,176
  2. 16,616
  3. 21,409
  4. 24,427

Public and publicly guaranteed external debt (billions of U.S. dollars)

  1. 7,953
  2. 7,215
  3. 9,250
  4. 11,924

Exchange rate (period average, rials per U.S. dollar)

  1. 8,078 1/
  2. 7,921 1/
  3. 7,967
  4. 8,282

Sources: Iranian authorities, and IMF staff estimates. 1/ Average market exchange rates before the March 2002 exchange rate unification.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the September 10, 2004 Executive Board discussion based on the staff report.

2 Including a deposit of the Telecommunication Company with the Postal Bank, which is not reflected in the monetary survey.




Islamic Republic of Iran Accepts IMF's Article VIII Obligations

Press Release No. 04/195 September 15, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

The Islamic Republic of Iran has notified the International Monetary Fund (IMF) that it has accepted the obligations of Article VIII, Section 2, 3, and 4 of the IMF Articles of Agreement, with effect from September 6, 2004.

IMF members accepting the obligations of Article VIII undertake to refrain from imposing restrictions on the making of payments and transfers for current international transactions, or from engaging in discriminatory currency arrangements or multiple currency practices, except with IMF approval.

A total of 159 countries have now assumed Article VIII status.

By accepting the obligations of Article VIII, Iran gives confidence to the international community that it will pursue economic policies that will make restrictions on the making of payments and transfers for current international transactions unnecessary, and will contribute to a multilateral payments system free of restrictions.

Iran joined the Fund on December 29, 1945. Its quota1 is SDR 1.497 billion (about US$2.195 billion) as of September 14, 2004.

1 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share of the allocation of SDRs.




ENERGY INFORMATION AGENCY -- September 2004 -- Iran, Commercial Nuclear Industry of


As of September 1, 2004, there are no commercial nuclear power plants operating in Iran. Two reactors are scheduled to come on line and there have been discussions on building more.

“Currently, Iran has several small nuclear research reactors, in addition to a large-scale nuclear power plant under construction at the southern town of Bushehr. Iran claims that its nuclear power is for peaceful purposes and that it will help free up oil and natural gas resources for export, thus generating additional hard-currency revenues. The country has stated its aim of having 7,000 MW of nuclear power online by 2020, accounting for 10% of the country's power generation capacity at that point.

“In September 2003, the International Atomic Energy Agency (IAEA) gave Iran until October 31 to provide guarantees that its nuclear program was for peaceful purposes and to open the country to snap inspections by the IAEA. On October 6, 2003, Iran's envoy to the IAEA, Ali Akbar Salehi, said that Iran would withdraw from the Nuclear NonProliferation Treaty (NNPT) if Western pressure continued. On October 30, IAEA head Mohammed el-Baradei declared that Iran's report on its nuclear activities appeared to be "comprehensive," but that he would still have a lot of questions. On November 14, Iran's Foreign Minister, Kamal Kharazzi, said that his country was committed to "complete transparency," and added that the IAEA report made clear that Iran's nuclear program was for peaceful purposes. On December 18, Iran signed a protocol to the NNPT that will allow the IAEA to have more comprehensive access to sites in the country. It is not known when Iran will officially ratify the protocol. In mid-March 2004, Iran announced that it was barring nuclear inspectors from entering the country for an indefinite period of time after the IAEA passed a resolution rebuking Iran for failure to fully disclose the details of its past nuclear activity. However, Iran shortly reversed course and allowed IAEA inspectors to continue their work.

“In December 2002, Iran and Russia signed a protocol for peaceful cooperation in nuclear power. Russia has been assisting Iran on the Bushehr nuclear power facility, work on which first began in 1974 by West Germany, but was halted (80% complete) following the 1978/1979 revolution. Significant amounts of money, possibly billions of dollars, had been spent on Bushehr to that point. Following the Iran-Iraq War (1980-1988), during which time Bushehr was bombed six times and seriously damaged, progress on the plant resumed when Russia signed an $800 million contract in 1995. The contract with Russia called for completion of a 1,000-MW, pressurized-light-water reactor, as well as the possible supply of two modern VVER-440 units. Since then, work has proceeded slowly, although reports in early March 2003 indicated that Bushehr was 70% complete, and was expected to come online as early as March 2004. Subsequently, the completion date for Bushehr-1 was pushed off by a year -- supposedly due to technical difficulties -- and is now scheduled to come online in 2005. In early September 2003, a Russian Atomic Energy Ministry spokesman said that it would cost "$1.2-$1.3 billion to complete the construction" of Bushehr's first unit. In November 2003, Russia proposed that it build a "totally new" second nuclear unit at Bushehr, instead of completing the one started in the late 1970s.

“Although Iran is a signatory to the NNPT and insists that its nuclear program is for peaceful purposes (i.e., power generation), the United States strongly opposes the Bushehr project and has in the past provided Russia with information pointing to the existence of an Iranian nuclear weapons program. In May 2002, U.S. Energy Secretary Spencer Abraham met with Alexander Rumyantsev, head of Russia's nuclear agency, and discussed this issue, with Rumyantsev stating the Russian position that Bushehr "is not a source of proliferation of nuclear material." In late March 2003, U.S. Undersecretary of State for Arms Control, John Bolton, said, "In the aftermath of Iraq, dealing with the Iranian nuclear weapons program will be of equal importance as dealing with the North Korean nuclear weapons program." In April 2003, Russia and Iran reached a deal on returning spent nuclear fuel rods from Bushehr back to Russia for reprocessing. Russia hopes to earn as much as $40 million per year supplying Iran with nuclear fuel and with shipping out spent fuel. The two countries also have discussed construction of additional nuclear power plants in Iran.

“In February 2003, Iran announced that it had begun mining uranium deposits at Saghand near the central Iranian city of Yazd, and was constructing a uranium enrichment facility at Natanz, located 200 miles southeast of Tehran. In March 2003, International Atomic Energy Agency (IAEA) inspectors examined Natanz and described it as "impressive." Other news reports indicated that Natanz was "extremely advanced" and involved "hundreds" of gas centrifuges for producing enriched uranium. Some analysts believe that Yazd and Natanz are part of an Iranian effort to attain self-sufficiency in the entire nuclear fuel cycle. Besides Natanz, the IAEA also has expressed interest in inspecting a heavy-water plant at Arak.”

· Reactors in Iran: This table, based mainly on data from the International Atomic Energy Agency in Vienna, Austria, provides the following information on the country's reactors: names, types, net capacity, date construction began, date of grid connection, date that commercial operation began, and the operating utility, agency, or company.

· Energy industries and markets in Iran: In addition to the information excerpted in the summary, the Country Analysis Brief, summarizes the key trends for all of the major fuels.




  • International Monetary Fund (IMF) concluded the Article IV consultation with the Islamic Republic of Iran
  • Islamic Republic of Iran Accepts IMF's Article VIII Obligations
  • ENERGY INFORMATION AGENCY -- September 2004 -- Iran, Commercial Nuclear Industry of

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