IMF: Iran should aim at limiting the budget deficit

Baku, Azerbaijan, Feb. 10

By Dalga Khatinoglu - Trend:

The International Monetary Fund says the sharp drop in global oil prices and an uncertain external environment will bring significant challenges to the outlook of Iran's economy.

According to a report released Feb.10, International Monetary Fund said that the fund's team visited Tehran Jan. 24 to Feb. 5 and held discussions with the authorities on recent developments in the Iranian economy, the near-term outlook, and the authorities' macroeconomic policies and reform agenda.

The report quoted Martin Cerisola, Assistant Director for the Middle East and Central Asia Department of the IMF as saying that "Discussions with the Iranian authorities took place against the background of a marked improvement in macroeconomic conditions over the past year, with a rebound in economic activity and a decline in inflation. However, the sharp drop in global oil prices and an uncertain external environment will bring significant challenges to the outlook".

The report says, "The authorities recognize these challenges and remain determined to sustain the improvements in macroeconomic conditions. The discussions focused on the policies needed for preserving disinflation gains and for supporting the economy in its adjustment to lower oil prices. For this, the IMF team recommended that fiscal policy should aim at limiting the budget deficit in the next fiscal year to around 2.5 percent of GDP. Monetary policy should continue to aim at keeping inflation expectations anchored, by preemptively targeting liquidity growth at prudent levels. This policy mix would help absorb shocks and provide more room for credit to flow to the economy."

The IMF released a report last month, saying that Iran's GDP growth reached 3 percent in 2014 after 8.5 percent- contraction during last two consecutive years, but it's expected that the country's GDP growth reach 0.6 percent in 2015. It also estimated that Iran's inflation rate has decreased from 34.7 percent in 2013 to 15.8 percent in 2014, but it's projected to re-rise to 17.3 percent in the current year.

Maintaining exchange rate flexibility would also help smooth the transition to an environment with lower oil prices.

"The discussions also focused on the need for pressing ahead reforms and the authorities' plans in the banking sector to address nonperforming loans and strengthen the efficiency of financial intermediation," the IMF said.

Iran's nominal GDP has shrunk from $418.9 billion in 2012 to $386.2 billion in 2013, but rose to $406.3 billion in 2014.

It's expected Iran's nominal GDP to stand at $386.2 billion in the current year.

Edited by CN

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