Iran Eyes Economic Reform Amid Rapprochement Talk, IMF Says

Iran’s new government is serious about tackling the country’s economic woes and is formulating plans around subsidy reform and counteracting the depreciation of the currency, the International Monetary Fund’s regional director said.

An IMF team is set to visit Iran in the first quarter of next year as world powers draw closer than they have been in decades to a deal that would curtail Iran’s nuclear program in exchange for an easing of economic sanctions against the country. Hassan Rouhani, who was elected Iran’s president in August, is spearheading the effort to improve relations with the West.

“It’s early days, but in the limited interactions we’ve had with [Iran’s new government], they seem to be very clear that they do have a set of issues they need to tackle, and they’re beginning to form plans to do so,” Masood Ahmed, the IMF’s director for the Middle East and Central Asia, said on Tuesday. “I hope by the time we go there next year, we’ll have an opportunity to interact with them on those plans and offer any inputs we can.”

A resolution of Iran’s economic dislocations could be a boon for the Middle East, giving the region a new source of demand and supply and increasing overall production as the country becomes more integrated, Mr. Ahmed said. The country has major challenges, though, like a precipitous drop in the value of the rial over the past three years and inflation rates that are well above 30%.

“I think the most recent numbers put out by the Iranian central bank suggest that the economy contracted by between 5% and 6% in the year that ended last March and is likely to contract or be stagnant in this year – probably contract by between 0.5% and 1%,” Mr. Ahmed said.

While he declined to make any precise forecasts about how a revival of Iran’s economy and a reduction in sanctions pressure might affect the region’s GDP, he said the country had a large population and significant market potential.

“It would in a way become more integrated and all the benefits that go from that would be there, but obviously that’s a function of factors that are outside our line of business,” he said.

The IMF released a regional outlook earlier this week for the Middle East, revising its growth forecasts downward on lower oil production in the region’s energy-exporting countries and continued political instability in Egypt and Syria.