IMF Says Iran’s Economy Set to Grow on Successful Subsidy Plan

Ladane Nasseri – Bloomberg August 3, 2011

Iran’s economic growth has accelerated and cuts in subsidies have been achieved without sharp increases in inflation, improving the outlook for further gains, the International Monetary Fund said.

Growth accelerated to 3.2 percent in 2010-2011 from 0.6 percent two years earlier, the IMF said in a report published today. The inflation rate only rose by about 4 percentage points in the first five months of this year, to 14.2 percent, even after subsidies for energy and food were scrapped, it said.

The government in December began handing out monthly cash payments, targeted at the poorest Iranians, to replace the subsidies. Prices in Tehran’s traditional bakeries have increased by at least 25 percent and gasoline prices have multiplied by four.

The measures will remove as much as $60 billion in subsidies, or 15 percent of Iran’s gross domestic product, the IMF said. That will “increase the efficiency and competitiveness of the economy, improve income distribution, reduce poverty and help Iran unlock its full growth potential,” the IMF said.

Iran proceeded with the plan to roll back three-decade-old subsidies as pressure mounted over the past year from four rounds of United Nations sanctions and measures from the U.S. and the European Union aimed at curbing the country’s nuclear program. The punishments include restrictions on trade related to Iran’s oil and gas industries.

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