World Bank praises Iran for noticeable progress

The World Bank in its new report has praised noticeable improvement in Iran’s social, economic, and human development indicators.
The Washington-based organization in the report, which entitled “Iran Overview”, announced that the country’s social indicators are relatively high by regional standards.

Referring to Iran’s subsidy reform plan, the World Bank also stated that the reform has reduced extreme poverty and income inequality significantly.

The following is the text of the World Bank’s report:

Most human development indicators have improved noticeably based on Iranian Government’s efforts to increase access to education and health.

Virtually all children of the relevant age group were enrolled in primary schools in 2009, and enrollment in secondary schools increased from 66% in 1995 to 84% in 2009.

As a result, youth literacy rates increased from 77% to 99% over the same period, rising significantly for girls.

Consequently, Iran is well placed to achieve the Millennium Development Goals (MDG) target with regard to eliminating gender disparities.

Over the years, Iranian women have been playing an increasingly important role in the economy, though their market participation and employment rates remain limited.

Similarly, the maternal mortality ratio per 100,000 live births declined from 150 to 30 during the same period. Consequently, health indicators are usually above regional averages.

This success is based on the effective delivery of primary health care which almost balanced health care outcomes in rural and urban areas. Iran’s new 5th five-year development plan from 2011 to 2015 continues to focus on social policies.

Economy

Iran is the second largest economy in the Middle East and North Africa in terms of GDP – US$400 billion in 2011 (after Saudi Arabia) and in terms of population – 78 million people (after Egypt).

It is characterized by a large hydrocarbon sector, small-scale private agriculture and services, and a noticeable state presence in manufacturing and finance.

Iran ranks second in the world in natural gas reserves and third in oil reserves. It is the second largest OPEC oil producer; output averaged about 4 million barrels per day in recent years. Iran’s chief source of foreign exchange comes from oil and gas.

Iran’s economy is transforming towards a market-based economy. However, the Iranian state still plays a key role in the economy, owning large public and quasi-public enterprises which partly dominate the manufacturing and commercial sectors.

Over 60 percent of the manufacturing sector’s output has been produced by state-owned enterprises.

The Government envisioned a large privatization program in its 2010-15 five-year plan aiming to privatize some 20% of state-owned firms (SOEs) each year.

The authorities have adopted a comprehensive strategy as reflected in their 20-year Vision document and the 5th Five-Year Development Plan to ensure the implementation of market-based reforms.

Economic growth increased by 3.5 percent in 2009/10 while prudent macroeconomic policies reduced inflation to about 10 percent and ensured a fiscal surplus.

The initial impact of the removal of the substantial energy and food subsidies in December 2010 did not suppress Iran’s economic performance despite stricter economic sanctions.

Nevertheless, growth is projected to decline to 2 percent in 2011 and to decrease further thereafter, and inflation is expected to increase to around 20 percent in 2011 and 2012 due to the impact of the substantial increase in energy prices.

Moreover, higher than expected inflation after subsidy removals are projected to depress private consumption. The industry is also likely to struggle to adjust to higher energy prices also due to the sluggish provision of Government assistance which had been earmarked for the sector.

Subsidy reform

The Government has launched a major reform of its indirect subsidy system, which, if successful would markedly improve the efficiency of expenditures and economic activities.

The overall subsidies were estimated to cost 27 percent of GDP in 2007/2008 (approximately US$77.2 billion).

The Government has opted for a direct cash transfer program while substantially increasing the prices of petroleum products, water, electricity, bread, and a number of other products.

Preliminary estimates suggest that the Government’s comprehensive cash transfer program accompanying the ongoing subsidy reform has reduced extreme poverty and income inequality significantly.

However, the Government assistance program to the industry, which was supposed to account for 30% of the savings from the subsidy removals, has been slow-moving partly because the cash transfers to consumers appear to have been more costly than planned.

It was not until September 2011, that the Government started to fulfill its commitment to producers.