Front Matter

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© 2004 International Monetary Fund

September 2004

IMF Country Report No. 04/308

Islamic Republic of Iran—Selected Issues

This Selected Issues paper for the Islamic Republic of Iran was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on August 27, 2004. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Islamic Republic of Iran or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

ISLAMIC REPUBLIC OF IRAN

Selected Issues Paper

Prepared by a staff team consisting of Abdelali Jbili, Vitali Kramarenko, and José Bailén (all MCD)

Approved by the Middle East and Central Asia Department

August 27, 2004

Contents

  • CHAPTER I: Economic Growth in the Islamic Republic of Iran

  • I. Overview

  • II. Growth Literature: Stylized Facts

  • III. Growth Performance in Iran

  • IV. Sources of Growth

    • A. Growth Accounting

    • B. Empirical Analysis of Factors Affecting Non-oil GDP Growth

    • C. Sectoral Growth

  • V. Policy Lessons

  • References

  • Appendix I: Data Sources and Methodology

  • Text Tables

  • 1.1 MENA Region: Economic Growth, 1960–2002

  • 1.2. MENA Region: Standard Deviation of Economic Growth, 1960–2002

  • 1.3. Sources of Economic Growth (Raw Labor), 1960–2002

  • 1.4. Sources of Economic Growth (Education), 1960–2002

  • 1.5. Non-oil Annual GDP Growth, 1961–2002

  • 1.6. Average Sectoral Growth, 1960–2002

  • 1.7. Comparison of Investment and Growth Performance of Iran with Six High-Growth Asian Economies

  • Figures

  • 1.1. GDP Growth Rates, 1960–2002

  • 1.2. Inflation, 1960–2002

  • 1.3. Oil GDP and Oil and Import Prices Ratio, 1960–2002

  • CHAPTER II: Issues in Medium-Term Management of Oil Wealth

  • I. Introduction

  • II. Long-run Considerations

    • A. Analytical Framework for Long-Run Analysis

    • B. Implications for Iran of Long-Run Analysis

  • III. Consistency of the Baseline Medium-Term Framework with Long-Term Parameters

  • IV. Conclusion

  • References

  • Appendices

  • I. The Oil Stabilization Fund

  • II. Subsidies in Iran

  • Text Boxes

  • 2.1. Optimal Consumption Out of Hydrocarbon Wealth

  • Text Tables

  • 2.1. Estimates of Implicit Energy Subsidies, 2003/04

  • 2.2. Parameters of Estimates

  • 2.3. Consumption Out of Oil Wealth, 2003/04

  • 2.4. Baseline Medium-Term Scenario under Current Policies, 2000/01–2009/10

  • Figures

  • 2.1. Optimal Path for Consumption Out of Oil Wealth

  • 2.2. Constant per Capita Real Consumption Out of Oil Wealth

  • 2.3. Scenarios for Consumption Out of Oil Wealth, 2003/04–2009/10

  • CHAPTER III: The Iranian Financial Landscape

  • I. Introduction

  • II. Overview of the Financial System

    • A. Banks and Non-Bank Credit Institutions

    • B. Capital Markets and Insurance

    • C. Foreign Exchange Market

  • III. Governance and Regulatory Oversight

  • IV. Reform Agenda

    • A. Banking System

    • B. Capital Markets and Insurance

    • C. Capital Account Liberalization

  • V. Conclusion

  • References

  • Text Boxes

  • 3.1 Specialized Banks

  • 3.2 Financial Repression: Definitions and Cross-Country Evidence

  • Text Tables

  • 3.1. Comparative Financial Development Indicators, 2000–01

  • 3.2. Financial Soundness Indicators, 2003/04

  • 3.3. Selected Emerging Markets, April 2004 Price/Earning and Turnover Ratios

  • 3.4. Capitalization of the Tehran Stock Exchange by Investor, end-2003/04

  • 3.5. Rates of Return on Deposits, 1999/2000–2003/04

  • 3.6. Rates of Charges on Bank Facilities, 1999/2000–2003/04

  • 3.7. Approved Sectoral Allocation of Credit to the Non-Public Sector, 1999/2000–2003/04

  • 3.8. Reserve Requirements on Bank Deposits, 1999/2000–2003/04

  • Figures

  • 3.1. Selected MENA Countries: Broad Money/GDP Ratio, 1990–2002

  • 3.2. Selected MENA Countries: Market Capitalization, 1998–2003

  • 3.3. Selected MENA Countries: Share Price Indices, 1998–2003

  • CHAPTER IV: Moving Toward Market-Based Monetary Policy

  • I. Introduction

  • II. Lessons from Iran’s Experience in Monetary Policy Implementation

    • A. Institutional Set-up

    • B. Instruments of Monetary Policy and Key Challenges

  • III. Next Steps

    • A. Monetary Policy Framework

    • B. Shariah-Compliant Indirect Instruments of Monetary Policy

  • IV. Conclusion

  • References

  • Text Boxes

  • 4.1 Fiscal Dominance

  • 4.2 Evolution of Monetary Policy Instruments

  • Text Tables

  • 4.1 Monetary Targets, 1989/90–2004/05

  • 4.2 Government Participation Papers and Central Bank Participation Papers, 1997/98–2002/03

  • Figures

  • 4.1. Sources of Base Money Growth, 1991/92–2002/03

  • 4.2. Real Rates of Return, 1991/92–2002/03

  • 4.3. Non-oil Output Gap and Real Rates of Return, 1991/92–2002/03

  • 4.4. Money Multiplier, 1991/92–2002/03

  • 4.5. Income Velocity of Money, 1991/92–2002/03

Islamic Republic of Iran: Selected Issues Paper
Author: International Monetary Fund