Oil wealth, but slow progress on reform

The Times: Iran has enjoyed a boom in recent years, making it one of the best-performing economies in the Middle East and North Africa region, as a surge in world oil prices has allowed it to capitalise on its resource wealth. The Times

By Gary Duncan, Economics Editor

IRAN has enjoyed a boom in recent years, making it one of the best-performing economies in the Middle East and North Africa region, as a surge in world oil prices has allowed it to capitalise on its resource wealth.

With its vast reserves of oil and natural gas, Iran’s energy resources dominate its economic landscape. The huge revenues of its state-controlled oil industry also help to sustain its authoritarian regime, which remains a crucial driving force of economic development.

In spite of growth rates as high as 6.5 per cent in 2003 and 2004, and a pace of expansion for last year likely to have been about 5 per cent, Iran’s large and rapidly growing population means that its economy remains plagued by high unemployment, with 11 per cent of its labourforce jobless in 2004.

Rapid growth and high state spending have also made strong inflation a persistent curse, estimated at 16 per cent last year.

The authorities have pursued market-orientated financial and structural reforms to diversify the economy from reliance on oil, but with limited effect.

The International Monetary Fund reported in 2003 that Iran had been successful in efforts to liberalise the financial sector, with licensing of private banks, and to open itself to trade and foreign investment. However, it reported slow progress on privatisation, the cutting of subsidies of basic consumer goods and efforts to lift bureaucracy and political uncertainty from business.