Volume. 12227

Subsidy plan reduces poverty and income disparities in Iran: World Bank
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altTEHRAN -- The World Bank group in its new report made a rosy outlook for Iran’s economy, announcing that the subsidy reform plan, which was kicked of 2010 December, has reduced poverty and income disparities in the country significantly.

“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”, said the World Bank in the “Country Brief” report over Iran. 

According to the report, preliminary estimates suggest that the government’s comprehensive cash transfer program accompanying the ongoing subsidy reform has reduced poverty and regional income disparities significantly”.

The following is the text of the World Bank’s report about Iran’s economy which was published coinciding with the annual meetings of the World Bank Group and the International Monetary Fund (IMF):

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. 

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 2.5 percent and inflation to increase to above 20 percent due to the impact of the substantial increase in energy prices. 

However, maintaining tight monetary and fiscal policies is expected to bring inflation back to 12 percent in 2012/13. 

Positive outlook

The medium term outlook for economic growth is positive (around 4.5 percent) but crucially depends on sound macroeconomic management and the capacity of the corporate sector to adjust to higher energy costs.

Preliminary estimates suggest that the government’s comprehensive cash transfer program accompanying the ongoing subsidy reform has reduced poverty and regional income disparities significantly.

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. 

In 2007 the service sector (including government) contributed 56% to GDP, followed by the hydrocarbon sector with 25 %, and agriculture with 10%. 

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. 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. 

However, 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. 

High social indicators

The country’s social indicators are relatively high by regional standards. Most human development indicators have improved noticeably based on government’s efforts to increase access to education and health.

Virtually all children of the relevant age group enrolled into primary schools in 2008 while enrollment into secondary schools increased from 66%in 1995 to 80% in 2008. As a result, youth literacy rates increased from 86%to 94% 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.

 Currently, the number of Iranian women enrolled in university (at the undergraduate level) is twice as high as the number of men. Similarly, Iranian women are playing an increasingly important role in the economy, though their market participation and employment rates remain limited.

 Iran’s health outcomes have also improved considerably over the past twenty years. The mortality rate for children under five steadily declined from 73 (per 1,000) in 1990 to 32 in 2008. 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.

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