World Bank Document

World Bank Document

C4 -%rr r% 1% Ir- r- A Ea I n Ito I Eu Rep oir t N O.AS-76b Public Disclosure Authorized Thicr e uae nranaer fnr en within the Banit in mal/ina if .I evypen f as ue o umu OWN navw ov.1151u s u wus rn. gig gurg oila available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized CURRENT ECONOMIC POSITION AND PROSPECTS OF IRAN Public Disclosure Authorized February 11, 1960 Public Disclosure Authorized Department of Operations C u+ AS; a ~a iLAAdl East CURRENCY EQUIVALENTS 1 US dollar - 75.75 rials rial. - 0.T3 U.S1. dll'a r 1,000 U.S dollars - 75.750 rials 1,000 rials - 13.2 U.S.dollars T ABLR OF rONTE.NTS Man~ nP Tran.................. Forewd . 0AL *ee * * * * . .. * *.. Bai ttt.c .. C Petroleum . 1 Agriculture . .. 2 nd uS nry. .. National Production . 6 II. FinaneandTrade. 8 B nkingty . Veneral Caracteristics .. 10o Allocation of Oil Revenues . 9 GovernmentFrinance............. 9 Trade and Payments......... .... 11 111. Pubilc Setor Development . 13 IV. Frospects . .. 19 LongerRun .n. 19 Bhort Term . 22 Creditworthiness . 23 I - Oil Revenues 2 - Petroleum Statistics 3 - Direction of Oil Exports 4 - Main Exports of Minerals 5- Production of Principal Agricultural CommoditieS 6 - Industrial Production 7 - Per Capita Consumption 8 - Changes in Money Supply 9 - Bank Melli index of the Cost of Living in Seven Major Cities in Iran 10 - Budgeted Expenditures 11 - Actual Treasury Expenditures 12 - Actual Budget Revenues 13 - Estimated Revenues and Expenditures of Government Bongahs and Agencies for the Year March 158 March '59 (Excluding Plan Organization and NIOC) 14 - Banking Statistics of Private Sector 15 - International Transactions 16 - Exports by Commodities 17 - Imports by Commodities 18 - International Transactions in Goods 19 - Mission Forecast of Foreign Exchange Receipts on Current Account 20 - Summary of External Public Debt Outstanding and Undisbursed as of September 22, 1959 with Major Reported Additions up to November 30, 1959. l R A N U. S. S. R. JU H K t T TABRIZ Qasr+Sh \ HAMADAN R A u~ .. *. k~ 1, k opur ff z. KhorromsrahrW B.nå_.-, hk,'hapu r? 41 t .Kerman SHIRAZ NEUITRAL \ · uhr a TERRITORY \ushir.ý Zahid Bndar ROADS _ -n- - Metclled - -L- Dry weather . \igl Standord gauge vm Norrow gauge -.---- 7 \j ) IN I EKNA l IUNAL0 BOUNDARIES 0 100 200 300 400KM APRIL 1958 IBRD-295R The last economic report on Iran was circulated to the Executive Direcors on July 23, 1950 kAO-ofuj anu was the result of a visit by two Bank staff members during the first quarter of l958. The following report is the result of a Bank Economic Ission to Iran in the summer of 1959 and the analysis of data received subsequently. BASI! STATISTICS Area: 164 million hectares - 628,000 square miles (nan 6 million hectares is the average ara nronned) Poation.y^Y4 a-+mna n+. ?-W np1r ;r or roughly $120 per capita Exports of Crude Oil.and Petroleum Products in 1958 44. 2 million cubic Government urdinary uget: (a)~ OrdnargReenu / 1 (billion) 1) rials)K ka) Ordinary Revenue 4.J (b) Oil Revenues 7.7 e;) Total Revenues (d) Expenditures 31.3 (e) Deficit Flan urganization Budget: (million $) (a) Oil Revenue, cash receipts1 (b) Expenditures 208.0 (c) Deficit before borrowing 04. (d) Long term loans, disbursements 62.7 (e) Short term borrowing from Central Bank 20.0 Balance of Paym)nts 59actual- (million $) (a) Transactions of oil sector, net 316.2 (b) Exports of other goods and services 127.1 (c) Imports (outside oil sector) -489.3 (d) Private Invisibles, net - 47.9 (e) Official donations and capital, net 67.9 (f) Errors and omissions - 22.4 (g) Change in Foreign Reserves - 48.4 Foreign Exchange(Reserves (estimated as of' Jajn. 20. 1960 million $ or $ equivalent): 200.0 External Public Debt 7(asof' September 22. 1959, with major reported additions until November 30, 1959 milion I or euivalent): ( 5o8.6 NO~TR! The Iranian calendar year which corresponds to the fiscal year nf the Iranian government runs from March 21 to March 20. SUIARY AND CONCLUSIOlS 11W jJuepV_UU UUUn rU1urvl. unI !.I;L.-U. \nP1ur IIU* f-U, U Vty A. , 1958) concluded that there was room for a considerable amount of new external deub in view or tne eeaduly growing foreign exanunge unoue of the country and the substantial reduction in existing debt due to take place over the next five years. It expressea concern aboUt Ute Government's ordinary budget which was draining oil revenues away from the development program for which they were originally intended and about the resulting deficit facing the Plan Organization. The report also pointed out various inadequacies of government administration, particularly in internal economic and financial matters, and noted an increasing tendency on the part of government agencies other than Tne Plan Organization to borrow abroad. These conditions still prevail but the present report notes some recent improvements in the fields of public finance and development planning. 2. The viability of the Iranian economy has and continues to depend mainly on the contribution of the oil sector to the balance of payments; this rose from $167 million in 1956/57 to $316 million in 1958/59. Oil production in 1958 was up 14% from 1957 and 24% as compared with 1950, the last year prior to the nationalization crisis. A further increase has been indicated for 1959. Drilling and exploration are moving forward quite rapidly. 3. Under the impetus of investments connected with the Second Seven- Year Plan, supplemented by a sharp expansion in private industrial under- takings and bumper crops, the gross national product probably rose about 5% annually during the last three years and per capita income may have reached about $120. However, monetary expansion, principally because of rapid expansion of bank credit to the private sector, has much more than kept pace with this arowth of real economic activity and the cost of living rose at least 6% between January 1958 and June 1959. In this situation imports have not been restricted and foreign exchange reserves fell by some $100 million or over one-third during the 19 months ending October 1959. However, the deline in rePrve- wqq reverqed subsenuentlv. and by the end of January 1960 a substantial part of the preceding loss had been recovered. 4. Financial operations in the public sector were kept comparatively well in balance in 1958/59. Part of this was accomolished by an increase in revenues and decrease in expenditures as compared with budgetted amounts but. as in the nrevious year. a maior factor in maintaining fiscal balance was the increase in the oil revenues accruing to the ordinary budget. 5. It now appears unlikely to the PO that total financial resources for the Plan will eeed 91-162 million during the seven-vear neriod. September 1955 to September 1962, about $860 million from oil revenues Andl theirpmnirlp-r fromn net. foreign lonsng A arnft program has hApn wnr1cP. out on this basis which is nearly 25% smaller than was at one time expenditure by the PO will have to be reduced. There is no doubt that -1- -1i- the program will help in raising Iran's economy to higher levels, althogh the PO recognizes that major nortions of the investment were not the result of thorough analysis. 6. The Government has become increasingly aware of the need to put the country's financP- in nrcer_ Leisintion has been submitted to Parliament proposing the establishing of an independent and strong central bank with iide authority to chanty the reserve ratios of com- mercial banks and prescribe credit ceilings. The Government has also begun to prepr a nomnrehenirve 4-year Pinancinl Plan for the nublic sector and has stated to the Bank its intention to balance its ordinary DUG5CV W1.110JJLUV tA- -± '_ -3.L JA -42 _-1 - -- in the allocation of oil revenues. Of immediate importance is the fact credit, but the measures taken so far appear insufficient. 7. The short run prospects for the Iranian economy will depend largely on tne success of the authorities n preventing a continuance of the present excessive rate of monetary expansion. While foreign exchange reserves are now equal to about five monrns- o muuVroZ Uo Lkmv,Lo, measures other than a sacrifice of reserves are clearly necessary. 8. The longer run economic outlook for Iran depends mainly on petroleum exports and the development of oil-based and other industries for which there are reasonably good prospects. To be sure, agriculture is likely to remain by far the most important source of the country's income; out it will not be easy to increase agricultural output considerably. Deep rooted customs and social traditions stand against any rapid change in agricultural techniques. For this reason and in view of rising internal consumption, it is unrealistic to expect any significant increase in agricultural exports which now account for the bulk of non-oil exports. 9. For a long time to come the maintenance of a satisfactory level of development expenditures as well as Iran's capacity to service increased foreign debt will, of course, depend largely on the growth of petroleum exports. The possibilities for the growth of petroleum exports are not limited by conditions in Iran. Iran's proven and probable resources are fully adequate to support a rapid growth. The limiting factor in such growth is the world oil situation. The recent discovery of large quantities of oil in North Africa renders the prospects for growth in Iran's oil revenues less favorable than was thought some two years ago.

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