Context
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. Thus, aggregate GDP and government revenues are intrinsically volatile, fluctuating with international prices of these commodities. So far, macroeconomic policies have typically not counteracted these boom and bust cycles in economic performance which increase the uncertainty faced by the private sector, impeding investment and job creation. 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. Over 60 percent of the manufacturing sector’s output is produced by state-owned enterprises; the financial sector is also dominated by public banks despite the entrants of four private banks in the early 2000s. Moreover, Iran’s 2010 Doing Business ranking is in the bottom tiers of the MENA region. 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. 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. 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. 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 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. 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 poverty and regional income disparities significantly. The fourth round of international sanctions in 2010 have increased the cost of doing business, limited access to foreign direct investments and foreign technologies, and exacerbated international trade and financial transactions. The United Nations Security Council (UNSC) sanctions include a ban on financing and exports related to Iran’s nuclear and military programs. Additional sanctions beyond those called for by the UNSC pose constraints on some international financial transactions, particularly in the Euro and the U.S. dollar. Strategy
There is currently no Country Assistance Strategy (CAS) for Iran. The last Interim Assistance Strategy which covered the period 2002-2003 was extended through 2005. UN Security Council resolution 1737 (March 2007), while calling on member states and international organizations to refrain from making new financing available to Iran, exempts humanitarian and development activities conducted by international financial institutions from this prohibition. While implementation of projects approved prior to the sanctions has continued, no new World Bank loans to Iran have been approved since 2005. Over the past few years, the Iran portfolio has focused on assisting the poor, especially those living in areas affected by earthquake disasters, and on addressing basic human needs and environmental issues, such as water supply and sanitation. The World Bank’s portfolio in Iran now consists of one project: the Alborz Integrated Land and Water Management Project (US$120 million). The project’s development objective is to demonstrate the benefits of the Integrated Water Resources Management at the river basin level by: (a) sustainably increasing agricultural productivity through the improved irrigation and drainage system and participatory management mechanism; (b) reducing soil erosion and sediments yields into the Alborz Dam, which is currently under construction using the Government’s funds, through the improved upper watershed management; and (c) protecting the water environment downstream of the Babol River and other water bodies through improved hydrological/water quality, monitoring reservoir operation, and pest management. As of August 31, 2011, around 36% of total commitments have been disbursed. The project is scheduled to close in October 2012. In addition to the lending portfolio, Iran has also been supported by analytical services and technical assistance (TA) in key areas, including: public expenditure, poverty analysis, social insurance, business climate, subsidy reform, and reviews of the water, transport, agriculture, education, environment, health and energy sectors.    Results
Seven projects have come to completion over the last two years with a number of notable impacts on the ground. In the aftermath of major earthquakes in Iran in 2002 and 2003, the Bank provided emergency assistance to restore living conditions of the communities affected by the earthquakes and to reconstruct damaged public and private assets.Â
In the aftermath of major earthquakes in Iran in 2002 and 2003, the Bank provided emergency assistance to restore living conditions of the communities affected by the earthquakes and to reconstruct damaged public and private assets. Emergency Earthquake Recovery Project: Supported the (1) reconstruction of 24,200 damaged housing units, city hospitals, local schools, emergency medical centers, sewerage treatment plants; (2) restoration of telecommunications services; and (3) repair and improvement of roads and bridges, including 64 km of roads in Zanjan province. It also financed a diverse group of subprojects to aid economic recovery ranging from rural irrigation networks to livestock production, to cold storage facilities. A model public awareness campaign was launched to enhance national and local level awareness of measures to minimize risks from future natural disasters; Bam Earthquake Emergency Reconstruction Project: Enabled (1) the reconstruction of 35,866 urban housing units (vs. 22,100 envisaged during appraisal), 29,594 rural housing units (against a targeted 22,800), and 5,250 commercial units (vs. 3,000 planned); (2) rehabilitation of 137 km of village streets (against an envisaged target of 20 km); and (3) reconstruction of the cable and radio transmission networks and switching sites in Bam and Baravat; Ahwaz and Shiraz Water Supply and Sanitation Project: (1) rehabilitated two wastewater treatment plants in Ahwaz; and (2) completed sludge storage tanks in Shiraz. Training courses attended by over 4,000 sector professionals were conducted; Northern Cities Water Supply and Sanitation Project: Financed the (1) rehabilitation of water supply systems in the cities of Rasht and Anzali; and (2) construction of a wastewater collection and treatment plant in Sari; Secondary Primary Health Care and Nutrition Project: Increased patient satisfaction with Emergency Medical Services due to greater comfort with new vehicles and faster response time. Services were greatly improved and users were satisfied. Physicians learned about public health approaches to nutrition during nutrition training workshops. More than 44,000 individuals were trained in Avian Influenza Infection Control; Environmental Management Support Project: Financed 20 air quality monitoring stations which were operational at the time of project closing. Partnerships between the Department of Environment, NGOs and other institutions were built by developing joint environmental projects. Training and public awareness programs were launched; Urban Upgrading and Housing Reform Project: Financed the completion of 12 projects in the cities of Bandar Abbass (5 projects) and Zahedan (7 projects) which initiated the process of improvement in the living conditions in under serviced neighborhoods; Alborz Integrated Land and Water Management Project: Achieved results with the completion of construction of the main conveyor irrigation canal. About 20,000 hectares of traditional areas under the project were irrigated during the 2010 irrigation season which has benefitted over 14,000 small farmers; and Investment Climate Reforms: The Bank supported the Government’s pursuit of key reforms such as (2) improved access to credit information through private credit bureau, (2) introduction of VAT to ease tax burden and electronic registration and other E-services; (3) improved contract enforcement through an electronic case management system; and (iv) the use of scanner at the port cutting trade times.
                                              All dollar figures are in US dollar equivalents. September 2011
For more information, please contact:
In Washington: Lara Saade; LSaade@worldbank.org; Esther Rosen; Erosen@worldbank.org   |
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