Economy, Business And Markets

IMF Exhorts Govt. to Revive OSF

IMF Exhorts Govt. to Revive OSF  IMF Exhorts Govt. to Revive OSF

The International Monetary Fund's Article IV Consultation group has enjoined the Central Bank of Iran to revive the Oil Stabilization Fund to cushion the country's budget against oil price shocks.

IMF's Article IV Consultation panel is in Iran to assess the economic health of the country. Under Article IV of the IMF's Articles of Association, the fund  holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic direction and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the executive board.

"Iran's budget relies heavily on oil export revenues and no provisions have been made to buffer the effects of volatility in the oil market and therefore the primary challenge is how to manage the oil income," said Olivier Basdevant, an Article IV staff member in a meeting with CBI officials in Tehran.

 Basdavent warned about accumulated government debts and the financial perils they entail, calling for budgetary policies that provide buffer against oil price shocks. The expert panel also discussed major challenges in the way of budgetary policymaking and ways to address them.

International oil prices have dropped by more than half in recent months, reaching below $45 a barrel compared with about $110 in the summer of last year. The plunge is mainly due to increased production and low demand in the wake of Chinese economic slowdown. The turmoil in the oil market has led to gaping budgetary holes in petroleum-producing countries like Iran.      

The second point accentuated by the IMF delegation was the issue of ''population pressure'' faced by Iran. Mr. Basdavent expressed concern that population growth would pose a challenge to the job market in the coming years, calling for workable budgetary stratagems to promote investment and strengthen the private sector.

"It is recommended that the OSF be revived considering the recent volatility in oil prices," Basdavent told CBI officials. He also called on them to concentrate on transparency and risk assessment in drafting the budget.  

The OSF  was born in 1999 as a way to make strategic investments for future generations and stabilize funding for the government. The funds transferred to the OSF are primarily surplus revenues from oil sales. The fund almost vanished after huge withdrawals by the administration of former President Mahmoud Ahmadinejad.  

Robert Blotevogel, another Article IV economist touched upon "efficiency" in Iran's economy, saying sustained growth in efficiency would translate into economic growth.

"It is necessary that the scarce financial and human capital be directed toward the more efficient sectors of the economy," he stressed.

Expressing concern over the condition of banks due to the high level of stressed loans, Blotevogel said Iran's share of non-oil exports should increase. "Resources in inefficient sectors of the economy should be directed toward the efficient ones and that should be accompanied with reforms in financial, labor, commodities and services sectors," the  IMF official said.