Economy, Business And Markets

Renewed Call for Financial Reforms

Renewed Call for Financial ReformsRenewed Call for Financial Reforms

A report by the Institution for Management and Planning Studies (IMPS) says the tight money market and slack demand are major challenges the economy is facing in the current calendar year (ends March 2016)

IMPS--a think tank affiliated to the Presidential Office – warned in the report that economic growth is at a “risk of slowdown due to structural problems in the financial markets.”

It said to increase non-oil exports, a drastic change in foreign exchange policy is necessary that adjusts forex rates with the rate of inflation, the Tehran Chamber of Commerce website reported.

The study indicates that the banking sector, government’s fiscal policies and the capital market -- the three main financing channels -- are flawed and in need of reform.

“Declining oil revenues, the government’s massive debts to the banks and an underdeveloped capital market are the main reasons behind the country’s financial predicament,” the reports said.

Meanwhile, a drop in government earnings plus a decline in the purchasing power has led to a significant decline in demand for consumer products. The IMPS prescribes an increase in exports as “an immediate strategy to weather the rescission.” However, it acknowledges that Iranian goods are not doing well in foreign markets due to the high cost of production.

President Hassan Rouhani’s government hopes that normal trade relations with the world, following the lifting of the sanctions, will help improve exports.

The administration also plans to unify the foreign exchange rates after the easing of sanction because the central bank still uses a dual-exchange rate regime.

Iran and six world powers reached a nuclear agreement in July ending a 12-year dispute over Tehran’s nuclear energy program that calls for verifiable limits on the nuclear activities in exchange for lifting the economic and banking sanctions.