Iran: World Bank Economist Urges Deep Reforms

by Robert McMahon

Will the government of new President Mahmud Ahmadinejad undertake real reforms?

A senior World Bank economist says Iran has failed to use surging oil revenues to address deep economic problems. The bank's chief economist for the Middle East says Iran typifies countries in the region that have stalled reforms amid rising oil revenues. The bank is set to address these concerns with officials of the new Iranian government at annual meetings of the World Bank and International Monetary Fund in Washington.

Washington, 24 September 2005 (RFE/RL) -- The World Bank says rising oil prices have contributed to a third straight year of robust growth for many Mideast economies.

But bank officials have repeated concerns that Mideast countries dependent on oil revenues are missing an opportunity
to make long-term political and economic reforms.

The bank's chief economist for the region, Mustapha Nabli, told a news conference in Washington yesterday that Iran was a prime example. It has likely improved employment levels and lessened poverty, Nabli said, but it needs a wide range of reforms.

"From trade policy to financial sector development, to water management to, you name it, there are a lot of issues that need to be addressed in Iran and I think, I hope that the new Iranian government will move forward and be more dynamic and more proactive in terms of what is needed for the long run," Nabli said.

His comments echo concerns raised by a World Bank report in April on lagging reforms in the region. That report ranked Iran near the bottom in key governance areas. It said Tehran had failed to address reforms to improve the business environment such as privatizing public enterprises.

Bank experts say such reforms are key to addressing areas such
as unemployment.

Iran has seen its unemployment rate drop from nearly 15 percent in 2002 to about 11 percent last year. But, citing demographic trends, the bank estimates Iran must create at least 700,000 jobs per year to further reduce current unemployment and provide jobs for new entrants to the labor force.

Iran is part of what the bank calls the world's weakest region with regard to progress on reforming the business environment. Nabli said the bank has been engaged with most countries in the region to improve public-sector governance, transparency in budgets, and attacking corruption.

He added: "By the end of the day, the reforms are really the critical things to create the long-term jobs and here, as I said, the picture is mixed, so you see some countries pursuing actively, some countries pursuing less actively the reforms."

Nabli and the World Bank's country director for Iran, Joseph Saba, both singled out Iran's high energy subsidies as a
concern.

Iran has energy subsidies amounting to about 10 percent of gross domestic product (GDP), which the bank wants to channel into private-sector investment. Saba tells RFE/RL the Iranian government also needs to be more efficient at directing any subsidies to the country's poor.

"For Iran [the subsidy is] a substantial amount and we'd like to see that used as targeted to poor people because they are
untargeted subsidies right now across the board, so all the population that's not poor also benefits," he said. "That's not
necessary."

The bank says an estimated 9 million people in Iran are poor. The bank has committed about $1.3 billion to projects in
Iran, including improvement of water and sanitation systems, earthquake reconstruction, as well as advice on governance.

Saba says the new government's views on reducing energy subsidies are expected to be clarified after meetings with top
Iranian officials at the World Bank annual meetings this weekend in Washington.

For more news about Iran, see RFE/RL's webpage News and Features on Iran