Islamic Republic of Iran

Illustrates how the government of the Islamic Republic of Iran, one of the first oil exporting countries to have implemented drastic subsidy reforms, has succeeded in initiating reforms in a smooth way and avoiding any serious public unrest. Key elements of the reforms that helped to avoid serious problems at the outset of the changes included simplicity of the compensatory scheme; a well-designed, broad public campaign; readiness of the banking system to facilitate massive cash transfers; and government policies that helped to avoid dramatic increases in the inflation rate. Although the subsidy reform is expected to result in a transitory slowdown in economic growth and a temporary increase in the inflation rate, it should considerably improve Iran’s medium-term outlook by rationalizing domestic energy use, increasing export revenues, strengthening overall competitiveness, and bringing the country’s economic activity closer to its full potential.