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An economy crying out for reform

Iran is finding it difficult to cope with high levels of unemployment in a youthful population. Despite vast energy resources, accelerated reform is vital if the economy is to be transformed. Kate Luxford reports.

AS OPEC'S NUMBER two oil producer and the owner of the world's second largest natural gas reserves, Iran should arguably be the Middle East's pre-eminent economy. Indeed, strong oil revenues driven by record highs in prices have given the country a boost in recent years. And in the Iranian year ending in March 2003, the IMF estimated that real GDP grew at 6.8%, led by non-oil sector growth of 7.9%.

Yet Iran is also a country in desperate need of reform. The state controls more than 80% of the economy, almost a third of Iranians live below the poverty line, and inflation stands at almost 16%. The economy remains overwhelmingly dependent on oil revenues, which make up between 40% and 50% of budget receipts. The tax system is underdeveloped and inefficient, and tax avoidance is commonplace.

The country also faces a demographic time bomb. Some 70% of Iranians are under 30 years old, 50% are under 20, and the labour market is under pressure. Unemployment is unofficially estimated at more than 20% of the active population, rising to over 30% among those aged between 15 and 30.

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