RESTRICTED o X CvrY Report No. EMA- 3a \nrFPoIRTS DQES1<\ twas prepared for use within the Bank and its affilioted organizations. n be071 not accept responsibility for its accuracy or completeness. The -eport may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE FOURTH DEVETT4 .fT OPMENTr tPT.ATN\ AND THE ECONOMIC 1 i-RO-SuPECTS OF IRAN (in two volumes) VOLUME I OVERALL VIEW February 25, 1969 Europe, Middle East and North Africa Department CURRENCY EQUIVALENTS 1 U., S. dollar = 75. 75 rials 1 rial = 0. 0132 U.S. dollar 1. bllion ri.s = 13.2 million TU C. t'.dollars T,Thi lOTTTTR - T) .T.nPT4TfP TRMT1 PT.AT\T aNTD TIUEW ECrlTO1I PROSEC'PTS OF' TP1t\ Volume I - Overall View Volume II - Agriculture VOLUIvE I TABLE OF CONTENTS Page No. BASIC DATA i - ii STIViAARNY AND CONCLUSIONS iii - v T_ Tntroncitiion 1 II. Economic Develnopments in 1'6I2-1Q7 3 A R"nn.mii TxNnnns'in3 Output Growth Income Distribution B. The Investment Program 6 napit 4al LIenAi4u4- UQ... L I.X -"L UJ Ur The Financing of Government Expenditure rublic un Ubpi-±ses C_.. ilne Moe iUary UdUI±bil ly 14 Price Stability Credit Policies Balance of Payments III. The Fourth Plan Targets 18 A.. Overall View 18 B. Prospects in the Main Sectors 21 Acriculture Industry Petroleum Transportation C. Summary Evaluation 28 IV. Financial Prospects 32 A. National Savings 32 B. Public Savings 36 The Need for Policy Changes IMonetary Pressures Page No. (J. Foreign Financing Requirements 39 Private Investment Future Debt Service Amount. Terms andi C'onditi Hns of Future Borrowing V. Conclusion ANNEXE', I 'Statistical Tables II Public Enterprises This report was prepared by a Mission that visited Iran in July- August 1968. The members of the Mission were: Robert Mlaubouch6, Chief of Mission; Gabriele Sciolli, General Fconomist; Percival Bono, Livestock Specialist; Donald Campbell, Irrigation Engineer; Hans Kordik, Agronomist; Gustave Massiah, Transport Economist; David Reese, Agricultural Economist; Stanislaw Wellisz, Industrial Adviser; Myrtle Timmins, Secretary. BASIC DATA A Area: 1,618,000 km2 Pulation: Total: 25.323 million (census of Novenber 1966) Rate of growth: 3 percent per annum Density: 15.4 per square kilometer Gross Domestic Product at factor cost 1967 1962 1959 Total in billions of current rials 566.1 357.1 283.0 Total in billions of 1959 rials 500.5 331.6 283.0 Sectoral distribution 1965-1967 1959-1961 As percent of average GDP Agriculture 23 30 14anufacturing and iMining 12 10 Petroleum 23 18 Pouer and Transport 8 9 Construction 5 4 Gov-ernment Services 9 8 Other Services 20 21 Rate of growth (at 1959 prices) 1959-1967: 6.5 percent per annum 1962-1967: 8.6 percent per annum Gross National Product at market prices 1967 1962 1959 Total in billions of current rials 562.3 349.8 284.6 Per capita 1967 - U.S-$287 Percent of GINP at market prices 1967 1962 (Tross investment 19.0 12.7 Public sector (9,4) (4.2) Privqte srector () (8- Met exports of goods and services 4.8 8.8 NeT,-. facntr income -7-7 -7.8 Gross national savings 16.1 13.7 Gross National Savin s as percent fivsmn 1.4 171 3rsE;~~~~L_ t1j of i.-nvesment 84.4 1G7.4 Money and Prices March 1968 Change 19612-7 (billion-a ia.j (inJ . fS-.I Money supply 75 11 Ii,i,e UeposiLUs Al 2 Bank credit to public sector, net 36 21 DanIL- credit to private sec'uor 19 13 Annual Change Rate of change in prices (in percent) 1967 1]962-1967 JFholesale price index - 1.2 Cost of living index 0.1 1.5 As % of GDP 1967 (at market prices Government Ope-rations (billion rials) T=7 193 Government current receipts 107.6 17.7 15.2 Government current expenditure 76.5 12.6 12.3 Current surplus 31.1 5.1 2.8 Government capital outlays 61.2 10.1 4.4 As % of GDP Change 1967 (1967) 1962-1967 Excternal Trade (billion rials) at market prices (in % p,a7 Exports of goods and services 139.2 23.0 11.3 of which petroleum ship- ments a/ (116.0) (19.1) (l. ) Imports of goods and services 112.L 1865 17.3 Comnositiorn of merchandise exDorts 1967 1962 (as a of export earnings) Petroleum. net 82.L 78.1 Cotton 3.6 h.8 Carnpt.s 1h.8 L.O Fruits 2.0 4L.3 Others 7.2 8-8 Ballanc,- o%f' Pn,ment- (TU .S. $i millionn) 1967 I962 Trade, net 47 Government capital receipts, net 200 8 Others, net 9 Change in reserves, net 13 -27 Foreign Exchange Position (U.S. $ million) March 1968 GrLoss foeg xhnereserves 393 DLF position Drawings 31 External Public Debt 1ULa-l outsUAL1U±I1r kg (U-ILh2, 1968U/ : US. 7 Y e,IL4) miLL.LiLon Debt service ratio (% of 1967 net export earnings): 12.1 a/ Valued on the basis of posted prices. - 112i - SUIMRY AIND CONCLUSIONS 1. Iran has a booming economy. More remarkably, rapid economic growtl has been accompanied by financial stability., During the period of the Third Plan, October 1962 - March 1968, output grew at an annual rate of' 8.6 percent in real terms, thus exceeding the target rate of 6 percent. Meanwhile priccs and money supply as percentage of GNP remained fairly steady. However, the expansion of domestic credit, especially to the public sector, was accompa- nied by a drawing down of foreign exchange reserves. 2. The petroleum sector currently contributes 75 percent of total export earnings and about half the Government's current revenues. Net export receipts increased at an annual average rate of 13 percent between 1962 and 1966. In 1967, a 19 percent growth rate boosted oil receipts to $850 million. The growth in these revenues enabled the investment rate to rise from 13 to 19 percent of GNP during the Third Plan period. 3. The population is characterized by a 3 percent overall rate of growth and a great concentration in the main cities. Official documents state that "full attention will be accorded to nrogram for familv plan- ning", but government action has so far been limited to authorizing the sale of birth control devines h1. Dring the Third Plan, the two primarry objectives of outpllt growth and monetary stability were attained. Private investment in constrlction~~~ an n .sr conside. --, ex.ceeded- expec-aions, helped by, the support given to them by the Government in the form of import protec- tin, low~, taxat ion rad relativel+ easy credit facili4ie. flor, -ment expenditures of the public sector also exceeded the initial Plants target. Ofn +the- owthes,r hanrd, Mnr.,ry projects were undertaken whL.bi4 c*h w e r e app ---.--l unrelated to the priorities of the Plan, which seems to indicate that ~j .L. U L4U ± I.JI d.L L-VL P VU CLI A UULjJYUUWIBUA, UL±U P-CLIi U1 CLdAJ± J. I-L.-LV 11-~v ~ not always exercised sufficient control over investment. In agriculture, 'large da-. -an fa.,- --redits- cornete 4to the --- refo... 4ook the plac of the more rapidly productive projects envisaged in the Plan. Physical portation. Delays in the construction of large scale projects in manu- ±dact-u.Ing resu'Lt±edu in subOstLaUtLia1 s± UVor U faL.L±s 1in pUbli±±Uc industrialL invest- ment. The building-up of education and health facilities also failed to reach thle Pl rants tciargets. Jb wouiud LrIO.LeL't! appearW UlUdL Lthe LraniaL rPlan was in practice considered more like a general outline of desirable objec- tives towards which the economy shloU tenu. thnaL -a policy udcumlentl wi specific targets to which the Government strictly adhered. 5. On the fiscal side also, there were major departures from 'he inten- tions of the Plan. T-he September 1962 Law, which enacted the Plan for the public sector, provided for a substantial decline in the proportion of oil reven-aue devoted to financing current expenditure. Desoite an unexpected increase in the Government's financial resources, the fast growth of currerr;; expenditure prevented the devotion of oil revenue to investment to the exterit envisaged. In 1967, 42 percent of oil revenue was still devoted to current. expenditure, as compared to 20 percent expected by the Plan Law. Defense expenditure was the fastest growing item in. the current budget throughout the 1962-1967 period. The increase in oil revenue also reduced the pressure to increase taxes; total tax revenue only accounts for 10 percent of GNP. 6. The objectives of the Fourth Plan (1963-1972) are ambitious, per- haps even too ambitious. The Plants target of a 9.4 percent rate of increase in GNP will probably not be achieved. Chiefly because of expected shortfalls in agricultural and petroleum production, the mission projects instead a 7 percent growth rate. This is still a quite commendable expansion which would lead to a per capita income of around $350 by 1972. The other objec- tives of a reduction in the unemployment rate and a more balanced income distribution, which are again major aims of the Plan, will be more difficult to reach. 7. In relation to the exDansion of oroduction there is great scope for improvement in the utilization of existing facilities. More consistent management of such assets can yield higher returns and save substantial financial resources. Moreover, most ongoing projects in agriculture, transportation and construction are not likely -tn bhnefit. the economyM quickly. In addition, the scale of present investment projects in industrv is such that any delay in Pnnqtr,ttion 'considrably affects total output and possible exports. Finally, future investment and pro- duntion in the nP'rolenim sertrn are subject to a c vonsi6nyble degree of uncertainty. 8. Total fixed capital formation in the 1968-1972 period, as esti- mated by the Missionn may be nrolnd 7d40 billion rials ($9.8 billion) aS compared to the Plants target of 810 billion rials. The difference is relatively* unnl, ar.d i co -nfined to +he rivate sector..J-n~ *e .JinVsJmsn prospects in agriculture and industry in the next four years do not seem as favorable as expected byi, 4t- T-arkan authorlties. 4 ,-e-i4ent4 the public sector almost trebled within the last three years. It should be possile to double its outlay between 1967 and 19720 The core of the program consists of a few large projects in irrigation, metallurgy, petro- h Q} n ]~~'L 1C!e-1 -- nA con s Alt;u llo o , AA 4Lh s pr j c s _ a_nd A t1 ; -4 ments in transportation and power started before the inception of the Fourth Plan; they largely determl,Iinzed the size and the compositionL of the program. Total development expenditure would thus be similar to the allocation in the Plan but smaller in vol-we since increases in costs already incurred are like'ly to offset delays in construction. 9. On the basis of present policies, public savings will be insuf- f^cient to finance 70 percent of total capital outlays of the central govern- ment as envisaged in the Fourth Plan. Even if the growth of current expenldi., ture was reduced to 8 percent from 1969 onwards - compared with a budget estimate of 18 percent in the first year of the Plan - and if changes were made in the tax structure to add 15 percent to the expected yield of non-oil taxes in 1969, public savings would still finance less than 60 percent of government capital expenditure in the Fourth Plan period. Already there are signs of mountinig monetary pressures due in part to demands of the public sector on the banking system. 10. Obviously much also depends on future government revenue from oil. The Fourth Plan projects an 18.4 percent annual rate of increase. Due to a combination of special factors (especially advance payments, change in the period for assessment and the effect of the closure of the Suez Canal), a 22 percent rite will probably be attained in 1968, the first year of the Plan., Thlese circumstances are unlikely to be repeated. The NLission assumes a more conservative annual rate of 11.5 percent for the Plan period, which implies that the receipts of the Government from the Consortium will increase by 7 percent annually from 1969 to 1972. The total shortfall would amount to about $1 billion for the Plan period. 11. Moreover, exports of other goods and services wil probably fall short of the Plants targets, owing mainly to delays in the construction of the export oriented industries of petrochemicals and alulminium. On the other hand, if purchases abroad for defense purposes remain at their current level, imports may grow by 10 nercent ner anm_1« as compared to 13 percent forecast in the Plan. In total, if investment reaches the projected level, the deficit on current transactions Twould grow from $220 millIon in 1967 to $520 mil]ion in 1972. 12. In these circumstances, external gross capital requirements are est-A-Timated at about $3" billion as cor.pared to the Pla- es.ait 4es of $2.2 bil lion. The main difference lies in the estimates of possible oil revenues. After providlin for a loan pi-pe-line in 1972 -1igly larger thcar the present $1.0 billion and reasonable delays for loan disbursements, Iran, to attain its investment target, wod need to contract about - 'hL.0 bilo in, the ne.x4 five years as against approximately $2.0 billion contracted during the Third Plan. If IrnTs foreign partners provide ass-isance to this extent on rather' favorable terms the debt service ratio would be likely to rise from 8 percent >, 1967 4to r,ore t'han l8 percentu ir 1972 -"LU J.7U .J LI.J1 d'.L A I.L 1 L ±7 f . 13. IIrar, should weigh the au-vauuages ±u sees in attaining the inves- ment which may be physically possible during the Plan period against the eflect on its future creditworthiness. The uemand for future external assistance is in any case such as to suggest the need for a common under- standing between Iran and its foreign partners of its development problers and policies to encourage a program of lending on terms appropriate to the circumstances of the country. CHAPTER I INTRODUCTION 1. Iran has a booming economy. Moreover, economic growth has been accompanied by financial stability. Such achievements are sufficiently uncommon to raise the question of whether l;his achievement is likely to continue. :[ran has the natural, mineral and energy resources, the domestic market and the labor supply to support development changes. Until the late fift.ies, howiever, the Government did not express its determination to pursue those changes by direct and comprehensive action. A nurnber of major projects were undertaken by the Plan Organizati-on during the Seronnd Plan neriod bhut the Government relied mainly on private initiative and capital for promol;ing economic growth. This WaS snfficienf to assunre satisfactory growth rates but, in the early sixties, the Government felt that more drastic changes were needed if T->'n ran +.to +tvun in fa m ondrn inter !at+eA eonTmir 2. The increase i n petroleum reverues provided the mean.s to finance some structural changes. The major undertaking along those lines was the 1-and reform. The second step -,-was a more de-Lib1erate pollcy towards -i -trialization. While continuing its assistance to private industry, the aGerlei L recently elmllbar)Ked. Cn, a prog r,i of larg scal 4nes --n These actions were prompted by the desire to diversify the economy and spread tAhe nLVetmeUntUU beLftsL toUUtU tAhe couLLltry. BuU 0U CLua charges are costly. In fact, the Government waited until petroleum exports L 1.L I I 11 _ hcad reac'ieu such a volume that new policies did not entail urasti.c shlifts in the allocation of resources. 3. The Plan Organization is the executive body of the High Planning Council which meets every week under the chairmanship of the Prime Minister. The Plan Organization has responsibilities for programning, allocating and channeling funds for the public sector. It therefore has the legal authority and means to orient government economic activities. The balanced manner in which the Third and Fourth Development Plans were written is an evidence of the ability of government officials to formulate economic problems. These two elements of power and competence are rarely combined in a developing country. 4. Nevertheless, although the planning mechanisms are formally adequate and the human competence favorable to successful planning, it cannot be said that there has been a determined policy of adhering to the Planes specific targets after these have been approved. In fact, the Third Development Plan was never approved in its entirety and substantial sectoral and project allocations of capital were apparently unrelated tc the Plan priorities. The global investment target and a rough breakdown of public sector allocations were revised a number of times with the latest revision taking place four years after the inception of the Plan. Thesc revisions could mean that the Plan was adapted to changing economic ccnd-X tions and therefore was a permanent policy instrument, but there is evi- dence to suggest that they were rather a reflection of changes in overall financial availabilities. 2 * iLjVU'1jU~ P.dLCLIa"11 -LO ±±IUt-L±UfzU uu C.L;jiJt-VU LAit O):-j a] d.lucdiull Vi.L scarce resources, it is only one element in the promotion of growth. WVile its pUannirg has been rather loose, the GoverrmMente s policies have been quite deliberate in preserving price stability, implementing te 'land refo.rm adu stimuJ.ating investment generally anra private ini- tiative in particular. These policies, together with other reforms intended to modernize Iran have benefitted from tne considerable increase in financial resources in recent years. - 3 - CHlIPTER II ECONOMIC DEVELOPiMENTS IN 1962-19671/ 6. The Third Development Plan terminated its five and a half year period in M4arch 1968. A new five-year Plan has just begun. These develop-- ment plans are not only useful tools for assessing economic prospects; they are also an expression of choice between policies or at least between objec- tives. As such, they give information on the Government's intentions in economic matters. Beyond the nurelv nant itative approach which is somelhat. deceiving in Iran, it is therefore interesting to compare what the Governi- ment1s develonment priorities were in the early sixties and the eS.tent o their achievements during the Third Plan period. 7. The two primary objectives of the Third Plan were output growth and monetary stabili+yr. economic perfo .ar Jn this respec was rwm-Lb'e and the Plan reached its objectives. However, the Government had some dif- ficulties, at least initially, in the util:ization of the mian lnstrIent Or implementation, namely the public investment program. A. Economic Expansion Output Growth 8. Output during the Third Plan grew at an annual rate of 8.6 perzent in real termus, thus exceeding the o percent target of the Plan. The expan- sion of the economy was steady, starting from a somewhat depressed situation in the early sixties. Tne rapid growth over the period is somewhat exagger- ated by the fact that national accounts underestimated the value of output in the early years, particularly for industry and agriculture. 2/ T'Tne Iranian year is based on the solar calendar recently run from March to M4arch. Year 1345 is thus March 21, 1966-March 20, 1967. For the sake of simplicity the solar year is equated to the closest Gregorian year throughout this report as often done in Iran. For instance 1345 is shown as 1966 (or a difference of 621 years). 2/ The implied aggregate capital-output ratio for the Third Plan peried was about 2.1:1 which is rather low for a developing country. In addition to the overestimation of the growth of GDP other possible explanations are (i) a possible underestimation of gross fixed capital formation (e.g. private investment in agriculture); (ii) the existence of under- utilized capacity at the end of the Second Plan; (iii) the high growth in agricultural production which was essentially the result of good weather conditions; and (iv) the rise in petroleum production. On these bases, the overall capital-output ratio is not very significant. Sectoral capital-output ratios which usually are more meaningful cannot be computed because of lack or unreliability of data on sectoral investment and pro- duction. 9.* Gr-n-th in indust-r and agriculture 3 percent to th4- increase in total value added. Another 30 percent came from the petroleum -s'- u'Jo . Thie growVth -iI c%Miclture has LaI e planaton in a series o:U good crops at the end of the Plan period, especially in wheat and barley whieri acicount for about one-third of to-tal agricultural producuion. _"n industry, three traditional sectors, food processing, textiles and carpets still contributed dpprxuWIuately. 60 percent of the lncrease ±in lidustrial value added, but newer industries, mainly metal working and machinery, e:.oanded rapidly (at about 12 percent). Table 1 GDP at Factor Cost Annual Growth Percentage Rate (percent) Composition T12-1967 1962 1967 Agriculture 3.4 27.9 21.9 Industry 10.6 11.0 12.0 Petroleum 1.3.2 19.8 24.3 Power and Transport 7.2 8.9 8.3 Construction 1.3.0 4.0 4.9 Government Services 10.5 7.6 8.3 Other Services 8.1 20.8 20.2 Gross Domestic Product 8.6 100 100 10. Together with the primary target of output increase, the Third Plan identified as main secondary objectives the creation of employment opportuni- ties and chang-es in income distribution. The latter could be obtained, -it was hoped, through increased taxatizn of the wealthy classes, investment in agriculture and appropriate regional distribution of expenditure on social services and education. Whereas the expected investment program was to pro- vide, in the viewz of the planners, sufficient employment opportunities for the additional supply of manpower, it was much less certain that the initial backlog of inemnloovment would really be reduced. On the whole the expoecta- tions of the Third Plan with respect to the secondary objectives were rather _nqt.ioiis! "AsA the primary ohveetive is to innrease total nroduetion. it can- not be claimed that the Third Plan will necessarily bring about appreciable r,hAncrPq in inonTn Hi.c+.rihiit.inn nr T,ill rntp. m-2;mimm Pmn ov-me-rnt. onnorturi- ties." In fact, progress in the desired direction has been slou. Bnploymnent 11. Between 1956 and 1966 2/, employment of persons in the labor force (i.e. between 15 and 64 years of age) increased at an average rate oI .6c pe3' cent. 2/ AS the labor force grew by 2.2 percent, unemployment somewhat increased. 3/ Unemployment is concentrated in the cities where the creation of new job opportunities did not keep pace wi'h urbanization which took p2ace at a 5 percent annual rate. The unemployed mainly consist of unskilled workers. Apart from some surpluses in the service sector, especially in public admin4stration and a few government enterprises, underemployment mainly exists in agriculture. Agriculture still remains the predominant employment sector with close to half of the total, a'lthough it contributed only 24 percent to domestic output in 1966. There is no large scale pro;ram devised specifically for the resorption of unemployed workers. The main labor absorptive industries in Iran, i.e. textiles and food processing, pro- vide less than 10 percent of total employment. 12. The labor market is not organizecd and scanty information on wages and salaries is available. Wages in agriculture and for unskilled workers in general are still in the neighborhood of' 60 to 70 rials (i.e. less than $1) per day, except for temporary .obs in construction where they go up to 110 rials. They have only slightly increased in the recent years and lag behind the advances in average labor productivity and per capita income. The salaries of technical and managerial personnel have considerably gone up and stand at levels comparable to European standards. Workers in the private sec-tor do not yet enjoy any health, employment or retirement bp,npA7its . Inconme ni qtribhiiti on 13. Per capita GNP was equivalent to $2R7 i n 1 6(7. 0ver the last ten years, the average rate of increase of per capita income has probably been about 4 percent annually. ruring the Third Plan period, it was about 5> per cent in reaL terms. This income grovwth has been accompanied by an expanSion of the middle cl alss cin the cities ancni n t-nnqr-1A1i±+.ion crf inonmT in the a ulrnoer classes of Iranian society. The increase in income has been quite different in ,,ral nnd urbann areas. L/ -i±"UimL-U..LVJ1 nll WV t LhLe lbon- forc&nd v..ploJ.y.en is -availaL- ble only -n the basis of the last two demographic censuses. 2/ Employnent of persons between 10 and 14 years of age increased by 8 per- cent a-nd accounted Ju n966 f`Uor more than L.L percent ofJ tJotal employmeOt (mostly in the carpet industry). 3/ In Novemiber 1966, 9.5 percent of the active population was apparently unm- employed according to the Iranian definition of the active population which includes some children but excludes most women. - 6 - 14. RLural consumption per capita increased between 1959 and 1S66 at. an annual rate of about 2 nercent in real terms 1/. Tn 1959 ner nanita couisumption in rural areas was less than heilf of that in the cities. It also greiw more slowlv and was es-timated at less than 1,000- rials in 1Q6(- it the lower level of income, the increase in per capita income in rural areas was probahli qimi1]r t+n th.t. i n pr capita consu-mnj tiion. Since IQ 9'z the discrepancy between urban and rural incomes has thus probably widene-.. B. Tenetret >.n,... _ Capital Expenditure 15. ThIe Third Plan assumed that the growth in output cf 6 percent per arlnumcou.U aW ~1.LZVe'.LUU IL.- LJdU.VUg JVUOUI1[MLUI ±It U U11i Ud~1 u once proper emphasis was put on projects tjith relatively short gestation pe-VriUo. ±1I faCt, toUt al ±i x capi-tal formation over the 1962-19Y6 per-icU was considerably higher than projected by the Plan and rose at an ennual growth rate of 17 percent in real terms. FJhereas actual public investment was close to the Plan target, fixed capital formation in the private sect,or considerably exceeded the expectations. Table 2 Gross Fixed Capital Formation (in billions of current rials) 1962 1967 Total 1962-1967 period Piblic 14 53 173 Private 30 54 249 a/ Total 44 107 422-/ a/ The total in constant prices would be M 8 billion rials (Bank Markazi). 1/ This growth in rural consumption seems a maximum when compared with the 2.7 percent annual increase in the real value added by the primary sector and a 1.2 percent annual growth in the rural population. -7- 16. Li~t44+le 4rfnmation is available on the pri;vate sector except for irdustry and construction, which accounted for 60 percent of total private inve-+esr,. Pri;vate i;nv-+es.nt Jin industr 1as 14 billion ri a-1s f4or 4th,e -4 ~V JIL 4 Lv I V- -U - ,Ve ~JIL ±I LI .L i J. L us' ry ~± was L4u U±±..1±L%JA ±OL. ±L J± t 1962-1967 period thus exceeding the Plan target of 30 billion rials. No .iinvest" how14A iuAever UUAJu3 'p.LacL n ally Uof hII J a JV±VtUU pi eiUU0U1Iris for- seen in the Plan, namely wallboard, paper and viscose manufacturing. On the other hand, several imHportant enterprises, not 1mlentioned n1 the Plan, came into being, including truck and bus assembly plants, rubber tire planlts aid a rolling mill. This indicates tne difficuity Of planning for the private sector. 17. The public development program underwent several changes during the Plan period. The first draft of the Third Plan, prepared in 1961, was a comprehensive Plan including sectorial chapters. Financial difficulties, which the Third Plan document had anticipated, called for an immediate re- duction of the projected investment. The development program for the public sector eventually became the only part of the Third Plan presented to the Parliament in September 1962. This Law regulated the distribution of oil revenues between the ordinary and iivestment budgets and put a ceiling to the growth in current expenditures. The revised version of the public development program reduced the original allocation of 190 billion rials (of which 158 billion for fixed investment) to 145 billion rials. It also entailed son:e changes in the con.position with less emphasis on industry and more on agriculture, power and oil. An unexpected rise in oil revenues led to major revisions in 196)4 and 1966 which, however, did not change signifi- cantly the shares of the various sectors. 18. Generally speaking, one of the most important problems of the pa;,t has been the control by the Plan Organization over the implementation of the public investment program. The Plan Organization is the executive agency of the High Planning Council. In addition to its planning role, it allocates funds to the! various ministries and other public agencies. Scrutiny of the use of these funds by the Plan Organization has not, so far, been sufficient to prevent waste and distortion, which have been aggravated by the existence of various ministries and agencies operating in the same area (as in the case of agriculture or education). -8- _ e OComnpyarison of-L Tlhird Plar.- Allob^-4o,an cta 4-itr ~ j.~/IL 'J. .L LL.LI L ±L I Xi _L .L 'J O uLVJLID cIIIU. Z1.L UU±LL £5J.qJU11U.LL UL-U in the Public Sector (percentages) Allocations Plan Tnird Third Third Document Plan Law Plan Plan Actual-- (D96i) (1962) (l96h) (1966) 1962--1967 Agriculture and Irrigation 19 22 22 23 Industry and Mines 18 12 11 10 8 Electricity and Fuel 13 18 14 18 16 Transportation and Communication 22 21 25 25 27 General and Social Administration 28 25 28 25 26 Total 100 100 100 100 100 Equivalent Total in billions of rials (190) (145) (200) (216) (205) a/ Including 35 billion rials of recurrent clevelopment expenditure. b/ Including second half of 1962 only according to the Third Plan. 19. Public capital expenditure over the Third Plan period was 170 billion rials, somewlhat higher than the original allocation of the Third Plan. Capital exDenditure in 1967 was 53 billion rials as against 15 billion rials in 1963. The higher investment level at the end of the period is explained in part by the pressure to realize the Plan targets or,ce the difficulties in getting the various projects started were overcome. 20. The planners were very well aware of the difficulties to achieve an investment, nrogram based on prolects with short gestation neriods and they put them very clearly in arguing against the faster rate of capital fThrmation which some neonle had nressed for. "Essentially due to basic shortages such as skilled manpower and proper institutions, additional finnds n.an hp snAnt. more readily on 1 lari nnstr,iit.i an sche.mes such as damns. roads, and housing projects, than on imp0rtant agricultural development schemes, on enducation health or on feeder road programs. The eypected rate of return from an expanded plan of this nature is not likely to be high." I 21. Capital expenditures have actual:ly been very high in irnra- structure, .1s indicated by the fact that three-quarters of the fi.xed capital formation in the public sector wen-t for construction. Dams and other irrigation schemes, which account for 60 percent of total investment in agriculture, and main roads have absorbed a very substantial amount of public expenditure allocations. Large investments also took place in government buildings and staff housing which, as stated in official Iraniar. documents, dio nrot seem to have been justified. 22. A large proportion of expenditurea in agriculture, outside irriga- tion, uas for the land reform. Part was used to buy land to be resold on credit to landless cultivators. An equally large share went for short-term credit to the latter to finance current consumption. As a result, relativel,'. little was spent for those production support proarams aimed at i;creasing the productivity of the agricultural sector. 23. In the transport sector, which s:hows the highest financial ach:ieve- ment- clelav:> in the prenaration of nrniojc.t.; and inadequatp engineering preparaticn have had a serious impact on the physical realizations, parti- cularly in the case of roads where, even though disbursements have exceeded the Plan al:locations, actual construction represented less than 60 percent of the Plan targets. Notwithstanding these shortfalls, transport capaci-y was on the whole adequate with the exception of feeder roads where the P'Lan failed to c03ne up wlith the desirable exFan i on. 1. 4.As to i±-1-s-J, there was a subst.tial shotfl in te program for which only 17 sf the 22 billion rials allocated by the Plan in its latest .1966 revisi on 1/ wiere sp . "re than hlf of the shortfall is attributable to delays in construction of major public sector enterpr:ises. Oni±y D.,) b1.i:llon riaVls- Uof Utz PhLelUieuU -14 b:iJllon rials invesmn I -4in steel and petrochemicals was actually invested. The construction of a number of importanlt projectjs was largely delayed until the Fo-urth Plan. Finally, or,e should stress the very low investment, even in financial terms, in educ.a- uionl andLK Ihea' lihl which thi-±e ±11-ird Plan hiiu considee a verIy LU1ptj'J com= plementary facilities for the longer term development of the economy. The Financing of Government Expenditure 25. The absolute level of public savings and their role in financing public investment (about 6) percent of the actual expenditure in the Plan period) was not on the whole substantially different from what the Third Plan had envisaged. Total public savings during the Third Plan period were 111 billion rials, compared with the 98 billion rials projected by the Plan. However, the Third Flan document had stated that the projected savings-investment gap of the public sector could not be covered entirely Thy 1/ The original allocation of the Third Plan was 31 billion rials. - 10 - prospective borrowing and that therefore "an increase in taxation and sub- stantial economies in non-development expenditure" would be necessary in order to finance the projected level of investment. 26. This additional savings effort did not materialize. While govern- ment revenue increased at more than 15 percent per annum, as against the projected 8 percent, the growth in current expenditure was almost 12 percemit instead of the 7.5 percent considered in the Plan. At the same time, canita2. expenditure more than tripled between 1963 and 1967, and debt repayment also increased, particularlv towards the end of the npriod as a resiult, of snhst, tial repayments for defense loans. Table L Central Government Savings, Investment And Overall Deficit as Percen-+ ofP rMTp I1963 O). - OA6 if6 -1966 -1 O7 . .4.4 .v - ' Investmaent a/ 4.O 5.4 8.o 7.4 9.5 O vrerall DefiL 1J. 3.1 L.8.1 e.4J. a/ Including debt repayment. 27. There was a very rapid increase in the overall deficit between 1963 and 1965. In 1966, concern over price stability called for a reduction in the deficit. This was achieved through increases in revenues and con- taiznent of investment expenditure, owing to the higher priority given by the Government to certain current expenditure. This latter consideration together with only a modest increase in non-oil revenues was responsible for the drop of savings in 1967. In that year investment expenditure rose by 4O percent and the overall deficit more than doubled with respect to 1966. 28. Increased reliance on both dormestic and foreign borrowing was necessary to finance the rising level of puLblic expenditure. In particula,c the role of foreign borrowing has become very significant and in 1967 it financed about one-third of the deficit. Whereas no disruptive effects originated from the financing of past deficits, it is doubtful, as we shall see when discussing the financing of the Fourth Plan, that any substantial increase in the deficit is possible without serious repercussions on the economy. - 11 - 29. The questions raised by the growith in current expenditure relate not only to its overall rate, but also to the changes in its composition. Expenditure for general services, defense and securitv has been the fastest growing item, followed at a good distance by social and economic outlays. This contrasts with the case of many deve:Loning countries where excessive increases in current expenditure are often attributable to the great expan- sion in the government. social and economic services. As already rpmrarkod in the laslt Ballk report on Iran 2 , it is difficult not to find the expansion in genernI services excessiue. Att-ePnt.ion rmiq.f- in pn-rticlar, 'h HvrqTJwn to the increasing role of defense expenditure even though army recruits are staffing v.arious Health, Education and DevelopmTen.t Corps. rTotalz Tn .l for defense purposes, including current expenditure and construction cur- rent-rl-ir acorrollrt forw abouoll C r%n-"-nn+ n,f rMTT Table 5 Central Government Currenl Expenditure- (in billions of rials) Budget Annual Estimate G.rowth Ravte 1962 1967 1968 1962-1967 General Services 4.6 9.1 10.0 14.7 Defense and Security 15.9 :31.7 38.7 14.8 Social and Economic Services 19.2 32.0 34.6 10.8 Others 4.3 3.7 7.2 Total 43.9 -76.5 90.5 11.8 a/ These include the current expenditure of the ordinary budget and the so-called recurrent development expenditure, i.e. those expenditures originated by the investment program of the Government, mostly in the field of agriculture, education and health. In the initial years of the Plan the latter type of current expenditure was financed directly by the budget of the Plan Organization.. Subsequently, they were financed through ad hoc transfers of oil revenues by the Plan Organization to the ordinary budget. 1/ IBRD, Current Economic Position and Prospects of Iran, AS-123a, dated MIarch 24, 1967. - 12 - 30. The very rapid increase in government revenues between 1962 and 1967 was essentially due to the fact that oil revenues grew at 18 percent per annum, as against the Plan law projection of 7 percent. At the same time non-oil. revenue, which now accounts for half of total revenue, in- creased at 1.2 percent showing an elasticity of 1., with respect to GNP. The proceeds of income and property taxes were growing the fastest thanks to more efficient administration and collection of arrears. No classi- fication of the proceeds by income groups is available and the redistribu- tion effect of this taxation is questionable. At any rate, direct taxes still accounted for less than 10 nercent of total government revenue in 1967. 31. Custcms duties have been so far the main source of non-oil revenue. Acording tn the Thir(d Plan diocimpn+. t.heir rnate of grnwl^t.h should haver bhen below 5 percent in view of the expected foreign exchange restrictions and the increasinr importance of imports of capital and intermediate gri ood In fact, they grew at about 17 percent reflecting mostly the sharp rise n imports whjch was madse possible by the unexpec+vedly high leelofol revenues. I'he most important indirect taxes levied domestically are taxes on sugar,, tea, tobacco and kerosene whi chll altogethV6SAer account for aboUt 10 percent of total revenue. So far only two types of production taxes, on cars ar 4 ±V J-±1~±UUUVIbII LI .LOU, 4-k- iQLtS~ casa. rec;ords, h'ave lbeen i^ntroduced 0on the grV,1 d V thatC V the co+r is~ --A-J- engaged in building a domestic industry which should not be burdened with fiscal charges. Table 6 Central Government Current Revenue (in billions of rials) Budget Annual Estimate Growth Rate 1962 1967 1968 1962-19(7 Oil Revenue 23.7 S,4.0 66.1 17.9 Direct Taxes 4.7 10.6 11.7 17.6 Indirect Taxes 12.7 29.6 35.6 18.4 Revenue from Goverrnent Agencies 7.2 9.3 9.3 5.3 Others 4.6 4.1 4.o Total 52.9 107.6 126.6 15.3 - 13 - 32. The pressure to increase the role of traditional taxes which still account for less than 10 nercent of CXP has behpn reduiced bh thei nllocation of a substantial share of oil revenues to current expenditure. The Third PI an I ati r-ontai npe a di snos-i ton T,7h1e-reT + sh a e-i of o-i IvrevnTe I 1l or'+c2ted to the ordinary budget, which mostly consists of current expenditure, was to bh redurcednrl from )!6 to 20O preoyn+ Vir +1k cnn r%f- +hn Plan nr * 'lnholl' +hn letter of the law was respected 1/, the proportion of oil revenue allocated to curren-t A^Tr.ditur wwnt dowr. toii IJJ pecn only duri the Ta prio Tabl1e '7 a/ All"ocati- on of Oil Reenes ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .~ ±-L .L~ lRvnus (,±I1 biLLions of rials Budget Es,timate 196`3 1964 196 19660 19`7 1968 Total Oil Revenue 27.7 36.4 39.5 47.4 54.u 66.1 of which: for current expenditure 16.4 23.1 19.0 16.7 22.9 30.0 As % of current expenditure (33.0) (42.0) (32.0) (25.0) (30.0) (33.0) of which: for investment 11.3 13.3 20.5 30.7 31.1 36.1 As % of investment (77.0) (60.0) (67.0) (61.0) (58.0) (46.o; a/ For the institutional distribution of oil revenues between the ordinary budget and the Plan Organization, see Table 16 in Annex I. 33. In the early period of the Plan oil revenues were running higher than public investment, largely because of limitations on the spending capacity of the Government. In more recent years, however, oil revenues were close to the amount of public investment. P/ Furthermore, even in those years in which the amount of oil revenues exceeded investment expendi- ture, the allocation of oil revenues to current expenditure was substantia_ y larger than such surplus,thus compelling the Government to increase its bor-- rowing for the financing of the investment program. 1/ See Annex I, Table 16. 2/ In 1966 oil revenues were still higher than investment expenditure but this was due to the stabilization program of the Government which did not allow investment expenditure to rise in view of the failure to curb curre,nt exnenditure. - 14 - J* v4.LJ.L t LS eU.'~ ri. .. 1'2 E:).A-, 4 ,-rsI ,,nrs; c,e ar or, n, on 4 nn .4- 0n V,l a1 Qr YmOfi lJtYr IrS aQn+ nr 24* ~~* Uv j J ,.LU FULjO jJJ J.Jh CAL L±uw. LJC.4JA .1.; SJLC V .. iILL fi s L CCAJL'CA'v,,,,U.J& including power, railways, banking, petroleum and steel. Most of their prol. U.- ,'J± .L -.L1 L -.L11 .LLL eVJ gUV moLilie L(te U\ , U sugar. , tobacco), / and the National Iranian Oil Company, were transferred to the central governmTent . AtU 'Uhe 0-W-me tiMIe 4,he LZoVt:rrHmenL r,1 ad II subsania -ca.pitlv- contributions to enterprises in the power, steel, gas and petrochemical sectors. ia 'J.68, more thxi.1 _50 percuptu ou goverriuriu uncap.LUtl± tp i±&tU ui was to be transferred to these enterprises for the expansion or starting (as in the case of the steel mill) of tneir investment programs. 35. The main problems with tne public enterprises whicn operate in the modern sectors (such as petrochemical, mechanical industry, etc.) iE: one of adecLuate managerial and organizational setup. For a number of enterprises engaged in the production of final consumers goods, which have often been taken over by the Government as a result of salvage operatiorns, it is a question of struggling against obsolete machinery, weak market position, etc. However, since no accounts are available it is impossible to appraise the actual financial performance of the enterprises. Nor is it possible to appraise the relationship between the operations of the public enterprises and those of the central government. 1/ Budget estimnates are available since 1965 and they are presented together with the central government budget. More detailed discuss:ion, based on the budget estimates is given ina Annex II. C. The Monetary Stability Price Stability 36. Price stability has been one of the most important targets of the Iraniajn Government because of its impact on the balance of payments and the real income of a large portion of the population. Furthermore, price increases call for adjustments in unit wages which would have been difficult for the productive system to absorb in view of the relative inef- ficiency of a number of industries. In fact, prices remained relatively stable, with the wholesale and cost of living indexes increasing respec- tivelv by 6 and 8 percent between 1962 and 1967. The stability has been particularly remarkable over the last three years of the period in which the wholesale price index was virtuallv unchanged and the cost of living index increased by only 2 percent. 1/ Actual data on the Special Accounts of the Treasury are also unavailable. These fiundc arp fi;nnrori hv wqrmarked revenles-. esneniallv the proceeds of various fines and penalties, shares of municipalities revenues and several contributions by indivriduals and enterprises 0nly some of these funds have recently been integrated into the ordinary budget. - 15 - 37. A first explanation of the behavior in prices is of a statistical nature, namely that the two indexes are by now ten years old and do not adequately reflect the intervening changes in GDP and the consumer basket. There was also a series of very good crops starting in 1965, following a period of adverse weather conditions which culminated in 1964 with foodL prices increasing by more than 7 percent over 1963. In addition, one should mention the existence of unutilized productive capacity in the country in the early period of the Plan. Finally pressures of domestic: demand were met by substantial increases in imports financed in part by drawing down exchange reserves. Credit Po:Licies 38. Institutional credit plays a relatively limited role in satisfying the requirements of the economy, because of the traditional reliance on the non-organized money market. Its role, however, has been rapidly increasing over the Last five years. Bank domestic credit exnanded at an average rate of 19 percent. The expansion in domestic credit has been made pessible in nart by a very sharp innGreae in tim-e denoits 1/ whic-h rose from 7 to 11 percent of GNP between 1962 and 1967. Since 19A declines in net foreign assets accompanied credit expansion. Money supply remained fai_rly stab at about 13 percent of GNP throughout the Plan period. 39. Credit to the private sector increased by 18 percent, with a mod- er-ate slo0wdown in .19/65 and 1067, when 4the publi sector relieheailyr on the banking system. Net drawing on the banking system by the central goverw.- mment increased at ar average rate of 30 percet between 1962 and 1967, but during this period government agencies showed a continuous accumulation of thei ne deposits. / Tf,ereas 'ur-ig the mh-rdPlnteroeayauh- Ul,ieLr ne~t UtJ" ' ±L * . U t/ V dL UU Ii4i, t1AI ±ILILLLL £±.± L*.LIIWM 1J1i11W1L. LUIL ities have been able to assure a constant credit expansien to the private sector, while at LWe same time satisfying the credlt requiren1ients of t public sector, there are now indications that any substantial increase in the public sector cla-im may lead 'o a squeeze on the private sector if price stability is to be maintained and adequate foreign exchange reserves are tf be ass-ured. 4o. Expansion of credit during the Third Plan was not accompanied uy the development of institutions to channel private savings. The absence o` a capital market may retard the expansion of the private sector or at least the satisfactory allocation of private financial resources. Private enter- prises have, up to now, mainly relied on money lenders establisned in the 1/ Excluding importers' deposits initiated in 1964. 2/ The deposit of an oil bonus amounting to 13.9 billion rials on account of government agencies explains the absolute decline in net credit. to the public sector for 1964. - 16 - Bazaar, where interest rates are very high, often above 20 percent. Large ccmpanies are still largely run on a family basis, and the public is re:Luc- tant to bu;y more companiesl capital shares. A stock exchange was recently established but only few stocks are being traded by the Industrial and Mining Develonment Bank of Iran. The proposed reform of the Trade Code. which requires compliance with standard accounting rules, would certaiiLy incrAase thA confidenrce of the nulbli. in investinD their savings throug]l the organized capital market. At present, increasing speculation in land ancd urhba on1-n.-,tritinn is Muvertingf a btantial Amqmaiint. 'f nrivate savings from more productive uses. Balance of Payments 41. The foreign exchange position followed the vicissitudes of the curent a^ccount-+ t+he +^.9- OC n Arnv.+ f-,^r%M l96). i.I1Hn nn rvil Q~~~~U._A 9SU _ El~ QU VfI sW L JICOV - "k ' - ' _/a - _J --- -- -- bonus boosted government receipts from abroad, net capital movements were never enough t4o reverse 4th.A e results W oVf currer.t trar.sactior,so. Official .o'JqnQ did not play a major role in the balance of payments until 1967. There was little foVeign private investmVent other tan by- t;he oil compniesY For-eign exchange reserves which went up until 1965 deteriorated afterwards so that nfficial reserves at thne end of 1y67 Weru equvailent to aoutu tUh-ee montJ.h imports as compared to about five months at the end of 1962. Table 8 Factors Affecting the Foreign Exchange Position (in billions of rials) 1962 1963 1964 1965 1966 1967 Trade Surplus 35.0 41.0 29.7 32.5 35,6 39.1 Net EXports of Services - 4.1 - 5.8 - 6.7 -11.2 -11.1 .-12.3 Net Investment Income -27.6 -31.5 -28.1 -31.6 -36.2 -43.5 Capital Movements - 1.3 - 1.3 12.5 5.8 10.1 15.7 Change in Reserves a/ - 2.0 - 2.4 - 7.4 4.5 1.6 1.0 a/ Including errors and omissions. 42. The trade surplus, which in 1962 exceeded the profit remittances of the oil companies, now falls short of them. Meanwhile, net imports of services (including purchases of armaments) have trebled. Consequently, the current account of the balance of payments moved frqm a surplus of 3.3 billion rials in 1962 to a negative position in 1964 and a substantial deficit of 16.7 billion rials ($222 million) in 1967. - 17 - Table 9 Oil Revenue and External Current Account ($ million) 1962 1963 1964 1965 1966 1967 Current Receipts 570 619 715 818 941 1139 Oil Sector a/ T3 T7i -57 705 711 Others 133 148 1h6 210 230 291 Current Payments 526 570 783 955 1097 1363. Balance on Current Account 44 49 -68 -137 -156 _222 a/ Irants -ore ^.exchange receipts~ f'rom t.he flri rat!eC oi Al1?V compa11i 1cun Z- ranged between 50 percent and 55 percent of the accounting value of petro- leimn ship.m.ents as shown in the bnanncec of paments. The difference is due to the operations of oil companies; profit remittances and imports cf gocc-; and services on one hand, local expenditures on the other hnd. 43. Export earnings, however, have exceeded by about $1,200 million .the pj.e ;tkU LoUns JIjJ±±U±L, ±1 U-mp licite TLLhru PCLU . V0.L VdJtsIUO JJIUncLrae LJy 1.-L. percent annually, as compared to an anticipated rate of 6.5 percent. Even the ot>her exports considerably- exceeded the Plan target rate of 3 perce.nt. The composition of total exports did not change much during the period.. The substLi-ntial share of petroleutr remained virtuaily unchanged at more than 80 plercent of total exports. Woolen carpets still account for 27 per- cent of non-oil exports and cotton shipments 21 percent. Leather products and mineril ores sales abroad have doubled sirnce the early 1960's but they represent only i0 percent of non-oil exports. Very few export items receive a subsidy. On the whole, Iranian exports have been competitive in interna- tional markets of western Europe and the United States. The share of expor'E; to Eastern countries has remained about 23 percent. 44. The boom in merchandise imports was associated with the invest- ment activity of the country. Purchases of industrial and mining equip- ment abroad which accounted for 9 percent of total imports in 1962 repre- sented 16 percent of the 1967 total. Agricultural equipment imports did not follow such a trend and amounted to 2.4 billion rials at the end of the Third Plan. In total, imports of capital goods increased by more than 20 percent annually over the period while consumer goods imports grew by lecs than 6 percent. The relatively slow growth of consumer goods imports re- flects the good agricultural crops of the last two years, and the substitu- tion effect of domestic production. - 18 - rWAPTP.R TTIT THE FOURTH PLAN TARGETS A. Overall V .L W 415. Planning in Iran has been handicapped by the scarcity of reliable S+tst-cs.Basic data on agr4cultual andir.dustri 41 ---oduction -r 1-ct- ing. Most government institutions make up their own statistics; several] st's ofL na1~l;onalJ -accounts are 4husl issuue ever.Ly yecz:-. vit:;-,e dr-ctu-ngr ithe Fourth Plan, the Plan Organization borrowed parts of the accounts prepared Uy 14th CsenLtra.L Barus. culdI t uJiYiLutry of rconuirQvl separauely. SinLce uLei these accounts have been revised and the statistical foundation of the Plan is ISi longer auequate. 1ne Baink iqzidsion has modlfied tne oJJXLic.LaJ series prepared by the Central Bank with the main purpose of eliminating. statisticaL discrepancies. Strong reservaitions can still be expressed about the accuracy of production and investment figures as finally shown. 46. Probably because of the difficulty in appraising the present state of the economy quantitatively and thus in spelling out the nature of future government activities in physical and economic terms, the Fourth Plan appears on several occasions as a collection of financial allocationS. These allocations are mainly budgetary appropriations of the Plan Organization to the various miniStries. Scanty information is available as regards the public sector as a whole, including other govern- ment institutions and public enterprises. Private investment, finance or production often are residuals, once overall targets were set. 47. The precision of the quantitative targets of the Plan or the revisions miade here could thus be misleading. To a certain degree also, the uncertainty about future oil revenue can inhibit planning efforts. This uncertainty should not be exaggeratecd, nonetheless, when appraising the economic prospects of Iran. With a total investment target of $10.6 billion the Iranian authorities estimate that the need for gross borrowing will be $2.2 billion. They assume that oil revenue will be $6.5 billion, an amount which implies an 18.4 percent rate of increase between 1967 and 1972. The Mission projects oil revenues at a more conservative rate of 11.5 percent, or a shortfall of about one billion dollars from the Plan targets; at the same time, projected expernditure for investment is also approximately one billion dollars lower than the Plan projection. Never- theless, the external gap is one billio:n dollars higher. the implicatior being that internal savings are likely to fall far short of the Plan's expectation. - 19 - 48. The general objectives of the Fourth Plan are commendable: an acceleration of economic growth, a more equitable distribution of income, a reduction in the dependence upon imports and a diversification of exports. A fifth objective, the improvement of administrative services is to be attained by the introduction of basic reforms, the extension of modern management techniques and the strengthening of the defense power of the country. No more explanation is given in the Plan about the steps to be taken in those matters. 49. Growth was the major achievement of the economy in recent years. It was the primary goal of the Third Plan together with monetary stability. The Fourth Plan projects that GNP will grow at an annual rate of 9.4 per- cent in the 1968-1972 period. This is to be attained thanks to large investments in industry and agriculture and also increases in productivity. Such a target appears to the M4ission to be somewhat too ambitious. Though a relatively high rate of growth is likely to be achieved, the Mission's projections lead to more moderate estimates. 50. A better income distribution is the second objective of the Fourth Plan as it wJas that of the Third Plan The pnrovision of more empnloment is claimed to be the major source of improvement. About one million new jobs are to he created duzring the 1968-1972 neriod._ This seems a dlfficuilt tar- get to reach, the more since it implies that 200,000 new jobs will be avail- able in the agricultural sector. Even if' this target s reached, +he apparent unemployment will still be close to 10 percent of the active population in 1972. NoT traxnsfer of income through labor intensive public works in rural areas or more progressive taxation is envisaged. On the crontvrarr th-n Plan .++Q +. st-te; Soil andA wwelfW^oQ SeQ-Vri;,8QS T141 1 h.e-mVilyt '. l U..-. J * UCS . L Ut U . V 0V V-V . . 1 OW± V . t WV V. ' V rely on the self-help principle and that one-third of rural development proWvects *wLJ L bJf-Jey CAL sIaving. T oLILV,Jeive Vo c i.L the discrepancy between rural and urban incomes and of improving the lot of th±AVe poorest cLasses in uilhe cities is a difclt onUU LIJIiZ, dl[U Wit V VLLI Fourth FLai does not seem to contain precise indicatiors on how it is to be attained. 51. On the other hand, government protection of domestic production CL,C~LIIQ L ~.U wptiiy . U.L V%- _LLUpjJ7L. uo 1CL Ut::tII1 t±~u _L tL ±.ve d.lIu ullfz U1IL.LIU UVJ'~Lu ±Vt5 %I.L the Fourth Plan is likely to be reached in several sectors. The Plan aims at reducing the dependerlce on bailc cunsur1er goods impOrtS first, and then on raw materials, capital goods and services. The Plan does not make clear, ho-we-ver, to wnat exXent this would be attained tnrough tne continuation of import protections and government assistance or an improvement in producti;.'L_ and competitiveness. The economic and financial implications oI such p'±i . differ considerably. 52. Finally, the diversification of export products is to be achieved through a gradual reduction of dependence on export of oil and agricultaral raw materials. This will mainly result from the implementation of Third P1u projects in gas, aluminum, and petrochemicals. Some delays are likely to occur in these undertakings, but the objective will ultimately be reachled. t3. .'Te F-'ourt-h P1Ia accent-at es t[he recent tediency of Il-e public .11 LIJ' .SL. IL. L. L4 u LL 1 1~ III A~ u u ULL J U11 V JUU±L sector to take the lead in the total investment of the country. Besides investment -.l. LL u L; U UU r Wd socu La.L.J s er-rices, uthe GoUvernim inu tendus to carry out a number of industrial and agricultural ventures whose size requires financial meaLs beyond pri-vate capacity or whose imnportance involves national interest. Apart from these ventures, no major depar- uure is noticeable from the Tnird Plan document which attached the same importance to industrial investment. Actulal shortfalls reflected delayis in the progress of large scale projects which should be completed in the next few years. In agriculture also, the completion of dams and the development of vast irrigation schemes will follow the lines sketched by the Third Plan. Table 10 a/ Capital Expenditure of Plan Organization- Percentage billions of rials Distribution bJ Third Four th 1968 , Plan Plan c/ Budget 1968-72- Actual Projection 1963 1967- Estimate Average Agriculture 22 22 5.1 8.9 12.5 18.14 Industry 10 22 o.6 6.6 16.7 18.6 Petroleum and Power 19 15 0.8 15.6 20.0 12;5 Transportation and COerunication 30 24 5.5 11L.4 16.6 19.14 Construction 7 6 0.9 3.1 4.2 l1.8 Others 12 11 1.7 L4.8 6.9 9}.1 'Total 100 100 114.6 53.1 76.9 82.8 a/ For purposes of comparability with data available on the Third Plan, thio includes onlv Plan Organization'ts fixecd investment and canital transfers to the private sector. The table therefore differs from text Tables 11 and 15 Thich show fixed invest+ment on]iy bv both the Plan Organizatior and public enterprises. b/ First yea_r of the Fourth Plan= Those budgetary allocations will nronhahlv not be utilized in totality. e- Last year of the Third Plan. t/ Average of Fourth Plan estimates. No annual phasing of expenditure is given -r t-e Plan doImen1. - 21 - C;)[ Thin. Fouirth Plan a arnq59 fine capif-al forTnation at. Sin billion rials, which is twice as much as the amount realized during the prepvinous Plann. The in-%s+.mont rte howeveor, lnc-reasedo siiqt.ntinllv in the last years of the Third Plan. After allowing for the particular role of the oil inrdustry irn.vestm.ents accounted for 19 percent of GNP in 1967. The Fourth Plan estimates that 25 percent of GNP will be invested in 1972. This program therefore mplies tha+ the absorptive capacity of Iran will continue to increase rapidly. A summary presentation of the investment and productior. possibilrities o-.f4- -4e m .an,econor m iade n the following paragraphs. Table 11 Composition of Fourth Plan Fixed Investmenta/ (in percent) Public SectorY' Private Sector Total Agriculture 17 11 14 Inuustry 2u 33 Petroleum 9 1 12 Power 0 - 6 Transportation 25 7 17 Construction 5 11 Others 14 17 15 Total 100 1CO 100 a/ For absolute amounts, see text Table 15. b/ Includes public enterprises and excludes capital transfers to private sect.cr. B. Prospects in the Main Sectors Agriculturet/ 55. Future government strategy in the agricultural sector is not wholly clear. The land reform, which was carried out according to the original intention in recent years, created many small landholders. The Fourth Plan now puts an emphasis on large scale farming. In addition to the cooperatives established in connection with the land reform, the government intends to set up joint stock farming cooperatives averaging one thousand hectares. During the Plan period an experiment is expected to be carried out by about one hundred companies resulting from the merger of small holdings. Finally, "agro-Businesses" in the form of 1/ See Volume II, Agric.lture. - 22 - ..LV" L M V14UL_1LV0 W.L.LIU VVOLULI J± LA.U_LL;U±± p ±.U;JA.P1.±VL1 art: 'Uj4UPP t(U .UV play a major role in developing and farming newly irrigated areas. On the oUtIher had[lU, tlhle goversnm-rtent seemDs tuo concEantratu,e more un liiuteu prujuctsj than on the development of the rural sector as a whole. There are re- gional pro,jecVs such as Ghazvin, many of whicn were begun in prior years. There are also crop production processes in which package of seed, machinery and suDsidized fertilizer and credit are supplied to farmers. Two programs for rice and oil seeds production were thus recently ini- tiated in specific areas; they have some promise of success. Otner programs for wheat, cotton, sugar beets and fodder have yet to be put into operation. 56. The diversity of goals and means will not be harmful to future agricultural growth if the Government is able to support all these pro- grams satisfactorily and set priorities among them. Too many public institutions, including several ministries, deal with agricultural mat- ters, each one pursuing different policies with insufficient coordination. Very limited extension services are provided to the farmers despite the assistance of the Army Development Corps. Research is generally not adequately oriented and carried out. Institutional credit extended to farmers has mainly been absorbed by land purchase to carry out the land reform and for non-productive purposes. Some improvement in marketing and price policies, which do not at present offer adequate incentive to farmers, can be expected in the near future if the changes now under con- sideration are given sufficient support by the Government. 57. On balance, most Fourth Plan targets appear to be overstated in view of the limitations in government capacity and other institutional con- straints. Probable physical achievements in investment for irrigation will be considerablv less than the Plan nrolections. but canital expenditure should be close to the Plan estimates owing to cost revisions. The main shortfalls in the PxYnPnr1i tre out, of the planned illonations should oseur in the agricultural sector proper, especially for livestock and the pro- tection of natural resources. Total develonment exnenditures in the next five years can be expected to amount to about 100 billion rials, or roughly one-fifth below the Fourth Plan taret. I/ 58_ It is also uinlikely that agricul+ural output in Iran will increasr ( as rapidly as the Fourth Plan anticipates. Still the existence of a dyna- mism .and a willingnecss +to dotn+ imn.prc.A t methods of nrodnut-ion nmornn mn-nv Iranian farmers suggests that there is scope for reasonable growth during the next fivhe . T use of feill playr an Jport.nt. ro1l in this respect. The Fertilizer Distribution Company, which was recently established by the flfl-r-.-.----rt, will therefore be hard=pressed by the pr-iat demand which is expected to almost double in the Plan period. The avail- -141:1 -4: -4U- 4 -. r _:_ |a:mA A i A -4-C A _: -4 - -1- l M so1 me.l;-r CIsl | L-L,y U. VUL=1 L.1.UIJQ--.111P VVV" DUCUO, .[JOt,. LUU Wuo sU at- C&6 A.UL oL U LCA-L szo ery--will probably not be a major impediment. In addition to these act:ions 1/ See Volume II, Table 17, page 4h. - 23 - on yi1eJ.l ±--.iproumenV%fWt;11, the e&pcI.a1n.LUIi of thLe iXrrgat.eu area sLnUUU drLirg aLbout increases iLn the output of fodder and most cash crops, particularly oil seeds and sugar beets. There is much room ior, but little likelihood of, a major expansion in livestock feeding based upon fodder crop production, agricul- tural by-products or feed concentrates. The Plan targets for the production of meat and milk will probably not be reached. For the agricultural sector as a whole, annual output growth should not exceed 3.5 percent annually in the next five years. On the basis of detailed projections, the Bank antici- pates that the value added by agriculture will increase by about 2.6 percent per year in the 1967-1972 period, as compared to the very ambitious Plan target of i.h percent. 58a. C'ontinued agricultural growth depends to a great extent on changes to raise the efficiency of the institutional framework and to improve exist- ing methods of cultivation, including the use of water. The coordination of government policies as regards research, extension and credit will be essen- tial. There will also have to be a marked improvement in the overall emnploy- ment climate, policies which affect careers in agriculture and the capacity of institutions to provide agricultural edlucation and training. In non- irrigated areas, extensive investigation should be followed by active pro- grams to obtain changes in the current system of fallowing, better integrated dry farming with fodder cultivation, improved techniques of soil management and crops and varieties most suitable for dry land farming. Future livestock development will depend largely upon the establishment of fattening opera- tions, better integration of animal husbandry with crop farming, rehabilita- tion of pastures, control of animal disease. and improvement of local breeds. With respect to irrigation, ground water development deserves highest priority in the immediate future. In the lonaer run. there is pressing need for a countrywid.e study of both surface and ground water resources and the formu- lation nf nuhlic. policy to encourage their economi eplroitat.inn Trnnian ind istrv still C-nnqipqst mainly of t.he. qmr .qr-Sn1le nrndutwGtion of consume!r goods for the domestic market. Steps were taken, however, during the Third Plan, towr-ds the constitution of a new pattern of prod1u+cirti Large-scale investments have begun in capital goods industries, especially in the nest few years, mainly in petrochemicals. Investment and producticti during the Fourth Pan. period will be do,dinated by these c0..meLnts They will also depend upon future policies with respect to the protection of' A,.dst +r ' Q1 enterpr-1 0iC-,s. 60.~ LI Tel_U,ita-1on of corr.pet"ton wras one of th Ja n nt-, sO 'JV ± L~ !LfLL id U.LO. p.A UL LI±ULI W je V L uj. ldl JJ 44Z LJJ ULI1J0 L.'UJt:U V-.L the industrialization policies. The Government tried to assure what it cal±s a 1reasioic-bie uegree uO cuir0petitlu±l. prLpurk cunrlrui. anu a 1Lc(UL-J..Ug zi itUv of new investments were the means to achieve this policy. Quantitative meas- 1/ See Volume II, Table 16, page 43. - 24 - ures prhbttemoto .>bro pcfcgos*hose dretcspl is considered sufficient to meet local demand. This supplements the import taY:xation w.hich is! areoady substontial. Beccsidescustomc!rsdutie, mnost imponrts are subject to ad valorem commercial taxes whose rates usually range fron 25 to 80 percen.+ A system of registration fees and advance deposits also increases the cost of imports. Domestic competition is also controlled by the requirement of an authorization for investm4ent. - has been effectively enforced in the most modern branches of manufacturing. Protection ofL industries andu of uncom,petiu.iv producto, a-ULCt. homeA- -Ls tusIA assured. 61. It is difficult to assess the effect on the efficiency of Iran's industry and the cost of ind-ustrialization for domestiLc consumers. Compe- tition varies from industry to industry. On the whole, ex-factory prices substantially exceed the CostS of competing foreign goods as a result of high profit margins but above all of high production costs. Available equipment is used with lowi intensity since idie time is nign owing to in- adequate lay-outs and production schedules. Poor quality control results in a high percentage of rejects and in disruption of the productive processes. The size of the domestic marlcet limits production, like car manufacturing, to an uneconomically small scale. Iranian producers prefer to purchase inter- mediate goods from foreign sources or to manufacture their own because of poor quality and the uncertain delivery schedule of domestic goods. As a consequence, there is a high degree of vertical integration and needless duplication and underutilization of specialized facilities. 62. Nlining is still in its infancy, with small mines scattered tnrough- out the country. Extraction of the Bafk iron ore, at an initial rate of orie million tons per year, and of the Kerman coal deposits will begin during the Fourth Plan to provide raw materials and fuel for the Esfahan steel mill. Negotiations for the exploitation of what may be considerable copper deposits are in progress, but actual production is unlikely to start before 1973. Because of the mounting interest in those deposits, investment for copper will probably surpass the Plan's provisions. 63. The Fourth Plan foresees a total industrial investment of 210 billion rials for 1968-1972, that is about three times as much as realized in the previous five years. In contrast to the Third Plan, the allocation for industry in the public sector will probably be utilized because short- falls on new projects are likely to be balanced by overruns on on-going investments. However, private investment will probably fall short of the target. Production goals, calling for an annual increase of 13 percent in value added by manufacturing also appear somewhat excessive, if one takes into account that some projects may not materialize, that the start-up cf new investmrents has been delayed and that final completion of others will probably spill over into the Fourth Plan period. Considerable contribution to industrial output is expected to be made by the steel mill and petro- chemic-al p_rrjec+s in the early seventiJes. Production g-ro-wt1h 1is twhCrefore likely to slowu donm somewhat in the next couple of years and pick up again br1070. F-or the1 Foth-1 Plan -erio as a whle,- -alue added by1- lrtat Z./ ( t * ULi ILIZ- .4 ~L" U4 ViJ 4. JL 1 PJCI -L%Jk.A 1) WILJC, VCI±I4.C ~MUUCI.4. ildLii .UV ing should increase at a rate of about 11 percent annually. Table 12 Industry - Plan Targets and Mission Forecasts, 1968-1972 Investment Value Added (billions of current rials) Average Annual Private Public Total Growrth Rate (percent) Plan 120 90 210 13.1 llission 96 91 187 11.0 64. MiIedium-term prospects for the growth of Iranian industry may be favorable but it should not be forgotten that existing enterprises, and probably foreseeable investments also, rely heavily on government support. This support - indirectly financed by oil revenues - is provided in the form of import protection, low taxation and relatively easy credit facilities. Present policies assume that increases in productivity will progressively take place and result in better competitive positions on international markets, bui, employment and regional development objectives have weighed heavily in decisions regarding existing and planned investments. Petroleum 65. As far as we can see at present, two elements will affect the situation of the petroleum industry in the next five years. The dominance that the Consortium has exercised over crude oil production and exports of Iran will be somewhat reduced by the expansion in the operations of the other oil companies. This will dirinish to some extent the uncertainty regarding future oil revenues of the Iranian Government. The second element will be the construction of a pipeline for export to the USSR and domestic consumption of the gas which is still unuti:Lized. 66. It is the policy of the Consortium members to adjust the net crudc oil production in Iran as "would reasonably reflect the trend of supply and demand for MtLddle East crude oil"; the current forecast for the Middle East as a whole is a 7 percent annual rate of increase. The Fourth Plan is based on a 15.9 percent increase in revenues from the Consortium. In 1968 Iran succeeded in obtaining a 21 percent revenue increase which will be higher than the corresponding output. Given markelt conditions, it would be rather optimistic to assume that the growth rate in government revenue from the Consortium will exceed 7 percent from 1968 on. i.e. 9.6 percent over the Fourth Plan period as a whole. On this basis, total oil revenue from the Consortium would then fall short by about M - 000 mil i on from the Plan tar- gets for the 1968-1972 period. - 26 - 67. Non-Consortium oil production is less subject to market constraints because of the smaller amounts which are irnvolved and the greater diversifi- cation of its markets. It is generally expected that a maximum of 182 mi.l- 'lion barrels will be reached in 1970. The prevailing market prices for oil are expectecd to decline, possibly by as much as one-fourth over the Plan period. Taking this decline into account, together with the agreements already signed by NIOC with the Eastern coumtries, it is possible that the Plan target of $600 million will be reached. 68. This more conservative view would imply that total oil revenue would increase at 11.5 percent per annum between 1967 and 1972, compared with 18.4 percent projected by the Plan ancl oil exports would increase at 8.6 percent per annum from 1968 to 1972, as compared to a Plan projection of 16.4 percent. This downward revision of the order of $1 billion for the Plan period would mean a reduction of one-f'ourth in exports of goods and services for 1972 and a reduction of about 1 percent in the annual growth. rate in GNP during the Plan period. Table 13 Projections of Government Oil Revenues, 1968-1972 ($ million) 1967 Actual 1968 1969 1970 1971 1972 Consortium Plan 863 1o0oo 1,161 1,350 1,559 Mission 715 863 923 988 1,057 1,131 Other Oil Companies Plan 19 69 101 106 112 Mission 26 32 69 101 106 112 NIOC Exports Plan 22 29 37 44 5 Mission - 7 29 37 44 52 Total Plnn 904 1,103 1,299 1ifl1 1-723 Mission 741 902 1,022 1,126 1,208 1,295 - 27 - 69. It is difficult to say to what extent the utilization of Iran1s gas reserves, according to the present Plian, will be a profitable opera- tion. The construction of 750 miles of pipeline from the Iranian oil fielus to the uSSR border witn brancn iines to Esfanan and Tehran has already begun. The first phase of the project to be completed in 1970 would reportedly cost 33.8 billion rials ($450 million), excluding engi- neering costs. It will be financed in part by a USSR loan of $75 million and credits from European contractors. By 1970, sales to USSR should amnount to about 3.0 billion rials. The completion of the second phase in 1973 is expected to increase exports to 4.7 billion rials. By that time, the total cost of the project is reckoned at 50 billion rials. Prices of future domestic sales are currently under study; the tariff will probably be designed to yield a joint maximum profit for gas and petroleum products. Transportation 70. There have been great changes in Irants transport facilities, particularly highways, during the past ten years. A decade ago there were few all-weather highway connections between major population centers; these were either served by the railway or remained virtually isolated. Now almost every major town in the country is linked by major roads; many are also served by railways and scheduled airlines. Port capacity more than doubled in the last five years with a heavy concentration in the Khorramshahr-Bandar Shahpur complex in the Persian Gulf. 71. Emportant changes are taking place both in volume and in direction of traffic. The decentralization of industries is increasing the deman(d for transport away frcm the traditional Trans.-Iranian axis from the Persian Gulf to Tehran. The exnented growth in agriu:Itural nroduction should result in. a reduction of imports and an increase in the general internal exchange between surplus and deficit regions. The increasing trade with the USSR has added to the importance of the transportation network in the northern nart of the rouintrv- The prospects for eadj z,inrnG and copper mininFp are likely to require a further expansion of both land transport and port fnni 1 i t.;i . c n +.Ti c t.cr ,an 72. Tith these develor-- ents- the Go.verment I. c+Ait1ve requ:ire- ments have become considerably more complex. But under the present organi- za+-ion,rsosbltfo nvew.+ prgm ng nd plic deisos transport matters is diffused among various agencies, without effective coordinatio mu--- ----.anae.nt- o- anl eacl;or Ieaves someth-ing to be desired. Improvement is expected to take place, however, in the planning of future roa(s and t1he organization.Jw. o Lf L the .L pots - 28 - 73. The Fourth Plan provides 80 billion rials for public investment in transportation, or about 20 percent of the total pufblic investment pro- gram for the next five years. Because of possible delays in project pre- paration and construction, physical achievements will fall short of Plan targets. On the other hand the Plan document often underestimates invest- ment costs. On the basis of present costs and likely physical achievements, total public investment in transportation will probably be of a magnituie similar to that projected by the Plan. However, if improvements in manage- ment and productivity were realized, especially for the ports and the rail- way, a number of projects could be delayed without creating any serious bottleneck. C. Summary Evaluation 74. The Fourth Plants targets for production are probably too ambL- tious. The growth rate in the value added by the three sectors of agricul- ture, industry and petroleum altogether is not likely to exceed about 7.3 percent as compared to the Plan rate of 11.3 percent. Other sectors should grow by approximately 7.8 percent annually. 1/ Total GDP at current factor costs is therefore projected to increase at an average annual rate of 7..5 percent. B3ecause of their faster growth, petroleum and industry will assume a relative]y greater share of GDP in 1972 than at the beginning of the Fourti; Plan. The contribution of agriculture to GDP will drep from 22 percent in 1967 to 17 nercent in 1972. 1 / 7T. h ve4- Fo 1t Plnt projecioa.+n of thea wvn1 ue ade byAa k.r nc,-.al 4re. -1 ... '- - 1 e , L'J - -_ . "- --- ----- - J. i. . L industry, construction and water, power and gas implies an 8.5 percer.t- an-.ual growthb r-ate whereas 4..- othe --- --- ^-- cor.trib4u- tion to GDP would increase by 7.5 percent (excluding petroleum). ±L1 'ie ~ 1pi.LI- PIUJ J±% Q U.LVIL ±LL Lt, .VVL _V _ U. 4 jJ. '.i1IJU OLIIU U. 7 percent wjhich probably reflects more accurately the relationship Ue,,-ween physical outiU± putu onUH twhe pruouuuion of sU-ervices. - 29 - I '- ' Ie ' Table 11, Pro; ections of GDP Annual Rate of Growthl billions of rials 1967-1972 period 1967 1972 (percent) a/ Actual Mission Mission Plan- Agriculture 109.4 124.4 2.6 4.4 Mining .8 1.6 14.9 14.9 Manufacturing 59.3 99.9 11.0 13.0 Construction 24.7 38.8 9.4 9.9 Water and Power 9.3 20.2 16.8 16.8 Transport and Communication 32.4 48.8 8.5 W4holesale and Retail Trade 38.9 52.9 6.3 Private Services 35.2 46.8 5.9 Dwellings 27.3 36.2 5.8 Government Services 441.7 61.2 8.0 Petroleum 121.5 186.9 9.0 15.3 Total GDP at 1959 factor cost 500.5 717.7 7.5 10._ Total GDP at current factor cost 566.1 812.7 a/ No explicit output target is given by the Plan for several sectors. 75. Investment projects in the Fourth Plan are, of course, at dif- ferent stages of preparation or construction. The core of the investment program, however, consists of a few large nrojects in irrigation, metal- lurgy,petrochemicals and gas, which are under way. These projects reqjuire investments in power, water supply, transportation, building and housing. Most of the public sector portion of future investment is thus determined by projects whose construction has already started. As the conmitments were made before the Fourth Plan was prepared, it can be considered more as a program of work than a new look at resource allocation. 76. As a li9t of nroinctsj the Fouirth Plqn is howe-ve-r qom'-T.hat onnt- dated. Final completion may be somewhat delayed and capital costs may be greater than neYpected. Phrsical acIievements laggd hbhi nrid in 1 67 so that the carry-over from the Third Plan is much bigger than anticipated Tw.ihen the Plan was prepared. Roughly, the first year of the Four+h PI a will therefore be devoted to implementing investments that the Plan docu- ment ass d,.,s comrpleted. On +1h o+her h^v.d more a t irfoma+ionv¶ is available now than it was two years ago. Economic statistics and cost data are often diffrernt from what is s1h,own in. the Plan. - 30 - 77. The investment program in the pUblic sector is therefore basedi more on the ability to spend capital funds than on an appraisal of new investment possibilities. The Government has recently boosted its invest- ment pace. From 19 billion rials in 1964, public investment rose to 53 billion rials in 1967. It is likely to reach 114 billion rials by 1972. The sectoral composition of future capita:L outlays of public authorities should not substantially differ from the Plants estimates, although the projects may differ somewhat. As already seen, it is mainly in agricul*- ture that the capacity to spend may appear more limited than expected by the Iranian Government. However, expectations of physical achievements, to the extent that they can be compared to Plan targets, are lower. 78. As the Third Plan experience indicates, projections of private investment are more tenuous. The project pipeline is much smaller than is the case for the public program and a four-year period is a short time for the completion of projects not yet considered. Fixed capital formation in the next five years might be some 20 percent smaller than projected by the Plan document. Shortfalls are likely in all sectors, except in housing where future physical construction should be higher than the current rate projected by the Plan. In addition to its 443 billion rials program, the Fourth Plan expects that the public sector will contribute 35 billion rials to private investment in the form of long-term credits mainly for industry, housing and agriculture. If the Government relies on the private sector for providing education, health and social welfare services, supplementary capital contributions from the public sector may be necessary. 79. Total fixed capital formation should amount to about 740 billion rials in the next five years; compared with the Plan target of 810 billion rials; the annual rate of increase in investment would be 10.2 percent instead nf t1he Planis rate of 1l.7 percento Desnite some shortfalls expected in production, the ratio of investment to GDP would be around 20 percent in 1972, a more conservative figure than that of the Plan but one which still requires major efforts. The incremental capital output ratio, including one yer l_g would be 3.0, as against the 2.5 ratio implied in the Plants projections. Table 15 Projections of Fixed Investment, 1968-1972 (in billions of current rials) Public Sector Private Sector Total Plan nank Plan Bar'- Plan Bank '76.0 67 411 29 117. 1 - Industry 86.7 91 120.3 96 207.0 187 reuto±e-aur 42.3 5u 5 0 364.3 8l Power 46.3 46 _ - 46.3 46 Transportcation 112.5 117 I.0 15 137.5 12 Construction 21.1 25 67.9 75 89.0 100 Others 58.1 50 60.7 41 118. 9 Total 123. 0 7Y.7 .; : '.J . u I - 31 - 80. The manpower aspects of future economic development are rightly stressed in the Fourth Plan. Nevertheless, the Plan is probably too opti- mistic with regard to the possibilities to satisfy the needs. Even if the program for expanding the existing educational facilities is implemented, it is likely that the insufficiency of skilled manpower and management will be felt in industry, administration and education. It is difficult to appreciate! quantitatively future shortages and the Plan projections of supply and demand are of little guidance. The Government has gone to some lengths tc attract the many trained Iranian technicians living abroad. Nevertheless, a certain deterioration in the quality and some slowdown in productivity growth will probably occur in the next five years. In the longer run, much depends on the Governmernt's readiness to undertake drastic reforms in the education system. 81. There is an urgent need for bet-ter coordination of policies and control of program implementation. The existing institutions engaged in economic management also are too numerous and too diffuse. The Fourth Plan docurment takes stock of the need for improvement in most sectors. Assuming that such charnes take place. il. envisages a substantial expan-a sion in development expenditure. The Plan does not provide, however, ior sufficie.nt steprs to hb taken to imnrovn dPer-ision-makina 2nd imnli mpntal;ion controls. Considerable progress in these matters is within reach in Iran. Should thi-s not occur, inves.-ent costs will be higher and physical achieve- ments lower. After a review of the various economic sectors, the Mission considers that the situation with respec+ to the Plnin inves+r.eirt target-s has alreaidy deteriorated along these lines. If this continues, difficul- ties in the executive cam.city ill only magnify the probable financiaL problem. - 32 - CAEPTER TJ FIUAICTIAL P7.OS PECTS 82= Finance was not the rmain -nn.tra-int during the imnlementation of the Third P'lan as a whole. With the increase in the absorptive capacity of the country in the last years of the Plajn it 'became; hnwever. a grea,;er matter of concern. The Fourth Plan targets, even after some dowznward revi- sion, are ambiAtilous. The financial requirement s are such that Iran cannot meet them through its own savings effort. In this effort, the public sector has to cor.tribulte =Uch; the manritud o£ +-n reniii-PaA Preian will depend, to a large extent, on future government policies. A. National Sav-ings 83. Whereas national savings exceeded investment in the first two years of the Plan, they Penancedonl I8O57 p_cn i - - - --- e- however, took place in the last year of the Third Plan, when 27 percent of 4the inr l in oupu - was4 sa- d -- u ther- efforts- 4along tl1 Jine w-Jill be needed if Iran wants to implement its investment program. 6L. Total exports of goods and services are likely to increase much more modest'Ly than as projected by the Four-h Plan. It is proUably true that petroleum exports will increase in 1968 at a rate similar, if not superior, to the 17 .1 percent rate projected for the 1967-1972 period. Lt is nevertheless quite doubtful that such a growth will be maintained there-- after. F or the Plan period as a whole, O1L exports are more likely to grow at about a 'LO percent rate. 1/ NIon-oil exports should also go up more slowly than expected by the Iranian authorities. Hiinerai ore saies may double while exports of carpets would increase bY 35 percent and leather products by one- fourth. A very slow growth should be expected for the other export items. The shipment of these traditional products altogether should increase at a rate of abolt 3.3 percent, as compared to the rlan projectea rate of 4. percent. Considerable shortfalls are like:Ly to occur in the Plai projectiorn for future exports resulting from current investments in petrochericals and aluminum. Some delays in the entry into production of the plants at the end of the period will probably cut projected exports of petrochemicals in 1972 by some 60 percent and aluminum products by 75 percent. Though it is possible that difficulties in the pipeline construction will affect gas exports, available information confirms the Plan projection in this matter. With an increase in the receipts for services, allowing for some development in tourism activities, total exports should r:ise by about 10 percent annual:Ly, as compared to the Plan projection of an annual rate of increase of 15.6 percent. 'L/ Oil revenue accruing to the Government wJould increase by 11.5 percent annually as compared to the Plan target of 18.4 percent in the 1967-1972 period. - 33 - 85. As regards imports, the Plan is more conservative. A 10.4 percent annual rate of increase seems more likely than the Plan rate of 13.2 percent in the 1967-1972 period. This is chiefly due to the slower growth in GDP which is exnected to result in more moderate increases in consumer goods and raw material imports. Under imports of ser-vices, the Iranian balance of pay- ments includes purchases for defense nurposes. On the assumption that those imports would remain at their current level of about 7 billion rials, total imports of non-factor services will increase by about 7 nercent between 1967 and 1972. Table 16 Projections of the External Current Account Annual rate of change billions_of_rlals (perrcent) 1967 1972 1967-1972 1962- 1967 Actual i-f; ai on 1li cs; in Pl an Ac+talnl Vcports of Pierchandise 129.6 212 10,L 18.6 11.0 Petroleum (116.0) (186) ( 9.9) (17-1) (11.) r.-t -Ia . goods ( 13.6) ( 1 ( 3.) ( L4-5 '.C) New exports - ( 10) - - v Forts of -; Services 9.6 II CA c.o IA6. VJ 'SA. ~~C~~L V..,~SQ / *-J J._J _;. %J .'; .5.'. TPotal Exports o., G-oods 139. 22 01 1565 and Services Imports of Merchandisea/ 90$5 153 11.0 12.5 16.6 / n f -%I N I ., Q% 1 0 17N s, , Consumer goods J 20c )2) ( I.U) ( L.) ( 5. "-5) Raw materials ( 42 ) ( 74) (12.0) (1h40) (22.0) Capital goods ( 28. 1.0).uj .0) Imports of Services 21.9 32 7.1 15.0 2h_0 Total Imports of Goods 112.4 18h 10.4 13.2 17.3 and Ser-vics Net Exports of Goods 26. 8 4L o.7 21.0 -2.9 and Services Factor Income Payments 43.5 -80 12.8 n.a._ / Total on Current Account -16.7 -39 a/ Foreign trade data are given in Iran according to the Geneva classification. No economic breakdow%n by type of merchandise is satisfactory. b/ The Fourth Plan does not include interest payments on foreign debt in -the current account of the balance of payments. - 34 - 86. Because of substantial profit remittances from the oil companies, the resource surplus will be accompanied by a financial gap on external account. Factor income payments amounted to 43.5 billion rials in 1968 bringing the deficit of the nation on current account to 16.7 billion riials. Besides profit remittances of the oil companies this included the payment of interest on external public debt for an amount of 1.8 billion rials. The Fourth Plan document does not include future interest pavments in the current account of the balance of payments and thus projects a cumulative deficit of 66 billion rials for the Plan period. On the same grounds the deficit in- plied by the Mission's projections would be 138 billion rials. If one adlds future interest payments on the existing debt and the debt to be contracted to finance this gap, the deficit on the balance of pavments would more than double within the Plan period. 87. National savings would only amount to 17.0 percent of GNP in 1972, comnared with 16=1 nercent. in 1967. The imnlied marginal savings ratio is 19.3 which is similar to that of the Third Plan period. The projected rapid inrereas in far-- incnme payments ePwlains in nprt. the modest imTprovempent in national savings in the course of the Fourth Plan. 1/ This would allow an nn.nual increase in per capita cons-um.ption of 3.4 percent wheres +the Plan projected a 4.1 percent rate. If private consumption is not to be further reduced, sLhe rrlwvmnt+ .:4111 kninn +r Mnl great effo+rt cntrol it current expenditure. 1/ The ratio of domestic savings to GDP will increase fran 22.1 percent in i9607 to 24.6 percent in 1972. This implies a marginadi savinrgs ratio of 30 percent, probably more realistic than the ratio of 46 percent pro- jected in the Fourth Plan. Tabl&e 17 rot-ection . 0f. i o,aUL1tJ £ diDu± Annual Rate of Change U±lXlions ofL curreriu rial s 17I -.'97 I2 1967 1972 (percent) Actual Mission Mission rlan GDP at factor costs 566.1 813 7.5 10.0 Indirect Taxes 39.7 61 9.0 9.0 GDP at market prices 605.8 874 7.6 9.9 Net factor income receipts -43.5 80 12.8 n.a. GNP at market prices 562.3 794 7.1 (9.4)a/ Deficit on Current Account 16.7 39 18.3 n.a. National Expenditure 579.0 833 7.5 8.8 Gross Investment 107.1 174 10.2 13.7 Consumption 471.9 659 6.9 7.5 Public 71.9 116 10.0 10.0 Private 400.0 543 6.4 6.7 Savings Domestic Savings 133.9 215 9.9 15.5 National Savings 90.4 135 8.0 n.a. Saqvi n a.- 'R nt, OS n4 ;nn Rqtnt. wq Domestic7(percent of GDP) 22.1 24.6 30.1 45.6 National (percent of GNP) 16.1 17;0 19.3 n.a a/ The Fourth PLa 1I LLUJLIJJ L11U;.LtZsIL, j 1UL1UOn forei debt £ principl debt repayment shown in the capital account of the balance of payments. ThIe (±WJ !s pVUJect±ions n1 rI±ational teLJnar-ed~L1~~.VL therfor L,JJstILdUteU - 36 - B. Public Savings 88. The contribution to national savings by the public sector may fall from 35 percent in 1967 to 22 percent in i972 if present policies are continued. If one assumes a erowth rate for oil revenues of 9.5 percent after 1968 (as opposed to the 17.5 percent envisaged by the Plan) public savings will be about half the Plan target. This forecast is based on two other assumptions as well. First, since the Plan target for the increase in GNP is unlikely to be achieved. a growth rate in non-oil revenues of 8 ner- cent per annum is reasonable after allowing for some built-in elasticity in the tax system. Secondly, the budget fSr 1968 implies a growth rate nf 1iR percent in current expenditure compared with the average 10 percent projected by the Plqn? An incre2se in d ex-pnj+ih,vnrih of 2pre is l n-rg1v responsible for this. If no restrictive measures are taken by the Government, there is no reason to suppose that current expenditure will increase after 1968 by less than 12 percent annually, the rate attained during the Third Plan. On these assmpt+ ions about -60) percenta olf oil reve.ue wo ',id be alloated to current expenditure for the 1968-1972 period, compared with 48 percent The lNeed fLor Policy Chq1jnges 0J7 * UISU .LL Y.L d.;Ltc~C%±- U_1ULe±ULV1- 'v£ ..Lq' UV~ I-L otL ' j.JUU.L.ALU D1V±JLlr" at least to '0 percent of the projected pub:Lic investment. First, it is necessary to curb the growth in currevnt expenditure starting in 1969. it should be within the power of the Government to limit future annual increases to u percenlt,, thus achieving the 10 percenrt aanual growth envisaged by urlth Plan for the 1967-1972 period. 1/ This expansion, after allowing for quacl- rupling in interest payments between 1968 and 1972, wouid permit a growth in social and economic expenditure of 8 percent if both general services and defense expenditure are kept within a rate of 4 percent. ., An attempt to improve the process of public expenditure is now being made through a regionalization of the budget whereby the peripheral units, starting ELt the village level, will report on their requirements to the next level and up to the ministry which, together with the elan Organiza-- tion, will decide on the allocations. Education has been chosen as a pilot sector and the region of Kermanshah as first territorial unit. Guidelines have been provided for the purpose of reporting whereby the needs are to be expressed in terms of teachers and number of classrooms. Lack of experienced personnel and the tendency by reporting units to overestimate their requirements are the main difficulties which this experiment is facing. - 37 - Projectionq of A1bLiC Sa1rZnT,4;,~~~ our4- 197 PeriOd Plan B b/ Current Revenue 849 759 805 of wh1ich: Oil- Rever.ue (487() ( 415) I 41_)I Current Expenditure 510 c/ 574 530 Savings 339 d/ 185 275 Amortization of Foreign Debt 58 58 58 Investment Expenditure 380 388 3n8 Transfers to the Private Sector 35 27 27 Capital Expenditure h73 473 473 Savings as Percent of Capital Outlays 72 39 58 a/ Assuming continuation of present poLicies. b/ Assuning change in policies with respect to current expenditure and non-oil revenue. / Adjusted for actual expenditure in 1L967, the base year for the Plan's projections. d/ The Plan does not provide for a breakdown of interest and amortiza- tion payments on account of the external public debt. The total allocated by the Plan for payments by the central government's budget is 87 billion rials, an amount similar to the 11fiss-jQnIs projec- tions. In order to arrive at a concept of public savings which is absent in the Fourth Plan document, the mission has assumed that the breakdown of debt service, as projected by the Plan, is similar to that of the Mission. 90. Second, this effort has to be accompanied by a revision of the tax structure. For illustrative purposes, it is assumed that this revision would consist of a 15 percent increase in tax proceeds for 1969, in addition to the 8 percent expansion due to the growth in GNP. - 30 - A 15 percent increase in direct taxes is not beyond reach if the Government accompanies a moderate increase in the effective rates with a strong action against tax evasion which is at present rather high among self-employed and business firms. ' But similar increases in customs duties and the few excise taxes on large consumption goods (tobacco, fuel, tea, etc.) will either aggravate the existing degree of protectionism or burden the lowest income groups. These changes in rates should be supplemented by the aciop- tion of sa:Les taxes on a large number of ciomestic products, with selected rates for 'luxury goods. Greater reliance on direct taxes and general sales taxes would also provide a more modern tax structure, better suited to the present development stage of the country. 91. 'Tae recommended increase in revenues, including oil receipts, would bring the overall tax burden to 23 percent of the projected GNP for 1972. This compares with a tax burden of 19 in 1967 which is rather low among deve:Loping countries with comparable per capita income and degree of openness. Future increases should be obtained without serious disincen- tive effec-t on the economy. Under these projections the allocation of oil revenue wviould also be more development oriented since only 35 percent of their amount will be necessary to finance current expenditure. This target, implying some improvement over the Third Plan performance, should be coIn- sidered, however, as a minimum effort on the part of the Government. 1Monetary Pressures 92. Domestic borrowing cannot be considered a feasible alternative to tax innreasps- Tn viAw of the various investment onnortunities for private funds, it is unlikely that much cam be expected from sales of 1 oncT.P-.0rrn covrnmont. bhnds t tn theh nrmhl i - The nnocsihii1 iesP q for fi nan- cing the government cash deficit through the banking system are also l/ A laW passed in March 1967 has transformed the income tax into a global progrsslve+<. or. ai ll pe-.rsonal innco.m.e Twhile in+.?,r0iirina q=vero-r1 n-Hinr innovations aiming at a more efficient administration of the tax as well aso a more euit2ble dist+-rbibu+tr. of the burden. There was vno fall in revenue in 1967 despite the necessary adjustments in the administrat:ive m-chinery. Nevertheless, the implementation of the new law is encoun- tering {some difficulties. For instance a numJber of self-employed tax- payers are requ-ired ILI keep reor oftei~r inco..e W-Ad ez er.di+vure. Ps. accounting is not a current practice in Iran, not even for industrial d.LU UV±IIIr,:UU.Lct.l enteLrtU±Js.L±, teLIU l.±± IlUIN kJne VL.O"LLLe W.J..L irplJ.y La tax burden, the individual taxpayer is evidently reluctant to accept it. k(or a dea ed discuss-ion ofL th;Uie n.ew - Law-1, SeeU DRD, Cu rreint EoUVnLomi, Position and Prospects, op. cit.) - 39 - limited. Total domestic credit is unlikely to inc:rease by more than 10 percent per annum between 1967 and 1972, even assuming that time and savings deposits will expand at a rate of 15 percenit, comparable with the trend in recent years. The public sector will therefore have to limit its recourse to the banking system if it does not want to squeeze the expansion of credit to the private sector. 93. Some pressures are already buil(ling un in the first venr of the Plan. Tentative projections for 1968 by the Central Bank indicate credit to the private sector increasing at 14 nercent (or 20 billi2n rials) as against 18 percent in 1967. If the envisaged level of public expenditure is to be carried out. net claims on the public sector will expand by 17 billion rials /, which is higher than the amount of 10 billion rials proijcted bv the Central Bank. It is like-ly thatn+ some m.eas'j'es 4 11 be taken to limit the expansion of credit to the private sector. Otherwise, it. will be diffic-lit to satisfyr total c-e(44t requ4rem,en.ts withV.,out f1 ther drawdown on foreign reserves or an expansion in money supply substantia:Lly above the . greT.wth of MNTDP. ). The Fourth Plan was awarecf lthese possiJbe pressures arnd pro- jected a total ameount of government domestic borrcwing for the 1968-1972 per"od of about 60 billion rials. This seems a maxinrum expansion since it would not allow credit to the private sector to ircrease by more than 6 percet per anam. The Goverrment will therefore have to face the alter- native of limiting its reliance on the banking syE tem or of abandoning its price stability policy. 9D. Tne above projections which are in line with the Fourth Plan assumptions imply an increase in net foreign exchange reserves of 47.5 bil- lion rials throughout the period. If Iran wants t;o maintain reserves equi- valent to about three months' imports of goods and services in 1972, gross reserves should increase by about 20 billion rialE: over the 1967 level. C. Foreign Financing Requirements 96. It thus appears that the size of pcssible fixed capital formatien and the savings prospects are such that Iran will have to rely on foreign capital on an unprecedented scale. Future profit remittances, chiefly from the oil companies, are likely to exceed by about :L40 billion rials ($1,850 million) net exports of goods and services in the Fourth Plan period. Th:s is twice ELS much as projected by the Irarnian authorities. The need to pro- vide for an increase in net foreign exchange reserves and possible capital outflows is similarly estimated at about 47 billion rials ($630 million). The extent, to which the Government will have to borrow abroad will therefore depend on future private capital inflows and service on external public debt. 1/ After allewing for an increase in the deposits of government agencies 6f abeut 3 billion rials. - 40 - Private Investment 94. The Governmentls attitude vis-&.-vis foreign private capital is rather ambiguous. Its policies proceed on the one hand from the will to promote industrialization by all means, including tax incentives and pro- tection of the domestic market. Foreign capital brings not only funds but also managerial and technical talents which are greatly needed in Iran. This implies that foreign investors are attracted by comparatively high profits, security of investment and the possibility to transfer incomes abroad. But in this respect, the Government is reluctant to allow foreigners to benefit from policies which are mainly aimed at stimula- ting domestic investment. The procedure for obtaining "cc.i-nmencement permits" often discourages patential foreign investors. 98. Foreign private investment anart from the pet.roleum sector was limited in the Third Plan; it accounted for 5.5 billion rials out of a total caDital inflow of 88. billion rials (.$1i20 rillion). ives+t-me-nts mainly took place in light manufacturing industriEs. Expenditures cf the oil camDanies for research; development and construction were estimated at 18.0 billion rials in the same period while their capital remittances amounted to 7?4 billion rials. In addition to this net ineflowl, ITan received a bonus of 1-4.3 billion rials in 1964 anc 1965 for granting new oi1 ce-ncessi ons to non-Gonsortium compar.ies. 99. There is little basis for evaluating prospects for private capital inflows. It can be assumed with the Fourth Plan that investment of the oil companies will increase by 25 percert Eam inua'ly over the average of the last three years. Another component of future investment is deter- MrJned 'by t1he joint vent-ares inpetrochermi-icals and al-marrlnumW.-hich are to take place within the Plan period. Because of the rapid amortization aILowed to the foreign partners, it should be expected that a major part of the capital entering the country for those prolects at the beginning of the Plan period will be rem±ait aUbroad before 197-2. xher foreign investments are assumed to be somewhat offset by capital outflows. j Net private capital inflo-ws are likely to be in line idth the Fourth Plan projections. 1/ Plan projections provide for speculative capital. outflow at a rate cf 7 billion rials a year, similar to the amount of errors and omissions in 1966. - 41 - Future Debt Service 100. Debt servicing problems are not unknown in Iran. The heavy ieli- ance on medium-term credits in the late flifties was accompanied by a rapid risep in sfzrvin- n.vmtnts. The stahi1-zation progma m uindertaken in 1961 brought this increase to a halt. As export earnings continued to go up and official ald WaS obtained from the Unitel States nd TRRnTj the balanre of' payments improved in the first years of the Third Plan. More recently, 1Anc-±eI¶, 102n~ cai< has _gai beo.. insufficiDent to carry out the expenditure program and Iran has started borrowing from foreign suppliers or private barbs. ..n a large sc_e. .eas8phnto rigexhIe earnings wvere devoted to debt service in 1967, in 1968 the ratio will be above 11li percent-. 1/I .101. Tlhe ex'Uernal pJubice Ae.t o LfLL .L4i±cUU.L1iig UL.L1LA.L.LUU1Q V o.a1JLU1UIedA to $1,745 million as of March 22, 1968. About one-third is privately held d3et. Of:Fincn loans frnnTn ar,.;-,int UeU LI V±LLL.LJc±d± ±J_VcU1, HIfd±.ILII± ±UIII If UI1.LbUU at, DUU- US)LWL ±DUJ dJLI. to more than $1,000 million. Estimated future se-.vice payments on the total A, -so - . /a t _'_ S'_ 61 -- external debt are to increase from $38 million in 1968 tO a peak $P2c4 r,,l- lion in 1971. 102. In addition to the service of loans alraady obtained, Iran will have to assure payments for the debt to be contracted in the next five years. On the basis of present policies, the time requir3d to obtain official loans and recent cost increases of international capital, it is assumed tnat future capital w:Lll be obtained by Iran at an average interest rate of 7 perceXnt with terms to maturity of 17 years including a two-year grace period. Debt service on this account will rise from about $11 nillion in 1969 to $143 million at the end of the Plan period. 103. Debt service payments would therefore anount to 27 billion rials ($370 mil:Lion) in 1972 in this hypothesis. v Total exports of goods and services including only net receipts frorn petrole.nm are projected at 145 billion rials. On these grounds, the debt servic 3 ratio will increase from d percent in 1967 to 18.6 percent in 1972. The debt burden could therefore be a matter of concern; how much concern depends on the terms at which Iran will borrow. 1/ Based on estimates of public debt service as projected by IBRD. The corresponding ratio based on Iran:Lan projections would be 12.3 in 1968. 2/ Despite a smaller external gap, the Fourth Plan projects higher service payments. The Plan possibly assumed greater reliance on medium-term financing than implied in the iission s hypothesis of service terms on future borrowing. - L2 - Service on External Public Debt (billions of rials) 1968 1969 1970 1971 1972 Interest 2.4 414 5.9 7.9 10.1 ;osirTr -n,+ =4 / -t}.n =1 Q ) Debt to be contracted bJ - o.8 1.9 4.1 6.8 Amortization 7.9 10.3 13.5 14.8 16.9 ti8 _ z: l | / 7~~1 n ............0r s5- JJA:LL ± s,JJ%;U IJ . ( . 7 iU .) ±Lf C rl) .UWv Debt to be contracted b - - o.8 1.8 3.9 Total 10.3 14.7 19.4 22.7 27.0 f IBRD estimates of future service payments on the debt outstanding as of Yarch 22, 196d. b/ Based on the Mission's estimates of the financing of the projected external gap. Amount, Terms and Conditions of Future Borrowing 104. On the assumptions made by the Mission, Iran, in order to achieve its investment program, would have to obtain disbt.rsements on foreign loans amounting to 225 billion rials in the next five yEars. Tnis is 40 percent more than projected by the Fourth Plan. The loan pipeline was about 75 billion rials at the beginning of the Plan. On the most favorable assumption that all loans already contracted will be drawn down within the Plan period, Iran will still need 161 billion rials to be obta-ined on new borrowing terms. This means that Iran will have to contract debt o37 at least 300 billion riaLs ($1,000 mi.llion) after allowing for reasonable deLays in disbursement and making provision for a loan pipeline of about 90 billion rials at the e!nd of the Fourth Plan. Drawdowns on external capital would then amount to 56 billion ri.als in 1972, as compared to 19 billion :Ln 1967. 105. Most of existing assistance is on a project basis. The impli.ed aort-1 ration in foreign aid utilization Till denpend on continued imorovre- ment in executing capacity and more systematic project preparation, con- struction and supervision. - 43 - Table 20 Foreign Capital Requirements (billions of rials) 1967 1972 Total 1968-1972 TO -7a I 9 s,i on miion iP ;Tn rlndR nnd qRrvices, net 26 160 3)42.6 Profit Remittances, net - 41.7 - 7C - 298 - 4083.7 Privat+ Capitalj net 3 .9 10 5)4 52.L. Other Operations a/ - 3.4 - 6 - 27 ) 47- 5 Changce in Reserve / 1/ = L = Public Debt Service i - 5.8 _ 27 - 94 - 103.0 T,terst (= 1.8) (- 1) (- 31) n. Amortization (- 4.0) (- i) ( 63) n.a. External borrowing, gross 19.2 56 ( 225) (164.2) L ±oans already con -lacted ( 1.2 ( i(J) (2) n.a. Loans to be contracted - ( 46) ( 150) n.a. a/ including transfer and errors and omissions. b/ Assumes no change in foreign liabilities so that gross foreign exchange reserves will be equivalent to three months! i3nports in 1972. c/ See Table 19. 106. Iran should weigh the advantages it sees in attaining the invest- ment which may be physically possible during the Plan period against the effect on its future creditworthiness. The demand for future external assistance is in any case such as to suggest the need for a common under- standing between Iran and its foreign partners of its development problems and policies to encourage a program of lending on terms appropriate to the circumstances of the country. - 44 - CHAPTER V CONCLUSION 107. The obirntiven nf the FPnurth P a-n are amFit4i0u; perhaps even too ambitious. Economic grotwth will continue, though at a rate somewhat lower than in recent years, chiefly because exceptionnl conditions for agricultl1re and petroleum are unlikely to be repeated. The possible 7 percent annua:L ag-nTai-h rate ci+sll r. 1 k-b-IA - s,A +le t aper 4-t 4-m o:F around $350 by 1972. It will be much more difficult to attain a reduction in~~~~~~~- -h u.mpo.n rate %nd al J.Ur bacn AiC,e 4tbution, which are major aims of the Fourth Plan, as they were of the previous Plan also. lv8. The investment program formulated by the Fourth Plan will have 4 _4 - - - A -- _ _ -J. -- - _ 1- _- InL _ -_ - -_ _1 _ _ _n _ __L -LUo litaJIJ- UiL_iAU U J11 UUit: .L7.Vi 6 WIuIu IIlU;U wJ. Ulle _Livge QUJe l±IvetitiiluD± will come to fruition. Though there were umcertainties about their eco- nu1rI±c jusb1t-lfcation, comirutments were made. These major projects were started before the inception of the Plan; they largely determined the size and composition of the program. 109. In the next five years, the volune of investment in the public sector will fall short of the Plants targets despite recent increases in the absorptive capacity of the Iranian economy, but since cost increases will tend to offset delays in construction, the financial allocations are likely to be fully used. The major constraint on future investments wil:L be of a financial nature. Even if the rate of saving is substantially improved, Iran will have to rely heavily on foreign capital in order to invest as expected. 110. Starting from a comfortable credit position in 1967, Iran's foreign conmmitments will sharply increase within the Plan period. This growth in indebtedness should be given due consideration since the debt burden in 1972 will absorb more than 18 percent of its export earnings if Iran borrows externally to the extent required to finance the projected external gal?. The main impact of future borrowing, however, will be felt in the period after 1972. Iran's creditworthiness depends, at least in :part, on the prospects of the economy in the 1970's. They are uncertain, parti- cularly in respect to the growth of petroleum revenues on which Iran will continue to rely heavily for the financing of domestic expenditure and external payments, including debt service. On the other hand. the recently discovered copper mines may bring additional resources to the economy. 111. These prospects will be substantially enhanced if more attention is paid to the management of assets as well as their nreation. Heavy bor- rowing abroad will be justified mainly to -the extent that Iran succeeds in estahlishling an effiGient productive system decreasingly dpndnent on government support. In any development po:Licy there is a gamble. In Iran this gamhle is magnified by the high targets of the Grvernment+._ The wiil!l to build up an economy, however, should not bes compromised by laying its folnda- UXt[i n too h11aSst.il.y. Annex I STATTPTrAl T.;RLq2 1. External Public Debt Outstanding as of March 22, 1968 2. EOstim4ated 'Futunre S-r^e Pa .-..eW+ or n .l terr.' l neb+ Outstanding Including Undisbursed as of March 22, 1968 Population 3 ropulat0.L, IIIv IwJ J.7SU L. Employment Status of the Active Population Production 5. Production of Selected Agricultural Itri8s 6. Volume of Sales of Selected Industrial Proclucts 7. Petroleum Statistics National Accounts 7. Gross Domestic Product at factor cost by Sector 9. Gross National Product at current market prices 10. Expenditure on Gross Domestic Product ll. Nat.ional and Domestic Savings 12. Investment and Savings Ratios Public Finance 13. Summary of Central Government Operations 14. Central Government Current Expenditure 15. Central Government Current Revenue 16. Distribution of Oil Revenue Between Plan O:^ganization and Ordinary Budget 17. Public Sector Development Expenditure Money and Prices 18. Monetary Survey 19. Credit Expansion and Its CounterpaLrts 20. Net; Bank Claims on the Public Sector 21. Price Indexes Balance of' Payments 22. Value of Non-oil Exports 23. Va.lue of Imports 24. Direction of Trade 25. Disbursements on Foreign Loans 26. Balance of Payments 1/ aSee additional tables in Volume II. Tahle 1: IRAhl - PYXT17IJAT PllBIC DEBT OUTSTA-iTnDII V.S OF MARCdT 22- 196S /I Debt Repay.able in Forein Currmncy (In thousands of U.S. dollars) Debt Outstandirl,, Source March 22, 1968 Disbursed Including only undisbursed TOTAL EXTERN%IAL PUBLIC DEEBr 2 ,237 1h, 33 Privately held debt 176,140 587,3?±() Aiistri a 3,013 *- 5 Fraqnc 33,068 91;89. Germary 26,960 63,119 India k88 3,531 Italy 193 19,503 Japan 3,A69 9.h7.2 Switzerland /3 - 2,03-7 United Kingdom 7,670 87,520 Unitedl States 11,980 19,902 Yzzg,oslavia - 2,033 Financiza2 institutions 89,567 2Il1267 Austria 56 5,73 France 6,259 45,504 t0aly - 26,55S United Kingdom 713 10,32.3 united States 82,539 153,016 LoanAs frorm international organizations - IBRD 128,262 2 5 Loans from governments 338.565 955,728 Bulga.ria - 8,000 Czechostovakia 4,763 5,071 Denmark - 2,800 Ger-raxy 39,124 h8,000 Hun[ ar:y 219 930 Israel 167 6,ooo Pbland 3,530 3,987 Rvr-ania 13,016 h 5, 301 Unite.d Kingdom 7,092 9,31:8 United ;tates 2h3,366 L2h,399 U.S.S.R. 26,967 Lol,obh YI1,; a=viLa 32184a IJUL)U Wiuji all W-iginal or euxtended mat-urity of one year or more. v E-^ludes unallocated portions of frario agreements where knowM: - d~~~~~ .1 I ,~ 7n" ^P\ France 96,545,ooo Poland. 10,7814,COO Tot.l e Jo7 O f kxrlw'--. aprl-,irat.&l.y f 'C) -C) parl; of a ';T.ccs cplli.ers' cred; v-hic h-s not becn allocat'ed to specific prSjects. Statistical Services Divisinon zconc,r)cz I^.; pairti rnt NOVc;;5bcr 15, 12J: Table 2: IRAN - ESTIMATED FUTURE SEHVICE PAYMIETS O0N EXTRNAAL PUTILTOC DEET OUTSTANDMING INCLUIJllNG UNTISBURSED AS OF MA:RCHi 22, 1968 Debt Repayable in Foreign Curren:y (In thousands of U.S. dollars) DE .T WUTST EG I !F PERIO'r) P.AYi;AEN'TS DIJ'JI \j,3 P-(R I 3 y. . i J ;! . 7,' 1-I Yf L& IJA I S'3'J~S~ ~ T 'T ; IelE 7 TCT' I' TO T: L X~. ~I; e~~ 1 69/ L7352 .3; 3 2 9 3 I 137 9,i4 i lps I 9 I-b 7241 3.$79 ) j9 /7 . , ;; 3 ? If) 4 5 3 2 I - -' i ;(7,i7 7 . :' - ;vi,, 9, 7 .6 3 ,;1,723 ,.i 1. "/731! l ' 'p; '" 17 3 # :s .1S7 -- !S. "D '. 9i t)t f ' 1 Ci-i--i/7 -/>, - tj _ 1 'nif *7?-1 i;r- * 9 i() (iS - r; ]9 7 475 t r V i0 3? 1 ;, I ' 3 1(*7 1 3- 9 1 3 "~~~~~~~ f~ -i 7 6 I'I ., ; ri 32_r i 2 3 /4 . :L 1 5; 7 , 1 1974- f77 4 7 2?, t- 11 '6tCi644 17,779 124t423 i-' 7/7 R7 2Aq - 6t-1 7r h'fh !3 -4 , A7 7¢ A4 3 J' 1 '97 J,/79 9 91 ,9 tl1 t 73 i 1, 7?, 437 ~~~ ~ ~ ~ 5~~7* P *t7 0 - . '. . i.. - 57 i 3- 7 1 S ' 3 . - 1 r . c/ 8 3 ;) wi 85 ? f Z4 , 3' 4 , v 1)] 2 , 3 1i NOtC: IT.C1l;d2S service on all debt listed in Table :L prepared Noveriber IL, 1968 With the exception of the follow0ing for 1which repaY,rent termis are not available: Total $66 417 000 Privatelv held debt - SunDlier, 11.917.000 Loans fron governments E 000 Poland 16 Soo0 RT1mnni a 5,000 United States (of Which $2!>,:lOO,OOO lease credits in dispute) 26,267,000 Statistical Services Division Eccnomics Departmentc IYovember 15, .1968 TABLE 3 POPULATION BY AGE GROUP AND SEX NOVEMBER 1966 (thousand of persons) Active- Inactive Total Male 6,585 6,397 12,982 Under 10 - 4,L36 4,L36 10-lb 571 1,023 1,59h 15-6L 5.773 664 6,437 65 and over 2L1 27L 515 Female 1290O 11,097 12,097 Under 10 4,107 4,107 10-1i 202 1,221 1,L23 15-64 777 5,337 6,11 65 and over 21 432 453 Sub=total. Set+le Ptleaidon 7 (R,q 17 X),, 92,079 Unsettled ]'opulation n.a.* n.a. 2s Total++e, 1opuopul, 2-,32 of which Male '3,11) Female (12,213) Mean Average 22.2 year Median Age 16.9 year 1/ - Employed or seeking work. Source: National Census of Population and Housing, March 1968. Statistical Services Division Economics Department November 15, 1968 TABLE h EMPT.YMENT STATTV; OF TWE ArTTVP'R,POPTTT.ATTPN NOVrMPFR 16QA Thousand of Persons Percent Agriculture, Forestry, Hunting and Fishing 3,168 L1.8 Mining and Quarrying 26 0.3 Manufacturing 1,268 16.7 Construction 510 6.7 Electricity, Gas, Water and Sanitary Services 53 0.7 Commerce 552 7.3 Transport, Storage and Communications 22h 3.0 Services 930 12.3 Others 128 1.7 Sub-total Employed 6,859 90.5 Unewplve!d2/ 726 9.5 Total Active Population 7,585 100.0 = =~~~~_ -See Table 3 for definition of Active PopulaLtion. -/includes 442,000 persons temporarily unemployed. Econo}mics Department 1II.bV IILer , 1968 TABLE _ PRODUCTION OF SELECTED AGRICULTUR4L ITrmS- 1962 1963 1966 1965 1966 1967 Wheat Plan Organi,zation ' 2,755 2,8 2,623 3,000 3,150 3,308 Bank Markazi. 2,755 2,b68 2,623 3,000 3,500 n.a. Ministrv of Agriculture - 2.612 2.350 3.6L8 L.381 L.6118 US Department of Agriculture 2,700 3,000 2,59? 2,900 3,190 3,800 Barley Plan Organization 767 7640 718 800 86o 8U2 112*&2U -J41±..L&LU4 .- Is.. I. -L,'"-1 , 0'-">o M^ nis-t ry oLf A g r ic u ltu-e 765 7 1 7l.8 93, 108 ,3 Rice (paddy) Plan Organization 567 574 615 681 715 751 Ministry of Agriculture 561 576 6]5 681 788 912 US Departmenlt of Agriculture 700 oo6 86O0 86 2/ 877 2/ 523 / Tohacco Plan Organization '19 L2 19 26 27 28 Ministry of Agriculture 19 1L2 10 13 15 16 Cotton (ginned) a.n41 r g'ani .V4a ti '.o'n I> 125121, 1L71L. International Cotton Advisory Committee 92 115 121 152 115 1]8 Sugar Beets Plan Organization 766 1,191 1,282 1,391 1,66 1,537 Vf-7tabhes and Melons Plan Organization - - _ 1,100 1,155 1,213 US Departmnent of Agriculture 900 1,100 1,0C0 1,100 1,110 1,11 3/ Fruits 'Dian Organization 1,15f0 14. 1 ,2'0 I,250 1,313 I ,l' I.7, Meat Ministry of Agriculture 2j8 2,66 271 285 335 n.a. US Depar-tment of Agriculture 400 376 380 212 213 250 ,/ Milk Plan Organization 1,710 - - 1,608 1,688 1.773 US Department of Agriculture 1,600 1,600 IJ3'O 1,600 1,700 1,0o0 3,' Plan O-ganization 63 67 19 51 ',. 57 US Department of Agriculture 35 35 _!8 610 2J, Duie to wide di LLfferences iWn prodductinLLu.l ')t4.LLI wlhe Uc n explained by the Bank mission, statistics are quoted according to their source. E/ Estimated on basis of 65% milling rate from following figures in '000 tons of milled rice: 1965 - 550 1966 - 570 19c'7 - 600 3/ Provisional. TAB9LE 6, VOLUNIE OF SALES OF SE;LECTED INDUSTRIAL PRODUCTS-i 1959 15960 1961 1962' 196 3 1,964 1965 Flour i(thousand tons) 345 373 403 435 469 694 1,794 Carpets (thousand square meters)J 829 5965 1,049 1,058 2,3315 2,839 3,276 Cotton Fabrics (million meters) 169 236 269 30hl 386 429 423 Cotton (thousanid tons) 110 1.07 115 89 12>5 131 155 Cigarettes (mi:Llio:n units) 7,437 8,361 9,058 8,h32 8,579 9,000 9,669 Vegetable Oil (thousand tons) 33 4 9 50 64 71 95 122 Rice (thousand tons) 68 78 89 101 1L9 129 205 Sugar (thousand tons) 1L47 1.60 158 211 122 167 263 Coats and Trousers (thousand units) 2 7 21 1,233 2,082 2,930 3,780 Thread (thousan-d tons) 10 28 26 30 1L6 39 44 Footwear (million ]pairs) 4 4 4 1) L1 13 19 Bricks (mi:Llion piieces) 1,276 1,502 1,1L7 3,450 2,828 2, L2 3,887 Cement (tonls) 679 797 7h5 688 787 1,088 1,!417 T The products are ranked according to their value in 1965 from flour (15.3 rmillion rials ) to c:ement (:L.8 mrillion rials). t'Derived by the Bank imss:ion on the basis of statistics f'or 196L and 1965 and export data for the )eri,od ,Sou MnU t of E SouLrce: M-inisl;ry of Ec^onomyW. TABLE 7 PETROLEUM STATISTICS 1962 1963 1964 1965 1966 l`67 (millions of barrels) Net Crude Oil Production 481.3 538.() 618.6 69L.5 771.3 927.6 of which: Consortium (474.7) (527.2) (605.9) (659.9) (736.2) (90(.3) Crude Oil Mcports 340.8 393.6 170.1 535.0 619.9 78'5.4 Oil Products Exports 109.6 111.4 100.6 101.7 102.1 10:3.8 Government Revenues 342.2 388.0 479.9 514.1 599.1 741.7 Profit Remittances= 318.7 400.5 351.3 140u4.1 470.9 563.8 - Accounting value based on posted prices as recorded in the balance of payments. Source: Ban:k Markazi TABIE o GROSS DOMESTIC PRODUCT AT FACTOR COST BY SECTOR= (in billion of 1959 rials) 1959 1960 1961 1962 1962 1964 1965 1966 1967 Agricultures 89.3 88.9 87.8 92.6 89.E 89.6 100.1 15.7 109.h Manufacturing3/and Mining 4i 27.0 29.4 31.8 36.5 39._ 43.4 h7.9 53.3 6C0 Petroleum 7.77 3 59Y..7 0).5 (.) C 75.o U( .D 1'O.( i2. Construction 1.} 12.5 13.I 13.LL l-.. 16.0 19.6 0ro.7 2L.7 Water and Pover 1.1 1.9 2.1 2.2 h. 5.0 7.6 7.7 9.3 Transport and Comminication 2!.1 2h.7 25.3 27.2 27.5 28.2 28.8 Z9.2 32.h Wholesale and Retail Trade 2h.5 24-9 25.6 27.1 27.c 29.1 32.2 35.l 38.9 Private Services 18.6 20.7 21.9 22.6 2h.2 27.3 29.8 32.8 35.2 Dwellings 15.9 17.1 18.2 19.2 20.2 22.2 23.h 25.5 27.3 Government Services5/ 23.4 23.5 23.7 25.3 28.C 30.8 36.1 38.6 41.7 Gross Domestic Product 283.0 296.6 309.6 331.6 3499.& 367.2 h11.1 4h8. 500.5 - Iran's official national accounts are prepared by the Bank Markazi. They substantially differ from Plan Organization's estimates as shcwn in the Fourth Plan. They also differ from the accounts pre- pared by the Ministry of Economy. Bank mission estimates of the national accounts are based on Bank Markazi's data after some adjustments which mainly result in the elimination of the statistical %discrepancies sh.., ikn ow"4icial dt.416 2/ 2 Though the Bank mission felt that the value of agricultural proc,uction is underestimated, it has been unable, owing to the unreliability of data on commodity prc.duction, to quantify the necessary adjustments and therefore retained the Bank Markazi statistics. 3/The Bank mission has evaluated the value added by the various branches of manufacturing.. Estimates of total value added in 1963 and 1965 onrard are similar to Rnk Mairkam'i 0sti?S+. Es+timate for 1962 is 10 percent higher than Bank Markazi's data. 4/ independent estimates by the Bank mission led to a growth rate omuch inferior to Bank Mavkazits estimates. Bank Markazi's estimates are based on the amount of wages and selaries currently paid by the Govern- ment. Bank Markazi deflated current dAta hb the general salary intixa The -r- mission has evaluated the services rendered by the Government on the basis of the increase iL personnel after allowing for improvement in productivity. Annual deviations from the trend have been estimated by adlustment on the basis of Bank Markazi's data. TABLE 9 GtOSS NATIONAL PRODUCT AT CURRIENT MARKET PRICES (in billion of r ials) 19 59 i960 1961 1962 1963 1964. 1.965 1-966 1-967 GDP at current f'actor cost1, 283.0 312.9 330.3 35'7.1 377.2 412. 4 465.4 505.3 566.1 Indirect Taxe__ 18.1 20.2 19.7 20.3 22.7 23.6 28.3 315.7 39.7 GDP at current market prices 301.1 333.1 350.0 377.4 399.9 436.0 493.7 5Ll.o 6(5.8 Factor Income Paymentsz" -16.5 -22.2 -21h.3 -27.6 -31.5 -28.1 -31.6 -3,6.2 -43.5 GNP at current rrarket ices 28L.6 310.9 321.7 349.8 368.4 4so7.9 462.1 50l.8 562.3 The gross domestic product; has beein estimriated at constant factor cost (see Table 8).. Current, factor costs were calculated in applying the implicit price index of the official, national accounts. - No estimates of subsidies are available (Bank Markazi). 3/ - Balance of payments' dLata., Includes petroleum profit remittances as shown in Government and NIOC; accounts. TABLE 10 EXPENDITURE ON GROSS DOMESTIC PRODIJCT (in billion nf rials) 1962 1963 1964 1965 1966 1967 Gross Domestin Prodiit 3774 .39°.Q l,36.0 )49317 51.O 605. 8 Net Exmorts of Goods and Services 30.9 35.2 23.0 21.3 2h.5 26.8 Exports / (81.4) (84.5) (91.3) (106.0) (117.3) (139.2) s(50.5) (h. 3) (68.3) (h.7) (92.) (112-) Gross Invesatm+en+2/ )-L.6 A. 59.7 77. 5 .1. Flu,bli,c Sector k(') -7L)7) (16.0) (18.8) (333) (. r\ Private Sector (29.9) (30.9) (L0.9) (44.1) (h965) (54.2) Government Consumption ' 39.2 44.4 h9.2 5h.0 62.5 7L.9 Private Consumption 262.7 273.4 30h.1 341.0 367.5 40(.O - Includes petroleum exports as estimated in balance of payments. Services include minor factor services other than investment income payments. -/Bank MarkaLzi's estimates. No statistics on -hanngs in stocks are available.. -'I " Purchases of goods and services in government accounts differ from Bank Markaczi's estimates. TABLE 11 NATIONAL AND DOMESTIC SAVINGS, 196.'-1967 (in billion of current rials) 1962 1963 1964 1965 1966 1967 Gross Domestic Product at Market, Price 377.L 399.9 L.36.0 493.7 541.0 605.8 Total ConsUmntion 301.9 317.8 353.3 395.0 L30.0 L71.,9 Gross Domestic Savings 75.5 82.1 92.8 98.7' 111.0 133.9 Factor Incrime PAVmentS -27.6 -31.5 -28.1 -.31.6 -36.2 -L3.5 Gross NatMC'nAr Ravincm OA79 50n - 54=6 67.1 7.8 R ,90.) Surplus of Baac of Payments on Current A.ccount - 3 . 3 . 3- -7 5.1 10.3 11.7 16,,7 Gross Investment MA L69 59 7 77 86. 5 107 1 1hTWflTWl'MTJ1 hMTh CAUThYr-C DAMTnTfl 1962 1963 1964 1965 1966 _6_ Investment as percent 0T I 2.7 '2 .7 -IL Z -1'.7 17.l 1. at.ional SavinLgs as percent of GNP 13.7 13.7 13.4 14.5 1h.8 16.1 National Marginal Savings Ratios n.a. 14.5 iO.1 u.6 18.0 27.1 National Sa-vings as percent of Investment 107.4 107.9 91.5 86.7 86.5 84.4 Domestic Savings as percent of GDP 20.0 zu.5 21.3 20.0 20.5 22.1 Domestic Marginal Savings Ratios n.a. 29.3 29.6 10.2 26.0 3563 TABLE 13 SU2MMARY OF CENTRAL GOVENMMENT OPERA,TIONS-V/ (in billion of rials) Budpet Estimate 1963 1964 1965 1966 1967 1968 Current Revenue 60.8 68.2 79.5 98.2 107.6 126.6 Current Expenditure 49.5 5h.9 59.0 67.5 76.5 90.5 Current Surplus 11.3 13.3 20.5 30.7 31.1 36.1 Capital Expenditure 17.6 25.9 42.5 42.7 61.2 91.6 Investment 1h.6 22.3 37.1 37.8 53.4 76.9 Debt Repayment 3.0 3.6 5.4 h.9 7.8 1L.7 Overall Deficit 6.3 12.6 22.0 12.0 30.1 55.5 Financing Banking System 5.2 9.2 17.72/ 1.9 12.6 20.5 Treasury Bills 1.1 2.0 2.0 5.4 7.L 8,23 Foreign Loans - 1.h 2.3 h.7 10.1 27.0 l/TIn,cuiiesa the ope+rtionna of th TreasTry and the e ?lan Organiza+i.on. Current expenditure includes recurrent development expenditure financed by the Plan Organ-i z.ati on andi Pe-lu ii debt ri ephi a r- rmPn+. fo-r defense- starting in 19OC, For this item budget estimates have been used by the Bank mission. -Includes 10.5 billion of oil bonus. 3/Includes 3.5 billion rials in Treasury Bills and h.5 billion rials in dSef e Bnse kzPoOndan.a. Source: Ba.nk M4arkazi, Plan Organization. TABLE lh (.RTJT'?AT.'rOfVERNMWrNT rTTR MEN YPDTTITTRE-/ (in Ublion Ofl ria,ls) Budget 1962 1963 15961 1965 1966 1967V/ 1968 General Services 4.6 5.6 7.2 8.0 7. 9.1 10.u Supreme Leadership 0.5 0.6 1.1 1.3 1.5 1.9 1.9 Internal Affairs 0.6 0.8 0.8 0.8 0.7 0.8 0.8 Foreign Aff'airs 0.4 0.6 o).6 0.6 0.7 1.0 1.1 JuGiciary lAffairs 1.1 1.3 1.5 1.6 2.0 2.2 2.6 Finance Admiinistration 1.1 1.5 2.4 2.5 1.8 2.2 2.1 Others 0.9 0.8 0.8 1.2 0.8 1.0 1.2 Defense and Security 15.9 17.0 19.1 23.1 25.8 31.7 38.7 Defense 12.1 12.6 1:3.8 17.2 18.6 23.5 29.3 Security 3.8 1.4 5.3 5.9 7.2 8.2 9.4 Social and Economic Services 3/ 19.2 21.6 21.3 2b.6 28.3 32.0 31.6 Education 10.0 11.0 12.0 13.0 13.8 15.1 16.4 Hygiene and Medical Care 2.0 3.0 1.6 L.3 L.5 4.9 5.1 Agriculture, Water and Power 3.0 3.3 3.9 2.8 3.0 3.1 3.6 Transporta-tion and Communication 2.5 2.7 :2.5 2.7 3.2 3.9 L.1 Others 1.7 1.6 1.3 1.5 3.8 5.0 5.1 Interest Parnents 1.1 1.9 2.7 2.8 2.L 2.3 3.3 Others 3.1 3.4 1.6 Cl.5 3.5 1.4 3.9 Tnt.nl h1.9 h9.q q)l 9 q5q,. (k7. 1 7k, 90 sn El -'/Includes current and recurrent development expenditure of the Ordinary Budget and the Plan Organization. !/Breakdown is based on preliminary estimates. 3/For the years 1962 to 1961 it includes recurrent clevelopment expenditure estimated by the Bank mission. 'ttTP w v A T f' {N T~T t,T0 7TrWAn T n TT r T ki~J.LI IllJt.4jL UiJ v "UI L~'Ji'd I j.,UfllD'Z414 I DJ2 ItFI WrA 1, a Budget Estimate 1962 1963 1964 1 170.2 Recurrernt Development Expenditure-/ 2.3 4.0 L.L 5. - 9.2 9.1 3b.h Tot;al 7.3 18.6 26.7 42.5 L"7.0 62.5 20L.6 1/SimilaMr breakdown of Third4 Plan allocation. is onl aTailahI f the qept;embler 1Q66A iipr;ir,,n of t.h- Plnn. 2,/ - For the years 1962 to i961) the breakdown between recurrent development expenditure and investment has been ejstimated by the Bank mission. Source: Plan Organization. TABLE 18 MONIETARY SURVEY (billion of rials - at end of the yvar) 1961 1962 1963 L964 1965 1966 1967 Foreign Assetsi/ 16.7 18.5 20.8 ?8.3 2h.h 23.0 29.5 Claims on Government 28.2 25.9 31.5 37.2 h2.1 50.2 69.6 Claims on Private Sector 38.6 L8.9 58.3 69.0 78.9 92.7 109.4 Claims on Specialized Banks 2.L 2.2 2.8 L.3 2.0 3.1 2.1 A sset3= T 4 4-14 1 4 RC Alf 0 O 11 I iP P 1.7 1 lAo n 91( A ;G- a iU | f V WWCO VJ . / W2 2 LJ_ - 64 ~1 ..4 j 4 i a*. T. ,Jab .... 1 o 0.6 0TJ 1. 1. 0 1 Currency iin a..±-c-uLauiZ±n 7.1 9.8 2.6 u 25.5 2 34.8 ~~~~~~~~~~~~~' 17 ' I , -z 5 n a 1 7 1 . 1 A1 Demana Deposits 2>u 0 L. 4o.o .u.u )).7 )t . .u Time Deposits 15.8 24.2 31.7 37.3 43.7 $2.1 6L.2 Public Sector Deposits-2/ 12.8 i2-. i6. - 30.^3 e-.0 2. .V Importer,s Deposits - - - 2.6 a.8 7.1 Capital Accounts 12.0 12.3 12.3 11.6 12.2 12.9 14.1 Other Items, net 4.2 1.7 3.3 2.7 L.5 3.7 4.3 - Includes holdings of gold and foreign exchange, net credits of payments -6eemen+ts, DTM net jbO9ition a-id Iran's- sh^-ae in i ntera?n=atinal or- ganri z -ii lojnn 5 - " I U~ .. a a..-- 'fJa-...'.. ,.* " -/Includes counterpart fu.ds. Source: ..LCL.I Iank Markazi Source: Bank Markazi TABLE' 19 CREDIT EXPANFSION ANI) ITS COUITERPARTS Change in billion of' ricls Chiange in percent 1963 1964 1965 1966 1967 19653 1964L 1965 1966 1967 Credit to Private Sector 9.4 10.7 9.9 13.8 16,.7 19.2 18.,! 1L..3 17.5 16.0 Claims on GDvernment, net 1.7 -9.1 11.4L 2.7 12,2 12.4L -59.1 228.6 13.0 52.1 Money Supply L.9 3.7 6.5 5.4 10,.6 11.1 7.5 12.3 9.1 16.4 Quasi-Money 7.5 5.6 6.4 E1.L 12.1 12.h 9.3 12.9 13.8 22.7 Foreign Assets, netY -2.4 -7.4 4.5 1.6 1.0 -13.6 -36.o 16.4 7.0 4.7 Others, net 1.0 -0.2 6.9 1.1 5.2 - Negat:ive sign means increase in net assets. Source: Table L8. TABLE 20 NET BANK CLAINS ON THE PUBLIC SECj'OR (billion of rials - at end of the rear) 1963 196h -:965 1966 1967 Treasury, net 13.6 17.7 L7.6 16.2 19.3) Bank claims 17.1 19.5 20.7 20.1 2b.0 Deposits 3.5 1.8 3.1 3.9 h.7 Plan Organization, net 7.5 11.8 -6.5 22.9 34.3 Bank claims 8.5 12.5 1.7.3 25.h 38.t Deposits 1.0 .7 .8 2.5 4.1 Other Government Agencies, net -5.7 -23.2 -13 3.21 -15.7 -18.C' Bank claims 5.9 5.2 4.1 h.7 7.2 Deposits 11.6 28.L/ 17..5 20.4 25.2 Total tA 2 0.7 2J )I 1N ( 1/ After adjustment for the use of the oil bonus, thie improvement in the cash position amounts to 2.5 billion rials in 1965. 2/ Reflects the receipt of an oil bonus amounting to 13.9 billion rials. Source: Bank Markazi TABLE 21 PRICE INDEXES (1959 = lOC') ANNUAL AVERAGE Wholesale Price 1962 1963 1964 1965 1966 1967 General Index 103.6 101.0 109.6 110.6 110.0 110.2 Home-Produced and Consumed Goods 10.3 103.3 112.1 113.7 111.7 111.6 Imported Goods 106.9 l1C.0 110.5 111.0 112.0 113.L Exported Goods 98.1 99.6 101.6 101.3 102.5 102.7 Foods 106.8 106.9 11'.6 116.6 115.6 115.9 Building Materials 86.7 8b.3 91.L 91.8 92.2 9lo.5 Fuels excluding Petroleum 113.1 117.5 12L.6 127.9 129.1 135.5 Gosct. nf Liv4ng, General Index 110.6 111.7 116.7 117.0 117.9 118.9 Foods III,.? 116. 121,.0 12nL.9 125.8 126.L Rent 108.,q7 10. n0;. 10t. I0.L 106.5N -o i c A I Clothing 108.0 108.2 11].1 111.1 111.7 111.3 ;ue| .1 A' e 4-I A._ 4- ., Water and Ice 108.' 114.7 11,.7 113.3 112.1 114.0 Transportation 104.7 103.0 106l.0 106.L 107.6 109.b Medical Care 110.6 111.0 l1'.1 116.1 117.3 120.8 Source: Bank Markazi TABLE 22 VALUE OF NON-OII, EXPORTS 1962-1967 (in million of rials) 1962 1QAwh4 iQAh), 19A)hI9A 1 967 Live An:imaals 111 1.73 l22 582 h1419 176 Vegetables 171 1.29 75 210 15 168 Fru:its 1,777 1,L25 1,l08 1,669 1,46i 1,5 7 Seeds 135 131 132 :56 340 227 Gum Tragacanth 208 280 353 ;286 32Q 292 Oil Cak,es 23h ]60 199 ;208 225 126 Caviar 215 195 255 276 286 310 Cotton 2,010 2,*2X 2,61!l 3,759 2,162 2,846 Carpets 1,662 1,5980 2,733 3,1106 3,188 3,716 T I __ _ T A ;_ Produc t, 462 728 971 760 1,081 893 Mineral Ores 268 9 652 862 695 526 Others 1,950 1,233 1,670 1,.36)4 1,493 2,796 Total E:orts 9,203 9,617 11L,85 13,538 11,81, 13,633 i,' - Excepiu fish, crustaceans and mollusks. 2ou-se: Foreigr Tiade 3tatistics, Iinistry of Finance. TABLE 23 VALtJE OF IPORTS 1962-1967 (in miliotn of riaimj 1962 1963 i96&, l,65 1966 1967 Mil.k and Dairy Products 269 306 504 18 598 523 Tea 7L8 762 755 1,790 852 671 Spices 131 162 175 109 ,,i 97 bfheat, Orain 215 387 2933 . 982 1,151 329 Wheat, Flour 983 499 19L 100 67 22 Rice 227 9 It- 487 127 131 Sugar i,l6O 2,289 6,518 2,016 1,262 959 Vegetable Oils 551 598 1,070 11682 1,812 1,683 Cotton 356 250 179 189 120 99 Drugs 1,971 2,072 2,L68 2,926 3,187 3,285 Electric Appliances 538 606 828 1.127 1,081 1,391. Passenger Cars 377 968 1,698 1,336 1,739 1,540 Ceraric Products 325 310 375 676 751 378 P116 1 1-3 30 339 Fertilizers 263 287 289 372 6196 710 Other Chemicals 1,687 1,038 1,781 2,761 2,292 2,605 Tanning and Coloring Products 793 906 1,165 3,2PC 1,238 1,LL2 Rubber and ltubber Products 1,627 1,608 1,57 3,8537 2,115 1,66L Cardboard and Paper :,059 1,116 1,L26 :.,5aL 1,73.5 1,958 Silk 2,766 2,418 2,932 3,613 3,866 L,22% Wnnl 1,536 1,561 1,930 3,513 2,3n 2 t, Glass and Glassware 3L5 33L 686 !,01 155 6C, Bars 3,643 1,582 1,969 2,726 3,067 3,6I6 Sheets 1,127 966 1,379 2,021 2,113 3,92; Piping 1,536 1,129 2,139 2,93C 2,233 5,263 Other Iron and Steel Products 1,855 1,7h0 12,821 2,365 6,6C3 6,297 Aluminum 255 260 32,5 309 60L Cci Copper 653 31 371 609 508 36Q Agricultural Equipment 1,373 1,566 2,831 2,250 2,376 2,016L Industrial and Mining Equiprment 3,521 3,328 6,602 8,860 11,279 1I,328 Electrical Mhinr 2,L67 1,739 - 2,9B,. j,969 5,u Other Machinery and Equipment 2,657 1,211 1,85i 3,001 3,065 6,988 Optical and Precision Instrument 606 341 501 665 923 1,103 Others 7,016 6,554 9,341 11,167 11,626 16,286 Total Imcrts 1906 39,36 56,78 6518 73,6 9,02 Source: Foreilr Trade Rtsttiqt.ir. Ministry of Finance. TABLE 24 DIRECTION OF TFADE (in million of riala) T1T1port5 9ExpDrts./ 1965 1966 1967 1965 1966 1967 West Ge:rmany 13,811 15,766 20,91.4 IJSSR 1L,305 1,379 2,247 Unilted States 11,833 1L,517 1.6,h115 West Germany 1,93:2 1,1679 2,056 Uni-ted Kingdom 8,774 9,309 1.0,5596 IJnited States Il489 1,672 1,542 Japan 5.,468 5,581 6,96,5 United K-Lngdom 1L,098 759 726 France 3,179 2,953 4,94,1 KuwaiLt :l,019 882 716 Italy 3,165 3,694 4,,570 Iraq 221h 266 674 Nethnerlands 2,082 2,336 3,6';9 S;witzer1and t475 1h88 582 USSIR 1,268 2,190 2,525 Czechoslovakia 63B 4h]4 548 Others 16,938 17,298 20,136 Others 50,378 4,276 4,539 Total 66,51.8 73 644 5)011 13,559 11815 13,62 .=~ ~ . , - -,,, - - g _ l/Does not include oil and hydrocarbon solvents extracted from. Source: Foreivii Trade Statisti.cs, Ministrl of' Finance. TABLE 25 DIS URSEMENTS ON FOREIGN lWANS ($ million) 1962 1963 196L 196' 1966 1967 ITRn 33-3 5 3 1. 7.0 7.7 5-° Urnited States 25.6 10.0 15O 0 8'; g= 102-3 w~~~~~~ e -A in-n I _ ~ _1 1M 7 1 , 1n1,9 97 1, Fr11-7 11-9 - _Q 97 A TTed +.oA = = = 0 15 . USSR s _ = Q*() 9.6 51 8 Total 63.4 19.1 34.2 83.() 129.9 256.5 (Equivalent in SrIe: oaf ar ris i' ,755 1,' 33) (', if '26) (9,7L3) (19,238 So-urce: Baric Markazi TABiLE 26 BALANCE OF PAYMENITS (is bic~ior. off rils.) 1 962? 19b3 1964 1965 1966 15c(7 Race ipt Pay-etz Balance Receipte rEnits Balance W I55 pf~ irts Balancea FeeIt ntafl5 Balancee RcIt !RiL Baane. Rcit-f2et 3.. Mcrccaodcoe- ~~~~~~~~~~ ~~~76.9 Li.9 35.0 0C.3 39. 3 41l.0 8665 56.8 29. 7 99.0 66. 5 32. 5 1.09.2 73.o 35.6 129.0 AJ.5 39).1 -7 - 7C.7 M -0 - -- - 7rt loorc 9.~~~~~~ ~ ~~~~~~~~~2 41. y '.0 79. 3 11. 56. 6 13.6 11273.I - - Bero ices 1~~ ~~~~~ ~~~~~ ~~~.5 8.6 -1.1I 4.2 Ili.o -5.8 14.8 II.!; -6.?7 7.0 18.2 -11. 2 6.1 19.2 -11.1 90 21., -12.3 fr,ptaioCharges-7 7 ~ . -7-Zr -_.1 7 = .rz =-rn - -7. _77 -7 = --. ITI ; TZ Crc - 5 2 .5 -2.0 . 3. 1 -2.5 1.0 3.7 -2. 7 1. 5 1.0 - 2.5 2. 2 4.2 - 2.0 2.1 . lccercmectz' ~~~~ ~~~~ ~~ ~~2.0 2.6 - .6 .6 3.1I -1. 5 1. 3 3.5 -7.2~ 2.0 6,1i -. i1 1.7 7.7 -6.0 2.1, 1. L. finer, 1~~ ~~~~~ ~~~~ ~ ~~~.5 2. 9 -.14 1.5 3. 2 -1.7 1.9 3.37 - 1.4 2.6 7. 2 - .4. 3.5 6.2 - 27 3. 9 1.9 I I., [01.4 cc lock, ant ServiceS ~~~~~~81.1. 50. -5 30.9 81.5 49.3 35. 2 91.3 68.3l 23.0 106.0 81. 7 71.3 117.-3 92.6 24.5 139.-2 113.6 2t. v-icr; Income .~~~~~~~~~~~2 27.8 -2 7.6 .2 31. 7 -31.5 .2 28.3 -28. 1 .6 32. 2 -31.6 .5 36.7 36. 2 L" . .. -a3.5 Companies_I.! - ~~~~~~~~~~~~~~~7 ~~~fl - C ~~~~~~~flY C jo.p zr~~~~~~~~~~~~ - 35.6 4fl n3~~~- -7 ~ _7 Ic.cse.Abrcd .2 - .2 .2 - .2 .2 - .2 .6 - .6 .5 - .5 .1 . Icr-st, ori Puaolic Dent - 1.1. - 1.1 - 1.1 - 1.1 - 1.4I - i.4 - 1.3 - 1.3 - 1.1- 1.] 1 - - 10011. 0 291-mINT ACCOUNt 81.6 78.3 3.3 81.,7 1-.0 .7 9. 9.6 -51106.6 1L16. 9 -10.3 117.8 129.5 -11.7- 139.8 Fo. -Ic. 7 in confers ~~~~ ~~~~~~~ ~~~i.6 .1 1.5 1.9 .1 1. 9 . .8 1. 1 10.6 .1 . .6 - cc-rcssect .~~~~~~~~~~~~~7 .9 .7 . 5 cc cacr_Invectmeot ~~~~ ~~~~ ~~1.2 2. 9 -1.7 .3 3.0 -2.7 16.7 .1 16.6 5.-5 1.6 3.9 9.7 .4 9.. -'I- 4 34 010cr, 011 (se.aniso .7 - .- .2 -.2 .3 - .3 1.2 -1.2 1. 9 I1 1.8 1.1 .2 . ?c.rsieam toas - - - - ~~~~~ ~ ~~~~~ ~ ~~ ~ ~ ~ ~~~~ ~ ~ ~~ ~ ~ ~ ~ ~ ~~~~~~~13.9 - 13.9 .4 .4-- ---- OLh-r .5 - .5 .3 - .3 .3 .1 .2 1.1 .1 .7 1.7 .3 i.1 1.0 .3 .5 22,vornmnen 4.8 1.2 .6 1,1 5.0 -3.6 2.6 5.7 -3.1 6.2 4.7 1.5 9.7 3.5 6.2i 19. 2 I. 16.. ma-o alCredits 77 3 T l 3 a fl a a n7 5 a. M; IT. 2 a T7 Orth-nb/.6 -.6 - 0.5 -0.5 .2 .65 - .4 2 .6 -.1 - 0.1 -0.1, 1 . vsrae.,,rAThe . 7.c .3.6 8.i -4.5 20.2 5.9 11.3 12.8 6.1; 6.1 20. 0 14.0 16.01 21. 1. 7 19. 5 .OTAL 09N 43NE'A.RI ACCODUNT -. . .. -1-v0c of cc: C t,csento, baced c otlm !'u,-chasec ict., es pur,,ses prs..aoly Jiscacdt i.e m~Oit. F Yt,ate c c -oais of renses, accrung t. Tran ltntdircn Cprtc-pleqaies' a-.lae comets Cc,pmcslicc ;- orrrer ~Ani:io-Irania Oi1 Company incilcLi Ic Ie,:;. Annex II, page 1 FUBLIC ENTERRISE'S 1. There are at least 70 public enterprises in Iran. They have a monopoly of power, railways, tobacco and other agricultural processing industries. They also play an important role in banking, petroleum petrochemical and metallurgy. Since 1965, the financial accounts of the public enterprises sector are presented with the central government budget. Their annual budget is balanced through profit remittances to the central government, current subsidies and substantial capital trans- fers from the government. Such presentation could be very valuable if actual results were available. However, the only information on public enterprises operations is the total amount of enterprise profits trans- ferred to the central government budget. it is also known that government agencies have improved their cash position with the banking system at an average rate of 2.5 billion rials per year between 1962 and 1967, after adjustment for the use of the oil bonLs (see Table 20 in Annex I). Because actual government contributions to the enterprises are not known, this does not really allow to draw any conclusion on the performance of the various enterprises. 2. Public enterprises transfer most of their profits to the central eovernment while at the same time thev receive an almost negligible amount (less than one billion rials on the average) of current transfers to cover the deficit from the rmirrent onerations ef some units (see Tablhe 1). The transfers to the central government are made by 9 enterprises, rostly government monopolies, which include the tobacco, sugar and tea organiza- tions and the National Iranian Oil Company (NIOC). The latter accounts for the largest share of the transfers, more than 70 percent in 1968- According to budget estimates also the Iranian State Railways are sup- posed to makle alriost nominJal t-rJ.n.sfers (0.- bdillior. rials i.n out it seems that actual performance has called for subsidies from the central coverLm.ent, 3. At the same tm.e as beingasource of reeneuefor the central government, public enterprises receive a very substantial amount of capital Ci.UIL i Utransfersi.I ±A. tL. .LJ.0 C 4UIV.UtJa t.L - tJ -4Ut%'. 4--L64-'. the 1968 budget these funds more than doubled the amount of profits appropriated buy thile centlra'l governm,ent. Tr. tli eadth nepie are a very important vehicle for public investment programs since, in 196e. m,ore thIan c'O percent 0of 4-VeS4s.en aloaln ft-4Pa rnia ni £II.Ji~ UJ.C.L±~. J KJ,.L 4.Ii LtJ _L.L±V1 UMIiIUIL O.±LtJ_LW1O ULV11ti± LJ.L UAL4- I±~1 .L .1± SieUL6V 4.L I.-4AJJWL 4L transferred to them. While the transfers to the central government are r ,Ladey NI'JGJC ariu VUveUi1L[iU 1I1UloUnopL±e, UZJ'tbUe contribution by uii th verrzmen- for expanding investment activities are mostly to t1he enterprises in the power, steel, gas and petroc-Ielical sectors (see Tu le 3). The level Gt' public investment in these key areas, where private initiative is lacking is increasing at such a rate, that the enterprises could not possibly fi-nal. Annex II, page 2 it mostly out of their own funds. And in some cases, as with the steel mill and the newly e-aed T--it+a-- Dv:opment a Renvaion- rganiza- tion which is supposed to start the heavy mechanical industry, the contrf - butions of -the government are for the const-ruction of the original plant<,* 4. ±1~~I. I U ',L UL. U J±.I1 Cd±ikA t5U. CI)- VI ± I . JU LLL tiU L iLt J..L J1 t .I- t-J1 -Y 0U'. LA.i. for the growth of the Iranian economy pose the problem of the adequacy of tLe JACl present MLMLaV-agerl±tLal ctlU set-up. For J anIyI of these en ter- prises it is perhaps too early to judge their current performance after the Mncjuor liSveStmenLt decisions have been m-ide. But the question of the efficiency of the productive system certainly applies to the public ernterpribes ab well as to the private sector. For a number oI enter- prises engaged in the production of' final consumer goods, which have often been -taken over by the government as a result of salvage operations, it is a question of struggling against obsolete machinery, weak market position, e-tc. A clear picture of the actual performance of the various enterprises is a precondition and not for foreign observers only, for any thorough appraisal of their operations. Ann.ex TI Table 1 PUBIIC_ EN2TERPRI;ES (rials billion) kLdZet Estimate.3 19656 1968 Cash Available 2.5 2.4 2.0 0.9 Operating Surplus ( 19.1) (23.3) 23.7) 269) ni!Tess Dividen(Ads ( (23.7) (2 6.9) Less Transfers to Government, net (='J.U/ (-16-5) (-18.6) (-19.7) Use of Reserves 7.7 600 7X3 13.0 Capltal Transfers from Plan Organization 17.5 16X9 27.2 43.8 Domestic and Foreign Loans 1.5 1.9 5.7 4o3 Uses = Resources 29.2 27.2 h2.2 62.0 Investment and Capital Increases 25.3 23.8 38.1 56.7 Repayment of Domestic and Foreign Loans 3.9 3.4 4.1 5.3 I/ Profit-making enterprises and commercial agencies Source: Government Budgets. ANN(E II Table 2 PROFITS OF PURLIC ENTIERPRISES (rials billion', Budget EstLmates 1965 1966 1967 1268 Operating Revenues 62.§ 77.0 83,6 89.8 of which: Sugar 6.9 7.8 7.5 5.8 Tobuacco . . . . Tea 1.8 1.8 2.3 2.2 NIOC 21.2 25.7 29.1 31.2 Banks 6.1 5.6 6.5 6.5 Water and Power Organizations 3.1 2.1 2.8 3.6 Regional Power Companies 2.7 4.9 Operating Expenditures 43.4 62.9 of which: Sugar 5.2 5.8 5.3 4.7 Tobacco 2.6 2.5 2.4 2.4 Tea 1.4 1.4 1.9 1.7 NIOC 10.4 11.1 15.2 14.2 Banks 4.3 5.0 5.1 4.8 Water and Power Organizations 2.9 1.9 2.7 3.5 Regional Power Companies 2.3 4.0 Operating Surplus 9.1 226.9 of which: Sugar 1.7 2.0 2.2 1.1 Tobacco 3.0 3.2 3.8 4.8 Tea o.4 o.4 0.4 o.5 NIOC 10.8 14.6 13.9 17.0 Banks 1.8 o.6 1.4 1.7 Water and Power Organizations 0.2 0.2 0.12 0.1 Regional Power ComDanies 0.4 0.9 I/ Profit-making enterprises and commercia:l agencies. Anne- !I Table 3 CONTRIBUTIONS OF PLAN ORGANIZAT'ION TO FINAMCE PUBLIC ENTERPRISES INVMQM_f 1968 Budget EstiLmates (rials billion) Contribution Capital oI of Plan Enterprises Expenditure Organization Tranian State Railways 2.8 1.8 Wuater and Power Organizations 7.0 5.7 RPei nnal PntIre1 C.n;imanieS 4.2 2.9 National Tranian CHIl CompnV h.3 - Nation.al Trnian Gas con-ran 1i.6 14.6 Vat Jonal Pe4-rchev l Pvmpnan 11 9.3 .LnIUU tr-ie .0v'.p,ln and -^n-vtionw Organization 2.1 2.1 National Iraunian Stee.l Mill h.0 4.0 Central Orgalization for Rural Cooperatives, o.5 0.5 Central Organization of Companies o.6 o.6 State Grains Organization 0.3 0.3 All Others 4.9 2.0 ffA 7 ,R Total bi. ~/It includes both investment and increaSE~s in equ:1ty capital.