Iran to draw on sovereign fund to withstand oil price slide

DUBAI: Iran will draw on its sovereign wealth fund to cope with damage to its economy from plunging global oil prices, Iranian Oil Minister Bijan Zanganeh was quoted by the ministry's news agency Shana as saying.

"By drawing upon its National Development Fund to reimburse contractors active in upstream projects, Iran will make up for the impact of the oil revenue decline on these projects," Zanganeh said, according to a Shana report on Saturday.

Iran's National Development Fund is worth about $62 billion, according to the Sovereign Wealth Fund Institute, which tracks the industry. Some of its assets may be frozen by international sanctions imposed over Iran's disputed nuclear programme.

Iran is hoping to ramp up its oil and gas output if it can win a lifting of the sanctions at talks on the nuclear programme with world powers this month.

But to increase output it needs to invest heavily in ageing production facilities and infrastructure, and the oil price plunge has slashed the money it has available to do that.

The International Monetary Fund has estimated Iran needs an oil price above $130 a barrel to balance its state budget; Brent crude is now below $80 a barrel. The IMF estimated last month that Iran would run a general government deficit of $8.6 billion this year, at the official exchange rate.

Zanganeh also said Iran would raise tax revenues to compensate for the impact of the oil price slide, but Shana gave no details. The economy is recovering only slowly from a deep recession triggered by the sanctions, so it may be difficult to introduce any major tax increases.

Iran will adopt "a contractionary monetary policy" for the next year, Zanganeh said. He did not elaborate, but his statement appeared to indicate the central bank would not loosen policy in an effort to offset the drop in oil revenues.

Under the administration of President Mahmoud Ahmadinejad, who left office last year, monetary policy was loosened to fight the effect of the sanctions, fuelling a leap in inflation and depreciation of the rial currency in the free market.

Under his successor Hassan Rouhani, the central bank has tightened policy, stabilising the rial, and annual urban inflation is down to 19 percent from peaks above 40 percent.