The Iranian economy is improving in the post-sanctions era, according to a statement by the International Monetary Fund (IMF), which was visiting Tehran on October 3, but a complete overhaul of its banking system is needed to meet international standards.

The IMF’s latest visit to Tehran follows that of other global organisations that are looking at how Tehran is doing in bringing itself back up to international standards, with Iran’s financial system often picked  as a sector that is still not at a place where international investors feel comfortable in investing with.

The IMF urged Iran to reform the local banking system, saying that with only through this can the private sector rebound. It added that full compliance with the Financial Action Task Force (FATF) will bolster Iran’s position and reintegrate it back into the global financial system. The Central Bank of Iran (CBI) said recently it is continuing its mission to shut down or force the mergers of unauthorised credit institutions across the country.

“Vulnerabilities are emerging that could erode Iran’s economic achievements. From the second half of 2015/16 when the economy was weak, the government stimulated growth by directing bank credit to selected sectors and reducing interest rates,” the statement by the IMF staff noted.

On the economy, the IMF said that, “Economic conditions are improving substantially in 2016/17. Real GDP rebounded strongly over the first half of the year as sanctions eased post-JCPOA implementation.”

“Oil production and exports rebounded quickly to pre-sanction levels, helping cushion the impact of low global oil prices. Increased activity in agriculture, auto production, trade and transport services has led the recovery in growth in the non-oil sector,” it said.

The report added that projected GDP is to grow by at least 4.5% in 2016/17, with an increased activity in agriculture, automotive, trade and transport services like aeroplanes.

The report commended the Rouhani administration's “Prudent monetary/fiscal policies adopted which allowed inflation to decline to a low of 6.8% y/y in June of 2016.”

By the IMF’s figures, it estimates that average inflation across Iran, both urban and rural, will be at 9.2% over the course of this current Iranian year (ends March 20, 2017).

It added that Iran’s non-oil deficit in through that period to increase by 0.5% reaching 8.9% of non-oil generated GDP or (7.7% of total GDP including oil).

The report also noted that the overall fiscal deficit is expected to deteriorate to 2.7% of GDP in 2016/17 from 1.7% of GDP in the previous year to March.

It went on to say that Iran’s international money reserves have fallen in the past year by $7bn since the end of March, though the figure may not include the cash delivery by the United States recently.