It said Iran's buoyant 6.7 percent GDP growth could be hauled down by rampant liquidity growth and the current account sliding into deficit in 2004/2005. "These (factors), together with weaknesses in the financial system, could lead to macroeconomic instability and low growth rates," said the IMF's preliminary conclusions from its "Article IV" annual review of Iran's economy. "Efforts to rein in government spending are needed in 2004/05 to contain liquidity growth and build savings in the OSF," the report added. The findings were posted on the Central Bank of Iran Web site. The IMF said Tehran had been lavishing money on subsidies and raiding the Oil Stabilization Fund (OSF), a rainy-day kitty whose reserves oil-rich Iran should be bolstering while crude prices flirt with record highs. The IMF forecast liquidity growth of broad money supply (M2) would hit 29 percent in the year to March 2005, outstripping government forecasts of 20 to 24 percent. Iran is debating a five-year economic development plan (2005-2010) over the course of which the reformist government has targeted average annual economic growth of eight percent. The IMF thought this figure was optimistic. "Real GDP is forecast to average 5.5 percent," the report said, using models that penciled in a gradual oil price fall to a barrel at the end of the period. The IMF reiterated its view, aired in June, that growth in the year to March 2005 would be about 6.5 percent. The current account deficit was seen widening progressively after the surplus swings into the red in 2004/2005 and the OSF's reserves could be exhausted by 2010. Iran's current account surplus fell to 1.5 percent of GDP in 2003/2004 from 13 percent of GDP in 2000/2001. IRAN SAYS DEFICIT NOT SHORT-TERM CONCERN But Ebrahim Sheibani, governor of the Central Bank of Iran, said foreign reserves and the low level of foreign debt meant the current account should not cause alarm. "This trend is not of major concern over the short term," he said in another statement posted on the bank's Web site. Tehran's largesse, the IMF said, meant the fiscal deficit could expand to 1.4 percent of GDP in the year to March 2005 from 0.2 percent in the previous year. "All of the increase in oil revenue due to higher oil prices will be used by the budget... non-oil revenue and privatization receipts seem to be overestimated," it said. The Washington-based organization exhorted Iran to phase out spending 10 percent of its GDP on subsidizing fuel, which fetches a humble 10 cents per liter at the pumps. The report also urged Iran to curb credit to the rapidly growing private sector and limit banks' access to the central bank's overdraft facility. It also called for more zealous supervision of the financial sector. Many private Iranian banks are offering interest rates on savings well above central bank guidelines. However, the IMF also called for the implementation of the package of liberalizing reforms in the five-year plan that conservative parliamentarians are now largely unraveling. "The mission ... calls for its steadfast implementation," the IMF said. Lawmakers this month voted out key articles opening up the banking and energy sectors to much-needed privatization and foreign investment. PIN/REUTERS