Washington: Iran’s economy is stabilising and will post substantially stronger growth if the country reaches a comprehensive deal with world powers on its nuclear program, the IMF said Friday.

The International Monetary Fund estimates that Iran’s economy shrank by 1.7 per cent in 2013, the second straight year of contraction after the United States and its allies imposed sweeping sanctions.

But the IMF projects that Iran’s economy will rebound by 1.5 per cent in the current year — even if sanctions relief under a temporary deal proves short-lived — as Tehran undertakes reforms.

Masood Ahmed, director of the IMF’s Middle East and Central Asia department, said that Iran’s economic woes were “beginning to level off” but that much depends on whether the country reaches a comprehensive nuclear deal.

“We do think that if there is a permanent improvement in that international environment ... this should have an impact in terms of generating growth rates in the medium term that are substantially higher,” Ahmed told reporters at the IMF/World Bank spring meetings in Washington.

Ahmed said that Iran has been benefiting from foreign exchange market reforms and a dramatic calming of once-soaring inflation. But he said that Iran needed further structural reforms and to tighten monetary policy.

Iran’s new reform-minded government under President Hassan Rouhani in November reached a deal with six world powers to freeze its nuclear program, which some Western officials and Israel charge is aimed at building nuclear weapons.

The United States and European powers in return offered temporary relaxation of sanctions. But President Barack Obama has said that the sanctions would resume if talks on a comprehensive agreement fail.