## _cr07288 ## Source details **Canonical URL:** [_cr07288](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07288.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07288.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07288.pdf.json) --- ### Executive Summary - Focus: macroeconomic and structural policy adjustments to - continue to deal with the decline in oil revenues, - rebalance sources of growth toward investment and durable gains in external markets, - expand and diversify the production base, - boost job creation to absorb growing labor market entrants. - Authorities’ commitments: - start reform of the petroleum price subsidies (PPS) before the end of the year, - put back on track agenda for early adoption of the VAT, - progress on establishing regulatory framework for the financial sector and strengthening the monetary policy framework, - move ahead with financial sector reform with input from upcoming FSAP. - Staff recommendations (policy priorities): - steadfast implementation of the reform agenda in the tenth five-year development plan, - avoid further reliance on cuts in capital spending as the main adjustment instrument, - phase in PPS reform and launch the VAT, - gain credibility operating the new managed float within a tight trading range, - develop new monetary instruments to enhance monetary management and allow further interest rate liberalization, - prioritize supervisory-capacity building and state banks’ restructuring, - strengthen the statistical base. ### Recent economic developments — Key findings and statistics - Growth and labor: - Staff estimates growth of non-oil GDP picked up to some 6–7 percent in 2006. - Given a 6½ percent drop in oil production, overall growth estimated at 4½–5 percent in 2006. - Iraqi refugees: number grew by 60 percent in 2006, to about 1½ million (8 percent of the Syrian population). - Investment approvals (Law No 10 of 1991): - Investment approvals reached US$9.2 billion (26 percent of GDP) in 2006, more than 2½ times the level of 2004. - Almost three-fourths of 2006 approvals in diversified industrial projects; 20 percent in transport. - Tourism approvals reached US$2 billion in 2006, 25 times higher than in 2004. - Investment in the financial sector grew by 200 percent in 2006. - Investment Approvals (SP billions): 2004: SP 181 billion; 2005: SP 401 billion; 2006: SP 569 billion. - Inflation and prices: - Average inflation increased to 10 percent in 2006. - End-of-period inflation declined, reaching 4½ percent in March 2007. - Half of the increase in inflation in 2006 attributed to food prices. - Fiscal aggregates and adjustment: - Cumulative loss of oil revenues in excess of 10 percentage points of GDP over the last three years. - Cumulative improvement of 7 percentage points of GDP over 2004–06 narrowed the non-oil budget deficit to about 10 percent of GDP in 2006. - Adjustment achieved through rationalization and efficiency gains in investment spending and higher dividends from some public enterprises. - Many PEs loss making; budgetary transfers rose by ½ percent of GDP over past three years to about 2 percent of GDP in 2006. - Selected fiscal operations (In percent of GDP): - Revenue: 2003: 28.8; 2004: 27.2; 2005: 24.0; 2006 (Prel. Est.): 21.9; Cumulative change 2004–06: -6.9 - Oil revenues: 2003: 14.7; 2004: 11.2; 2005: 7.1; 2006: 4.5; Cumulative change: -10.2 - Non-oil revenue: 2003: 14.0; 2004: 16.0; 2005: 16.9; 2006: 17.4; Cumulative change: 3.3 - Expenditure: 2003: 31.4; 2004: 31.4; 2005: 28.4; 2006: 27.6; Cumulative change: -3.7 - Development expenditure: 2003: 13.7; 2004: 12.4; 2005: 10.3; 2006: 8.9; Cumulative change: -4.8 - Overall balance: 2003: -2.6; 2004: -4.2; 2005: -4.4; 2006: -5.7; Cumulative change: -3.1 - Non-oil balance: 2003: -17.3; 2004: -15.4; 2005: -11.6; 2006: -10.2; Cumulative change: 7.1 - Monetary and credit: - Private sector credit growth in 2006: 18½ percent. - Sources of money creation (Change in percent of initial stock of money): Net foreign assets: 2003: 4.2; 2004: 7.1; 2005: 2.3; 2006: -1.7 - Domestic assets (net): 2003: 3.5; 2004: 6.4; 2005: 9.7; 2006: 16.3 - Domestic credit: 2003: 4.7; 2004: 8.8; 2005: 16.1; 2006: 13.1 - Money (M2): 2003: 7.6; 2004: 13.5; 2005: 12.0; 2006: 14.6 - Memorandum: Credit to the private sector (percent change): 2003: 30.3; 2004: 35.0; 2005: 45.9; 2006: 18.4 - Administered deposit interest rates turned negative in real terms during most of 2006 but are now positive. - Private banks: - First three private banks opened in 2004; four more entered over the last two years; several more expected in 2007 including some Islamic financial institutions. - In 2006 private banks captured 70 percent of the increase in private sector deposits and contributed 45 percent of the growth in loans to the private sector. - By end-2006 private banks’ share in private sector deposits and loans: 25 percent and 14 percent, respectively. - Private banks’ loan portfolio growth remained above 100 percent in recent years though pace slowed in 2006. - Data and statistics: - CBS preliminary estimate of non-oil GDP growth in 2006 is 10 percent; reliability compromised by methodological problems and weak data sources. - Data on actual investment are scant; surge in investment approvals may not yet have translated into commensurate increase in actual investment. ### External sector developments and balance of payments - Overall balance of payments: - Swung from a surplus of about 2 percent of GDP in 2003 to a deficit of some 2 percent of GDP in 2006. - Oil sector contribution to foreign exchange earnings: - Close to 11 percent of GDP in 2003. - Almost nil in 2006. - Expected to turn negative in 2007. - Non-oil goods and services account: - Estimated to have narrowed by about 4 percentage points of GDP reflecting strong growth in non-oil exports, particularly to some Arab countries under the Great Arab Free Trade Area. - Key external sector indicators (In percent of GDP): - Current account balance: 2003: 0.8; 2004: -3.2; 2005: -4.1; 2006: -6.1 - Oil balance: 2003: 10.8; 2004: 5.2; 2005: 2.0; 2006: 0.4 - Non-oil goods and services balance: 2003: -12.7; 2004: -12.0; 2005: -9.5; 2006: -8.8 - Factor income and transfers: 2003: 2.7; 2004: 3.5; 2005: 3.4; 2006: 2.3 - Identified capital inflows: 2003: 0.7; 2004: -0.6; 2005: -1.7; 2006: -1.6 - Of which: FDI: 2003: 0.7; 2004: 1.1; 2005: 1.7; 2006: 1.7 - Inflows related to the Iraqis: 2003: 0.0; 2004: 1.8; 2005: 2.8; 2006: 3.7 - Errors and omissions: 2003: 1.1; 2004: 2.8; 2005: 3.1; 2006: 1.8 - Overall balance: 2003: 2.6; 2004: 0.8; 2005: 0.1; 2006: -2.2 - Central bank net foreign assets (NFA), millions of U.S. dollars: - 2003: 17,362; 2004: 17,567; 2005: 17,585; 2006: 16,833 - (In months of imports of GNFS): 2003: 25.4; 2004: 20.0; 2005: 16.4; 2006: 13.4 - (In percent of GDP): 2003: 76.5; 2004: 70.2; 2005: 61.4; 2006: 48.2 - Parallel market rate depreciated modestly by 6 percent in nominal effective terms over the period referenced. ### Exchange rate developments, convertibility, and central bank actions - Substantial liberalization of import financing in September 2006. - Official budget rate eliminated on January 1, 2007; unified economically significant exchange rates. - Since unification, CBS managing currency vis-à-vis the U.S. dollar within a tight trading range and intervened occasionally to lean against upward pressures. - Inflation and real appreciation: - Real appreciation in 2006: 7.3 percent for the parallel market rate and 2.2 percent for the weighted average rate. - Remaining foreign exchange restrictions include access to foreign exchange to finance car imports and payments and transfers on the invisibles account. ### Fiscal policy, PPS reform, and VAT - Fiscal outlook and targets: - Authorities aim to reduce the budget deficit to 5 percent of GDP in 2007, despite an expected further fall of oil revenues of about ¾ percentage points of GDP. - Requires improvement in the non-oil budget deficit of some 1½ percent of GDP in 2007, planned through further rationalization of capital spending. - Petroleum Price Subsidy (PPS) reform: - PPS cost exceeded 10 percent of GDP in 2006. - Preparations advanced with hopes to start reform before the end of the summer (as stated). - Diesel price increase options (Increase in the Price of Diesel (In percent) options: 100 1/; 150 2/; 200 3/): - Impact on the CPI (in percent): Total effect: 4.2, 6.2, 8.3; of which direct effect: 2.7, 4.0, 5.3 - Impact on government revenues in 2008 (in percent of GDP) (Assuming reform starts on January 1, 2008): - Net impact 5/: 1.9, 2.7, 3.6 - Gross fiscal savings: 3.2, 4.7, 6.1 - minus compensation 1: 1.3, 2.0, 2.5 - Net impact 6/: 2.2, 3.2, 4.1 - Gross fiscal savings: 3.2, 4.7, 6.1 - minus compensation 2: 1.0, 1.5, 2.0 - Notes: - 1/ Closes 35 percent of the gap vis-à-vis international prices. - 2/ Closes 53 percent of the gap vis-à-vis international prices. - 3/ Closes 70 percent of the gap vis-à-vis international prices. - 4/ Assuming the reform starts on January 1, 2008. - 5/ Returning 42 percent of gross fiscal savings to households would make 50 percent of the population better off. - 6/ Returning 33 percent of gross fiscal savings to households would make the three poorest population deciles better off. - Initial compensation envisaged: flat per person cash compensation (without means-testing), potentially piggy-backing on existing coupon system for rice and sugar. - Value-Added Tax (VAT): - Major delays in prerequisite tax administration measures, including adoption of a tax procedures code and an integrated IT system. - Authorities hope to introduce the VAT by early 2009 and committed to accelerating preparatory work. - Public Enterprise (PE) reform and public expenditure review: - Deepening PE reform and reviewing public expenditures could contribute to fiscal savings and improve spending effectiveness. - Authorities working on agenda favoring public private partnerships; liquidations or outright sales not currently under consideration. - Wages: - Authorities did not exclude raising civil servants’ wages; staff view cautions that increasing wages would introduce budget rigidity and press on private sector wages. ### Monetary and exchange rate framework, and central bank priorities - Authorities’ view: exchange rate should remain the main nominal anchor given rudimentary monetary instruments and ample reserves. - Caution against a peg due to uncertainties about equilibrium rate amid depletion of oil reserves, trade liberalization, and market transition. - Near-term CBS priorities (next 12 months) to establish credibility in a managed float within a tight trading range: - speed licensing of foreign exchange bureaus (Only five licensed so far; 117 pending requests), - create a unified interbank foreign exchange market with CBS as credible market maker, - transfer remaining international reserves owned by the Commercial Bank of Syria (CBoS) (60 percent of total reserves) to the CBS in exchange for market-based remunerated government securities, - work with ministry of finance to establish government securities market and improve public debt management, - establish mechanisms to control liquidity, including promoting an interbank market, - address weaknesses in BOP statistics. - Staff: once CBS gains credibility and better BOP understanding, referencing to a basket is appropriate; staff could not compute CGER indicators due to inadequate BOP data. - Authorities intend to remove remaining foreign exchange restrictions and multiple currency practices and hope to be in a position to accept obligations under Article VIII before the end of the year. ### Financial sector development and vulnerabilities - Main impediments and vulnerabilities: - Slow progress in state banks’ restructuring; unreformed public banks have high non-performing loans, low profitability and undercapitalization. - Banks incur heavy costs managing SP liquidity due to administered deposit interest rates and slow development of market-based instruments. - Deposit dollarization: currently, 55 percent of private banks deposits are denominated in U.S. dollars (noting elsewhere deposit dollarization ratios: 2005: 9.0; 2006: 11.8 for All Banks). - Lending in U.S. dollars generally not allowed except for trade financing, but blurred practices raise hedging risks. - Regulatory and supervisory capacity lagging; CBS compiles only restricted financial soundness indicators. - Slow payments system development raises costs; difficulties in registering and enforcing collaterals. - Authorities’ actions: - Prioritize building supervisory capacity and restructuring state banks. - Requested an FSAP to assess progress and lay a reform road map for the next 2–3 years. - With technical assistance, supervision department staff tripled to about 70; improvements in research, accounting, and reserve management. - Authorities seeking adoption of a draft central bank law to give CBS greater autonomy and supervisory authority. ### Trade liberalization, structural reforms, and public administration - Achievements under FYDP: - New investment law equalized treatment of foreign and domestic investors. - Amendments to income tax law lowered tax rates and unified tax incentives. - New Basic Finance law unified current and investment budgets and severed links between PEs and the budget. - Average tariff rate reduced from 20 percent in 2003 to 14½ percent in 2006. - Free Trade Agreement with Turkey effective January 2007; optimism about Great Arab Free Trade Area benefits. - Remaining structural rigidities hamper investment and productivity growth: - Low labor force participation: 45 percent. - Doing Business ranking: 130 out of 175 countries; worst in enforcing contracts (153), trading across borders (147), and starting a business (142). - Recommended further reforms: - streamline list of prohibited imports; abolish industrial quotas; reduce number of tariff bands; eliminate nontariff barriers; remove barriers to competition in product markets; tackle high costs of contract enforcement, starting a business, and property registration. - Public administration and human capital: - Implementing legislation requires new technical expertise; authorities encouraged to introduce a special fast-track scheme to attract highly skilled managers and provide intensive training to newly hired young graduates while pursuing civil service reform. ### Near- and medium-term outlook and scenarios - Growth outlook for 2007: - Expected to sustain about the same pace as in 2006. - Given a projected 7 percent decline in oil GDP, overall growth of about 4 percent in 2007 is consistent with reforms, Iraqi presence, and global/regional growth. - Downside risks: adverse regional political developments and uncertainties affecting private investment. - Macroeconomic policy stance: - Macroeconomic policies should remain appropriately tight to keep inflation in check. - Authorities aim to reduce budget deficit to 5 percent of GDP in 2007; requires improvement in non-oil budget deficit of some 1½ percent of GDP. - State banks’ lending should remain in line with monetary objectives. - Staff central medium-term scenario: - Assumes moderate further fiscal adjustment but not enough to offset decline in oil revenues, leading to steady rise in public debt. - Drying up of inflows from Iraqi refugees and rising oil import bills will pressure external position and complicate maintenance of stable exchange rate and comfortable international reserves. - Stress tests indicate added pressures on debt dynamics from various shocks; additional pressures could arise from higher health and education spending on Iraqi refugees. - Alternative scenarios: - Strong fiscal adjustment scenario (example given): 9 percent of GDP until 2012 shows higher medium-term growth and steady reduction in external current account deficit. - No-adjustment scenario: non-oil budget deficit widens over time reflecting higher debt servicing costs. ### Public and external debt sustainability (stress-test highlights) - Public sector debt (percent of GDP): 83.3 (2002); 84.7 (2003); 82.6 (2004); 35.9 (2005); 35.9 (2006); 37.8 (2007); projected to 49.6 (2012) under the baseline. - Primary deficit examples: 1.4 (2002); 1.9 (2003); 3.3 (2004); 3.3 (2005); 4.7 (2006); 4.1 (2007). - Selected stress tests (public debt): - B1. Real interest rate shock: public debt rises (e.g., 41.9 in 2008; 54.8 in 2012). - B2. Real GDP growth shock: debt increases (e.g., 41.8 in 2008; 58.1 in 2012). - B3. Primary balance shock: debt increases (e.g., 42.0 in 2008; 54.5 in 2012). - B5. One-time 30 percent real depreciation in 2008: elevated public debt (e.g., 49.3 in 2008; 57.2 in 2012). - B6. 10 percent of GDP increase in other debt-creating flows in 2008: elevated debt (e.g., 51.0 in 2008; 58.7 in 2012). - External debt highlights: - External debt (percent of GDP) declines to 17.2 (2007) and projected 19.7 (2012) under baseline. - Gross external financing need (US$ billions) shown rising across projection years (e.g., 4.7 in 2007 and projected higher in later years). - Stress tests (B1–B5) show sensitivity of external debt and non-interest current account to shocks. ### Reforms since last Article IV consultation (selected) - Fiscal: - Draft public debt management law submitted to Cabinet. - New Basic Finance Law approved October, 2006; takes effect with 2008 budget. - 2003 income tax law amended (Decree No. 51 of October 1, 2006): top marginal corporate rate lowered from 35 to 28 percent (and to 14 percent for shareholding companies). - First large taxpayers unit opened September, 2006. - Monetary and financial: - Money and Credit Council decisions (August 2006): lending rates for state banks liberalized; interest rates on current account deposits unified at one percent; remunerate deposits at CBS in excess of statutory reserve at one percent. - Seven foreign exchange bureaus and companies licensed; over 100 applications processed. - Four new private banks and eight private insurance companies started operations in 2006; three Islamic banks and one Islamic insurance company licensed in 2007. - Minimum capital requirement for private banks expected to be raised from US$30 million to US$100 million. - Decree No 55 (October 1, 2006) established the Damascus Securities Exchange (DSE), expected to start operations early in 2008. - Exchange rate, trade, market regulation: - Decree No. 5204 (September 2006) authorized licensed banks to finance all permitted imports. - Official budget rate abolished on January 1, 2007; single market reference rate now quoted by the CBS. - Free Trade Agreement with Turkey went into effect in January 2007. - New customs law (October 2006) allowed further automation including implementation of ASYCUDA. - Investment law changes (Decree No 8 of January 27, 2007) ended most tax exemptions under Law No. 10 of 1991; maintained exemption from customs duties on imported equipment; allows full annual repatriation of profits and ownership of land; new law covers all sectors except tourism, financial services, and real estate. - Reforms “in the pipeline”: - Draft company and competition laws submitted to Parliament. - Drafts on real estate development and mortgage lending expected to be adopted soon. - Draft Central Bank Law expected late 2007–early 2008. - 49 percent limit on foreign ownership in banks expected to be raised in 2007/08. - Credit registry expected operational late 2007/early 2008. ### Data, technical assistance, and mission recommendations - Mission recommendations and TA priorities: - Adopt a new foreign exchange form to improve source data. - Establish an enterprise register to estimate FDI. - Disseminate international reserves and external debt data. - METAC/STA five priority TA areas: reliable import/export data; estimating FDI; implementing new reporting form for commercial banks; deriving flow data from balance sheets; hands-on training for new staff. - METAC/STA findings and implementation status: - February 2006 STA assessment: minimal progress; recommended five priority areas. - METAC (June 26–29, 2006) agreed actions: establish a BOP division with at least 6 staff; provide ITRS-based data by end-August 2006; provide detailed central bank balance sheet data and bridge tables by end-July 2006. - METAC (January 18, 2007) found little progress; BOP Department not yet created; ITRS implementation quality poor; CBS lacked consolidated ITRS report for any single month in 2006. - Authorities submitted revised reserve assets data to METAC/STA for review. - Data dissemination periodicity (selected indicators as of June 22, 2007): many key indicators have lags; latest observations vary (examples: Exchange Rates latest observation May. 2006; CPI latest observation Dec. 2004; GDP/GNP latest observation Dec. 2003). ### Executive Board assessment and recommendations (Public Information Notice No. 07/104, August 15, 2007) - Commended sustained fiscal adjustment and welcomed lowering corporate income taxes. - Recommended introducing a VAT and phasing out petroleum price subsidies as main fiscal consolidation pillars. - Urged accelerating tax administration reforms and enacting a new foreign exchange law to enshrine full current account convertibility and a unified exchange rate. - Supported adoption of a bank law granting CBS operational independence, introduction of market-based monetary instruments, centralization of official foreign exchange reserves, and establishment of a government securities market. - Recommended accelerating licensing of foreign exchange bureaus and launching an interbank foreign exchange market. - Urged priority to strengthen bank supervision capacity and speed state bank restructuring. - Encouraged further trade liberalization and strengthening domestic capacity (fast-track scheme for skilled managers, intensive training, civil service reform). - Emphasized improving quality and timeliness of economic statistics, especially BOP and real sector. ### Selected macroeconomic and fiscal indicators (selected entries preserved exactly) - National income and prices: - Nominal GDP (LS billions): 1,118.0 (2003); 1,263.8 (2004); 1,493.6 (2005); 1,780.9 (2006); 1,920.7 (2007). - Nominal GDP ($ billions): 22.7 (2003); 25.0 (2004); 28.6 (2005); 34.9 (2006); 36.9 (2007). - Real GDP growth (percent): 1.1 (2003); 2.8 (2004); 3.3 (2005); 4.4 (2006); 3.9 (2007). - CPI period average: 5.8 (2003); 4.4 (2004); 7.2 (2005); 10.0 (2006); 7.0 (2007). - Government finances (percent of GDP): - Revenue: 28.8 (2003); 27.2 (2004); 24.0 (2005); 21.9 (2006); 22.0 (2007). - Oil-related revenue: 14.7 (2003); 11.2 (2004); 7.1 (2005); 4.5 (2006); 3.8 (2007). - Non-oil revenue: 14.0 (2003); 16.0 (2004); 16.9 (2005); 17.4 (2006); 18.2 (2007). - Expenditure: 31.4 (2003); 31.4 (2004); 28.4 (2005); 27.6 (2006); 27.0 (2007). - Overall balance: -2.6 (2003); -4.2 (2004); -4.4 (2005); -5.7 (2006); -5.0 (2007). - Non-oil budget balance: -17.3 (2003); -15.4 (2004); -11.6 (2005); -10.2 (2006); -8.9 (2007). - Gross debt: 84.7 (2003); 82.6 (2004); 35.9 (2005); 35.9 (2006); 37.8 (2007). - Monetary aggregates and credit: - M2 (percent change): 7.6 (2003); 13.5 (2004); 12.0 (2005); 14.6 (2006); 15.5 (2007). - Credit to private sector (percent change): 30.3 (2003); 35.0 (2004); 45.9 (2005); 18.4 (2006); 19.2 (2007). - Reserve money (percent change): 10.2 (2003); 25.2 (2004); 7.7 (2005); 9.7 (2006); 13.3 (2007). - Central bank net foreign assets (millions of U.S. dollars): 4,926 (2003); 5,391 (2004); 6,130 (2005); 6,721 (2006); 6,417 (2007). - Balance of payments (selected): - Current account balance (millions of U.S. dollars): 181 (2003); -811 (2004); -1,177 (2005); -2,133 (2006); -2,153 (2007). - Current account balance (percent of GDP): 0.8 (2003); -3.2 (2004); -4.1 (2005); -6.1 (2006); -5.8 (2007). - Exports, f.o.b. (millions of U.S. dollars): 4,111 (2003); 3,395 (2004); 4,300 (2005); 4,076 (2006); 3,869 (2007). - Imports, f.o.b. (millions of U.S. dollars): -737 (2003); -1,156 (2004); -2,473 (2005); -2,883 (2006); -3,046 (2007). - Net change in reserves (increase = -) (millions of U.S. dollars): -585 (2003); -202 (2004); -187 (2005); 536 (2006); 08 (2007). - Government external debt (millions of U.S. dollars): 17,537 (2003); 18,318 (2004); 6,682 (2005); 6,778 (2006); 6,340 (2007). - Government external debt (percent of GDP): 77.3 (2003); 73.2 (2004); 23.3 (2005); 19.4 (2006); 17.2 (2007). - Financial soundness indicators (selected, 2005–06): - Non-performing loans/loan portfolio (All Banks): 13.1 (2005); 12.1 (2006). - Non-performing loans/loan portfolio (Public Banks): 0.5 (2005); 1.0 (2006). - Non-performing loans/loan portfolio (Private Banks): 12.2 (2005); 10.6 (2006). - Return on Assets (RoA) All Banks: 1.2 (2005); 0.5 (2006). - Return on Equity (RoE) All Banks: 25.7 (2005); 3.6 (2006). - Customer loans/total deposits All Banks: 44.5 (2005); 52.6 (2006). - Deposit dollarization ratio All Banks: 9.0 (2005); 11.8 (2006). *Source: IMF staff report — Executive Summary and selected excerpts (Syria), _cr07288.* ### Executive Summary ...................................................................................................... ### _cr07288 - Executive Summary ### Focus of the report - Discussions focused on the macroeconomic and structural policy adjustments needed to: - continue to deal with the decline in oil revenues, - rebalance the sources of growth toward investment and durable gains in external markets, - expand and diversify the production base of the economy, - boost job creation to absorb a growing number of entrants to the labor market. ### Background / Recent performance - Over the past three years, Syria has rebounded from a half decade of weak growth despite an unsettled regional environment and a sharp drop in oil production. - The economic recovery since 2004 benefited from: - inflows from Iraqi refugees and abundant liquidity in the Gulf region, - strengthened private investment reflecting an improved business climate, - strong gains in exports, particularly in some Arab markets under the Great Arab Free Trade Area. - Despite a 10 percentage points of GDP drop in oil proceeds over the past three years and the large demand shock from Iraqi refugees, inflationary pressures have been contained owing to supply responsiveness and a sustained, timely and sizeable fiscal adjustment. - Public debt is relatively moderate, and the international reserves cover is comfortable. - Near-term outlook for growth and inflation is favorable, barring policy missteps or deterioration in the regional environment. ### Views of the authorities - Authorities were pleased with the economy’s performance but aware of challenges. - Key commitments and intentions: - start the reform of the costly petroleum price subsidies (PPS) before the end of the year, - put back on track the agenda for an early adoption of the VAT, - progress in establishing the regulatory framework for the financial sector and strengthening the monetary policy framework, - move ahead with financial sector reform with input from the upcoming FSAP. ### Staff recommendations (policy priorities) - Steadfast implementation of the reform agenda embedded in the ambitious tenth five-year development plan. - Avoid further reliance on cuts in capital spending as the main adjustment instrument (risk of hampering growth). - Move swiftly to: - phase in the PPS reform, - launch the VAT (two key pillars of the fiscal reform strategy discussed during last year’s Article IV consultation). - Gain credibility in operating the new managed float exchange rate system within a tight trading range. - Develop new monetary instruments to: - enhance monetary management, - allow further interest rate liberalization, - alleviate the costs on banks of managing Syrian pound liquidity, - pave the way toward greater exchange rate flexibility over the medium term. - Prioritize supervisory-capacity building and state banks’ restructuring to address emerging vulnerabilities and enhance financial sector development. - Utmost priority to strengthen the statistical base to enhance economic surveillance and reduce the risk of policy mistakes. ### Introduction (summary) - Over the past three years Syria rebounded despite a sharp drop in oil production and unsettled regional environment. - Recovery since 2004 supported by Iraqi refugee inflows and Gulf liquidity, private investment, and export gains. - The 2007 Article IV consultation discussions were held prior to the presidential elections. - Authorities have been responsive to Fund advice and continued progress on the comprehensive reform agenda in the 10th five-year development plan (FYDP, 2006–10). ### Recent economic developments — Key findings and statistics - Growth - Staff estimates growth of non-oil GDP picked up to some 6–7 percent in 2006. - Given a 6½ percent drop in oil production, this is consistent with overall growth of 4½–5 percent. - Iraqi refugees: number grew by 60 percent in 2006, to about 1½ million (8 percent of the Syrian population). - Investment approvals (Box 1: The Surge in Investment Approvals) - Under Law No 10 of 1991, investment approvals reached US$9.2 billion (26 percent of GDP) in 2006, more than 2½ times the level of 2004. - Almost three-fourths of investment approvals in 2006 were in diversified industrial projects; 20 percent in the transport sector. - Real estate projects: about 15 percent of the total approved projects in 2005 (SP 60 billion). - Share of FDI approvals in total approvals estimated at about 20 percent (stable). - Tourism approvals reached US$2 billion in 2006, 25 times higher than in 2004. - Investment in the financial sector grew by 200 percent in 2006. - Syrian Arab Republic: Investment Approvals under Law #10 and in Tourism, 2004–06 — 2004: SP 181 billion; 2005: SP 401 billion; 2006: SP 569 billion. - Inflation - Average inflation increased to 10 percent in 2006. - End-of-period inflation declining, reaching 4½ percent in March 2007. - Half of the increase in inflation in 2006 attributed to food prices. - Fiscal adjustment and budget aggregates - Over the last three years a cumulative loss of oil revenues in excess of 10 percentage points of GDP. - Cumulative improvement of 7 percentage points of GDP over 2004–06 narrowed the non-oil budget deficit to about 10 percent of GDP in 2006. - Adjustment largely achieved through rationalization and efficiency gains in investment spending, and higher dividends from buoyant profits of some public enterprises (mainly telecommunications). - Most PEs are loss making, with budgetary transfers rising by ½ percent of GDP over the past three years, to about 2 percent of GDP in 2006. - Profit tax rates lowered drastically—top marginal rate from 65 percent in 2003 to 28 percent in the latest amendment—and import tariffs reduced significantly. - Summary of Fiscal Operations, 2003–06 (In percent of GDP): - Revenue: 2003: 28.8; 2004: 27.2; 2005: 24.0; 2006 (Prel. Est.): 21.9; Cumulative change during 2004–06: -6.9 - Oil revenues: 2003: 14.7; 2004: 11.2; 2005: 7.1; 2006: 4.5; Cumulative change: -10.2 - Non-oil revenue: 2003: 14.0; 2004: 16.0; 2005: 16.9; 2006: 17.4; Cumulative change: 3.3 - Expenditure: 2003: 31.4; 2004: 31.4; 2005: 28.4; 2006: 27.6; Cumulative change: -3.7 - Current expenditure: 2003: 17.7; 2004: 19.0; 2005: 18.1; 2006: 18.7; Cumulative change: 1.0 - Development expenditure: 2003: 13.7; 2004: 12.4; 2005: 10.3; 2006: 8.9; Cumulative change: -4.8 - Overall balance: 2003: -2.6; 2004: -4.2; 2005: -4.4; 2006: -5.7; Cumulative change: -3.1 - Non-oil balance: 2003: -17.3; 2004: -15.4; 2005: -11.6; 2006: -10.2; Cumulative change: 7.1 - Monetary and credit developments - State banks slowed lending helping cool the 2004–05 credit boom. - Private sector credit growth in 2006: 18½ percent. - Sources of money creation (Change in percent of initial stock of money): - Net foreign assets: 2003: 4.2; 2004: 7.1; 2005: 2.3; 2006: -1.7 - Domestic assets (net): 2003: 3.5; 2004: 6.4; 2005: 9.7; 2006: 16.3 - Domestic credit: 2003: 4.7; 2004: 8.8; 2005: 16.1; 2006: 13.1 - Net claims on the public sector: 2003: 0.6; 2004: 3.1; 2005: 7.2; 2006: 8.4 - Claims on private sector: 2003: 4.1; 2004: 5.7; 2005: 8.9; 2006: 4.6 - Money (M2): 2003: 7.6; 2004: 13.5; 2005: 12.0; 2006: 14.6 - Memorandum: Credit to the private sector (percent change): 2003: 30.3; 2004: 35.0; 2005: 45.9; 2006: 18.4 - Administered deposit interest rates, which turned negative in real terms during most of 2006, are now positive. - Private banks (Box 2: The Rapid Growth of Private Banks) - First three private banks opened in 2004; four more entered over the last two years; several more expected in 2007 including some Islamic financial institutions. - Private banks mainly subsidiaries of regional banks though majority ownership held by Syrian investors. - In 2006 private banks captured 70 percent of the increase in private sector deposits and contributed 45 percent of the growth in loans to the private sector. - By end-2006 private banks’ share in private sector deposits and loans reached 25 percent and 14 percent, respectively. - Private banks’ loan portfolio growth remained above 100 percent in recent years though pace slowed in 2006. ### Additional operational observations - Statistical weaknesses noted: the central bureau of statistics’ preliminary estimate of non-oil GDP growth in 2006 is 10 percent but reliability compromised by methodological problems and weak data sources. - Data on actual investment are scant; surge in investment approvals may not yet have translated into commensurate increase in actual investment. - Monetary management in 2006: increase in other items (net) reflects, in large part, use of part of the valuation adjustment account of the CBoS to finance the budget deficit. *Source: IMF staff report — Executive Summary (Syria), _cr07288.* ### 8. The assessment of external sector developments is complicated by several data ### _cr07288 - 8. The assessment of external sector developments is complicated by several data ### External sector developments and balance of payments - The overall balance of payments swung from a surplus of about 2 percent of GDP in 2003 to a deficit of some 2 percent of GDP in 2006. - Factors that offset, in part, the sharp decline in net oil exports over the last three years include: - Fiscal adjustment. - Inflows associated with the Iraqi refugees. - Some pickup in FDI. - The contribution of the oil sector to foreign exchange earnings: - Was close to 11 percent of GDP in 2003. - Became almost nil in 2006. - Is expected to turn negative in 2007. - The non-oil goods and services account is estimated to have narrowed by about 4 percentage points of GDP, reflecting strong growth in non-oil exports, particularly to some Arab countries under the Great Arab Free Trade Area. - Key external sector indicators (In percent of GDP; unless otherwise indicated): - Current account balance: 2003: 0.8; 2004: -3.2; 2005: -4.1; 2006: -6.1 - Oil balance: 2003: 10.8; 2004: 5.2; 2005: 2.0; 2006: 0.4 - Non-oil goods and services balance: 2003: -12.7; 2004: -12.0; 2005: -9.5; 2006: -8.8 - Factor income and transfers: 2003: 2.7; 2004: 3.5; 2005: 3.4; 2006: 2.3 - Identified capital inflows: 2003: 0.7; 2004: -0.6; 2005: -1.7; 2006: -1.6 - Of which: FDI: 2003: 0.7; 2004: 1.1; 2005: 1.7; 2006: 1.7 - Inflows related to the Iraqis (Includes inflows to purchase goods and services, assets (such as real estate), and for investment): 2003: 0.0; 2004: 1.8; 2005: 2.8; 2006: 3.7 - Errors and omissions: 2003: 1.1; 2004: 2.8; 2005: 3.1; 2006: 1.8 - Overall balance: 2003: 2.6; 2004: 0.8; 2005: 0.1; 2006: -2.2 - Net foreign assets (NFA) of the central bank and the CBoS (In millions of U.S. dollars): - 2003: 17,362 - 2004: 17,567 - 2005: 17,585 - 2006: 16,833 - (In months of imports of GNFS): 2003: 25.4; 2004: 20.0; 2005: 16.4; 2006: 13.4 - (In percent of GDP): 2003: 76.5; 2004: 70.2; 2005: 61.4; 2006: 48.2 - The parallel market rate has depreciated modestly by 6 percent in nominal effective terms over the period referenced. ### Exchange rate developments, convertibility, and central bank actions - Substantial liberalization of import financing was achieved in September 2006. - Elimination of the official budget rate in January 2007 unified the economically significant exchange rates. - Since unification, the central bank has been managing the value of the currency vis-à-vis the U.S. dollar within a tight trading range. - The Central Bank of Syria (CBS) has occasionally intervened to lean against upward pressures on the exchange rate, given the strong performance of non-oil exports and to better understand the strengthening of the BOP. - Inflation and real appreciation: - Pick-up of inflation in 2006 led to some real appreciation: 7.3 percent for the parallel market rate and 2.2 percent for the weighted average rate. - Syria’s price competitiveness (real bilateral exchange rates) has remained comparable or better than Lebanon, Jordan, Morocco, and Turkey, but has deteriorated vis-à-vis Egypt and Tunisia. - Remaining foreign exchange restrictions noted include: access to foreign exchange to finance car imports and payments and transfers on the invisibles account. ### Reforms, structural issues, and data capacity - Broad-based reforms over the past two years produced significant changes: exchange rate unification, current account convertibility, investment facilitation under a more liberal investment regime, tax reform, trade and financial liberalization, and development of regulatory frameworks in key sectors (notably banking, insurance and capital markets, and in housing and real estate). - Persistent structural rigidities continue to hamper investment and productivity growth. - Among middle-income countries, Syria’s relatively low GDP per capita (⅔ of the group average) reflects low productivity and low labor force participation: - Labor force participation: 45 percent. - Syria ranks poorly in The World Bank’s Doing Business indicators: 130 out of 175 countries, with worst performance in enforcing contracts (153 ranking), trading across borders (147 ranking), and starting a business (142 ranking). - Authorities recognize data weaknesses hamper macroeconomic management: - Budget allocations to statistical institutions have been increased substantially. - Efforts underway to revamp accounting standards in public enterprises. - Authorities expect it will take time to overcome the skill-deficit. ### Near- and medium-term outlook and scenarios - Growth outlook for 2007: - Expected to sustain about the same pace as in 2006. - Given a projected 7 percent decline in oil GDP, overall growth of about 4 percent in 2007 is consistent with other factors (reforms, Iraqi presence, global/regional growth). - Downside risks include adverse political developments in the region and uncertainties affecting private investment. - Macroeconomic policy stance: - To keep inflation in check, macroeconomic policies should remain appropriately tight. - Authorities aim to reduce the budget deficit to 5 percent of GDP in 2007, despite an expected further fall of oil revenues of about ¾ percentage points of GDP. - This requires an improvement in the non-oil budget deficit of some 1½ percent of GDP in 2007, planned through further rationalization of capital spending. - Current benchmark interest rates agreed as appropriate; state banks’ lending should remain in line with monetary objectives. - Staff central medium-term scenario: - Assumes moderate further fiscal adjustment but not enough to offset the decline in oil revenues, leading to a steady rise in public debt. - Drying up of inflows from the Iraqi refugees and rising oil import bills will pressure the external position, complicating maintenance of both a stable exchange rate and comfortable international reserves. - Stress tests indicate added pressures on debt dynamics from various possible shocks. - Additional pressures could arise from higher health and education spending on Iraqi refugees. - Alternative scenarios: - Strong fiscal adjustment scenario (example given): 9 percent of GDP until 2012 shows higher medium-term growth and a steady reduction in the external current account deficit. - No-adjustment scenario: non-oil budget deficit widens over time reflecting higher debt servicing costs. ### Preserving fiscal sustainability - Fiscal adjustment so far was facilitated by flexibility of capital outlays; further consolidation will require difficult measures. - Development expenditures at 8 percent of GDP in 2007 are approaching levels where further cuts may start to hurt growth. - Authorities agreed on the need for strong further fiscal effort to address secular decline in oil revenues and preserve fiscal and external sustainability. - Key fiscal reform pillars agreed as necessary: - Petroleum price subsidy (PPS) reform. - Launch of a value-added tax (VAT). - Petroleum Price Subsidy (PPS) reform: - The PPS cost was recognized as untenable, exceeding 10 percent of GDP in 2006. - Preparations advanced with hopes to start reform before the end of the summer (as stated). - Two main trade-offs in PPS design: - Speed of price adjustment: risk of destabilizing inflation expectations with sharp increases versus adjustment fatigue from a drawn-out process. - Size of compensation: less fiscal savings versus more political palatability. - Quantified impacts of diesel price increases (Increase in the Price of Diesel (In percent) options: 100 1/; 150 2/; 200 3/): - Impact on the CPI (in percent): Total effect: 4.2, 6.2, 8.3; of which direct effect: 2.7, 4.0, 5.3 - Impact on government revenues in 2008 (in percent of GDP) (Assuming the reform starts on January 1, 2008): - Net impact 5/: 1.9, 2.7, 3.6 - Gross fiscal savings: 3.2, 4.7, 6.1 - minus compensation 1: 1.3, 2.0, 2.5 - Net impact 6/: 2.2, 3.2, 4.1 - Gross fiscal savings: 3.2, 4.7, 6.1 - minus compensation 2: 1.0, 1.5, 2.0 - Notes: - 1/ Closes 35 percent of the gap vis-à-vis international prices. - 2/ Closes 53 percent of the gap vis-à-vis international prices. - 3/ Closes 70 percent of the gap vis-à-vis international prices. - 4/ Assuming the reform starts on January 1, 2008. - 5/ Returning 42 percent of gross fiscal savings to households would make 50 percent of the population better off. - 6/ Returning 33 percent of gross fiscal savings to households would make the three poorest population deciles better off. - Initial compensation envisaged: flat per person cash compensation (without means-testing), potentially piggy-backing on existing coupon system for rice and sugar. - Value-Added Tax (VAT): - Major delays in prerequisite tax administration measures, including adoption of a tax procedures code and an integrated IT system. - Decision pending on VAT design and mitigation of regressivity. - Authorities committed to accelerating preparatory work and hope to introduce the VAT by early 2009. - Public enterprise (PE) reform and public expenditure review: - Deepening PE reform and reviewing public expenditures could contribute to fiscal savings and improve spending effectiveness. - Authorities working on an agenda favoring public private partnerships; liquidations or outright sales not currently under consideration. - Wages: - Authorities did not exclude raising civil servants’ wages, particularly in light of PPS reform. - Staff view: increasing wages to mitigate PPS impact would introduce budget rigidity, press on private sector wages, and not target other deserving segments. ### Strengthening monetary and exchange rate policy framework - Key policy decision in transition: whether the central bank should adopt a fixed exchange rate or allow some upfront flexibility. - Some limited flexibility had been built into the system prior to unification; this limited flexibility allowed the exchange rate to respond to market forces while providing a fairly solid nominal anchor. - Volatility of the parallel market rate and associated transaction costs had no obvious negative impact on trade expansion historically. *Source: Syrian Arab Republic—Selected excerpts on external sector developments, macroeconomic outlook, fiscal and monetary policy, and structural reforms.* ### 21. The authorities were of the view that the exchange rate should remain the main ### _cr07288 - 21. The authorities were of the view that the exchange rate should remain the main ### Monetary and exchange rate framework - Authorities view: the exchange rate should remain the main nominal anchor of the monetary policy framework. - Rationale: With only rudimentary monetary instruments, the exchange rate was the only variable the central bank could target effectively for the moment; Syria’s ample international reserves provide a comfortable cushion to deal with temporary shocks. - Caution against a peg: authorities thought pegging the unified exchange rate (either de jure or de facto) would not be advisable because of prevailing uncertainties about the equilibrium rate that are likely to persist given ongoing depletion of oil reserves, further trade liberalization, and the transition to a market economy. - Risk factors: fear-of-floating effects could develop rapidly under a peg given the high level of deposit dollarization (see below and Box 2). - Near-term challenge for the CBS (next 12 months): establish credibility in operating a managed float within a tight trading range by: - (i) speeding the process of licensing the foreign exchange bureaus; (Only five foreign exchange bureaus have been licensed so far; 117 pending requests for licensing are being processed.) - (ii) creating a unified interbank foreign exchange market in which the CBS could establish itself as a credible market maker; - (iii) gaining sole control over exchange rate management by transferring the remaining international reserves owned by the Commercial Bank of Syria (CBoS) (60 percent of total reserves) to the CBS in exchange for market-based remunerated government securities; (With the CBoS’s open exchange position equal to 7 times its capital, the risk is high of uncompetitive behavior in the FX market; in addition, day-to-day transactions of the CBoS could hinder the objectives of the CBS and lead to incoherent policies.) - (iv) working with the ministry of finance to establish the long-delayed government securities market and improving public debt management; - (v) establishing mechanisms to control liquidity, including by promoting an interbank market; and - (vi) addressing the weaknesses in the BOP statistics to develop reliable indicators on exchange rate misalignment. - Regime credibility depends critically on supportive fiscal and incomes policies. - Planned adjustment: authorities plan to switch the referencing of the SP from the U.S. dollar to the SDR under the managed float regime; staff: once CBS gains credibility and better BOP understanding, referencing to a basket is appropriate to ensure greater stability of the nominal effective exchange rate and to move toward greater flexibility. - Staff estimates: Syria’s external current account deficit has increased significantly in recent years owing to the sharp drop in oil exports; staff could not compute CGER indicators in light of the lack of adequate BOP data. - Authorities’ intent: move quickly toward removing remaining foreign exchange restrictions and multiple currency practices and hope to be in a position to accept the obligations under Article VIII before the end of the year; staff encouraged adoption of a new foreign exchange law and stands ready to assist preparatory steps for Article VIII acceptance. ### Financial sector development and vulnerabilities - Main impediments and vulnerabilities: - Slow progress in state banks’ restructuring constrains development of a competitive banking sector; unreformed public banks characterized by high non-performing loans, low profitability and undercapitalization. - Banks incur heavy costs in managing SP liquidity owing to administered deposit interest rates and slow progress in developing market-based instruments; CBS policy of raising the minimum capital requirement could, in an environment of limited lending opportunities and increased competition, lead to excessive risk taking or encourage further dollarization (currently, 55 percent of private banks deposits are denominated in U.S. dollars). (For the moment, this largely reflects a transfer to the new private banks of Syrian deposits that were held abroad.) - Lending in U.S. dollars is not generally allowed, except for trade financing, but banks may blur distinctions between trade and project financing, increasing exposure to credit risk of poorly hedged borrowers. - Regulatory and supervisory capacity has not kept pace with financial liberalization; private banks’ fast-paced credit expansion raises concerns. CBS compiles only a restricted set of financial soundness indicators to monitor the banking system (Table 11). Regulatory forbearance, existence of other regulatory agencies, and weak operational independence undermine supervision. - Slow progress in developing the payments system imposes large costs on banks; additional costs arise from difficulties in registering and enforcing collaterals. - Authorities’ priorities and actions: - Give priority to building supervisory capacity and restructuring the state banks. - Request for an FSAP motivated by need to assess progress and lay a road map for reforms in the next 2–3 years. - With technical assistance, CBS is addressing capacity constraints: supervision department staff has been tripled to about 70 in the past few years; improvements in research, accounting, and reserve management. - Authorities seeking broad support for adoption of a draft central bank law to give the CBS greater autonomy and strengthen supervisory authority. ### Trade liberalization and structural reforms - Progress noted under the FYDP: - New investment law put foreign and domestic investors at par. - Amendments to the income tax law lowered tax rates and unified tax incentives. - Adoption of a new Basic Finance law unified the current and investment budget and severed the links between PEs and the budget. - Completion of the round of tariff reduction started three years ago lowered the average tariff rate from 20 percent in 2003 to 14½ percent in 2006. - Authorities optimistic about benefits of free trade agreement with Turkey and integration in the Great Arab Free Trade Area. - Near-term legislative priorities: passage of draft laws on the central bank and public debt management; accelerate adoption of the competition and company laws. - Further reform recommendations: streamline list of prohibited imports, abolish industrial quotas, reduce number of tariff bands, eliminate nontariff barriers, remove barriers to competition in product markets, tackle high costs of contract enforcement, starting a business, and property registration. ### Staff appraisal — macro outlook, fiscal policy, and structural priorities - Recent performance and outlook: - Syria’s overall economic performance continued to be strong in 2006; outlook for 2007 is positive. - The economic recovery that started in 2004 remains on track despite a sharp decline in oil proceeds and an unsettled regional environment. - Non-oil GDP grew at a brisk pace in 2006, benefiting from sizeable inflows from Iraqi refugees and abundant Gulf liquidity; strong gains in non-oil exports and a pick up of private investment contributed to growth. - Fiscal policy: - Size and quality of fiscal adjustment in past three years is commendable and strengthened medium-term fiscal prospects. - Given prospective further decline in oil revenue and possible costs of bank restructuring, an additional strong fiscal effort is needed over the medium term. - Two key pillars of credible fiscal consolidation: PPS reform and introduction of a VAT with a single rate and few exemptions. - Address social equity by excises on luxury goods, well targeted spending programs, or enhancing progressivity of income taxes; restrained wage policy essential. - Accelerate pace of tax administration reforms to support VAT introduction. - Public enterprise (PE) reform: - Deepening PE reform important to improve efficiency and stop drain on public finances; severing links between PEs and the budget is positive but PEs must be subjected to market discipline and quasi-fiscal activities reflected transparently in the budget. - Restructure viable PEs, select those to privatize, develop case-by-case solutions (including liquidation) for the rest; allow restructured PEs flexibility in employment, wage and pricing policies. - Exchange rate, reserves, and BOP: - Progress toward exchange rate unification and current account convertibility are important and welcome; enactment of a new foreign exchange law should abrogate existing complex rules and enshrine full current account convertibility, a unified exchange rate, and repatriation of profits from FDI. - Staff: no indications that the exchange rate is significantly misaligned, supported by strong non-oil exports and lack of protracted reserve losses or unsustainable borrowing — but definitive conclusion hampered by inadequate BOP data. - Priority: improve BOP statistics to develop indicators to assess exchange rate misalignment. - Monetary policy and market instruments: - CBS encouraged to ensure consistent implementation of a managed float within a tight trading range to balance anchoring and flexibility. - Prompt introduction of market-based instruments of monetary control is necessary to enhance monetary management, facilitate interest rate liberalization, alleviate costs on banks of managing SP liquidity, and pave way to greater exchange rate flexibility. - Authorities encouraged to move swiftly on launching a government securities market and improving public debt management. - Financial sector sequencing: - Strengthen regulatory and supervisory capacity to keep pace with financial liberalization; vigorous action required to restructure state banks to stem additional nonperforming loans and encourage competition. - Develop market-based instruments to reduce excessive risk taking and discourage dollarization; central bank should catalyze setting up a credit registry. - Central bank law and institutional reform: - A new central bank law is essential to enshrine price stability as the main objective, grant CBS operational independence in monetary and exchange rate management, give full supervisory authority over all banking institutions, and grant autonomy to set its own budget within agreed guidelines with the government. - Public administration and human capital: - Implementing recent legislation effectively requires infusion of new technical expertise; authorities encouraged to introduce a special fast-track scheme to attract highly skilled managers and provide intensive training to newly hired young graduates while pursuing civil service reform. - Data and statistics: - Quality of Syria’s data is not fully adequate for surveillance purposes; utmost priority to upgrade statistical system, particularly BOP, national accounts, and price statistics, and to develop short-term indicators of economic activity. - External position and IMF advice: - Syria maintains exchange restrictions under Article XIV, Section 2 and measures subject to approval under Article VIII; absent measures to eliminate these restrictions and multiple currency practices in a timely manner, staff does not recommend Executive Board grant approval for their retention and urges elimination without delay. - Consultation cycle: - Proposed that the next Article IV consultation take place on the standard 12-month cycle. *Source: IMF staff report content unit _cr07288.* ### Appendix I. Syrian Arab Republic: Reforms Since the Last Article IV Consultation ### Appendix I. Syrian Arab Republic: Reforms Since the Last Article IV Consultation ### Fiscal - A draft public debt management law has been submitted to the Cabinet and is expected to be approved soon. - A new Basic Finance Law was approved in October, 2006, replacing a 1967 law. - Revamps public finance management rules and unifies the budget by bringing the investment budget under the purview of the ministry of finance. - Sets new rules for arms’ length relationship with PEs, allowing them to retain their after-tax profits and to decide on their investment programs, provided they can secure financing from the markets. - The new law will take effect with the 2008 budget. - The 2003 income tax law was amended (Decree No. 51 of October 1, 2006): - Lowers the top marginal corporate rate from 35 to 28 percent (and to 14 percent for shareholding companies). - Provides uniform tax incentives to projects under the new investment law to encourage labor intensive activities and investment in rural areas. - The tax rate on real estate sales and rentals was reduced further, and the tax structure simplified (Decrees No. 52 and 53 of October 2, 2006). - The first large taxpayers unit was opened in September, 2006, to modernize tax administration and prepare for the adoption of the VAT. ### Monetary and financial - Money and Credit Council decisions (August 2006) to liberalize interest rate structure: - Lending rates for state banks were liberalized. - Interest rates on current account deposits were unified at one percent. - Banks’ deposits at the CBS in excess of the statutory reserve requirement started to be remunerated at a rate of one percent. - Seven foreign exchange bureaus and companies which used to operate in the parallel market have been licensed; over 100 applications are being processed. - Financial sector entrants: - Four new private banks and eight private insurance companies started operations in 2006. - Three Islamic banks and one Islamic insurance company were licensed in 2007. - Note: The Law is not clear as to limits on foreign ownership in private insurance companies. - Regulatory and capital measures: - The minimum capital requirement for private banks is expected to be raised soon from US$30 million to US$100 million. - Decree No 55 (October 1, 2006) established the Damascus Securities Exchange (DSE), expected to start operations early in 2008 with 46 companies expected to trade initially. - Decree No 15 of February 19, 2007 allowed licensing of financial institutions for micro credit with a minimum capital of US$5 million. ### Exchange rate, trade, and market regulation - Trade and FX liberalization steps: - Licensed banks authorized to finance all permitted imports (Decree No. 5204, September 2006). - Official budget rate abolished on January 1, 2007; one single market reference rate is now quoted by the CBS. - Free Trade Agreement with Turkey went into effect in January 2007. - Customs, trade facilitation, and transparency: - New customs law (October 2006) allowed further automation and streamlining of customs procedures, including implementation of ASYCUDA. - Authorities published, for the first time, the list of prohibited imports (August 2006). - Investment law changes (Decree No 8 of January 27, 2007): - Ended all tax exemptions previously offered under investment law No. 10 of 1991 (mainly a tax holiday for the first five years plus two additional years under certain conditions). - Exemption from customs duties on all imported equipment was maintained. - Allows full annual repatriation of profits (previously allowed repatriation of profits derived from export activities only) and ownership of land. - The new law covers all sectors with the exception of tourism, financial services, and real estate. - Note on tourism: For investment in tourism (governed by another law), previous exemptions included a tax holiday for seven years, plus 50 percent discount on the profit tax thereafter; the discount has been phased out. - Consumer protection and food safety laws were passed in late 2006. ### Reforms “in the pipeline” - Draft company and competition laws have been approved by the Cabinet and submitted to Parliament. - Two laws on real estate development and mortgage lending have been drafted and are expected to be adopted soon. - A draft Central Bank Law would be adopted in late 2007–early 2008. - The 49 percent limit on foreign ownership in banks is expected to be raised in 2007/08, which will allow full branching by international banks. - A credit registry is expected to become operational in late 2007/early 2008. - A law is being drafted to pave the way toward incorporating the Syrian Telecommunications Company and creating an independent regulatory body. - A draft law submitted to the Cabinet will encourage family run businesses to turn into private shareholding companies and encourage greater transparency by eliminating punitive taxation and antiquated FX accounting rules. ### Public and external debt sustainability (stress-test highlights) - Public debt dynamics and scenarios (Table 8 highlights): - Public sector debt levels (public sector debt in percent of GDP): actual and projected include 83.3 (2002), 84.7 (2003), 82.6 (2004), 35.9 (2005), 35.9 (2006), 37.8 (2007), rising to 49.6 (2012) under the baseline. - Debt-stabilizing primary balance (percent of GDP) shown as -1.4 (baseline column). - Identified debt-creating flows and primary deficit entries: - Primary deficit: 1.4 (2002), 1.9 (2003), 3.3 (2004), 3.3 (2005), 4.7 (2006), 4.1 (2007), projected values through 2012. - Automatic debt dynamics contributions and sources are decomposed into contributions from real interest rate, real GDP growth, and exchange rate depreciation. - Public debt stress tests (selected bound tests, Table 8): - B1. Real interest rate shock: public debt rises under this scenario (values shown in table for 2007–12; e.g., 41.9 in 2008, 54.8 in 2012). - B2. Real GDP growth shock (baseline minus one-half standard deviation): debt outcomes increase (e.g., 41.8 in 2008, 58.1 in 2012). - B3. Primary balance shock (baseline minus one-half standard deviation): debt outcomes increase (e.g., 42.0 in 2008, 54.5 in 2012). - B5. One-time 30 percent real depreciation in 2008 leads to elevated public debt (e.g., 49.3 in 2008, 57.2 in 2012). - B6. 10 percent of GDP increase in other debt-creating flows in 2008 produces similar elevated debt paths (e.g., 51.0 in 2008, 58.7 in 2012). - External debt sustainability (Table 9 highlights and stress tests): - External debt (percent of GDP) declines from high historical values to 17.2 (2007) and projected to 19.7 (2012) under baseline in Table 9, and alternate projections in corresponding tables. - Gross external financing need (in billions of U.S. dollars) shown rising across projection years (e.g., 4.7 in 2007, projected 5.8, 6.7 in later years depending on table). - Stress tests B1–B5 show external debt and non-interest current account sensitivities to shocks such as higher nominal interest rates, lower real GDP growth, worse non-interest current account, combinations, and one-time 30 percent real depreciation. ### Selected macroeconomic and fiscal indicators (selected entries preserved exactly as in source tables) - National income and prices (Table 1, selected years 2003–07): - Nominal GDP (LS billions): 1,118.0 (2003), 1,263.8 (2004), 1,493.6 (2005), 1,780.9 (2006), 1,920.7 (2007). - Nominal GDP ($ billions): 22.7 (2003), 25.0 (2004), 28.6 (2005), 34.9 (2006), 36.9 (2007). - Real GDP growth (percent): 1.1 (2003), 2.8 (2004), 3.3 (2005), 4.4 (2006), 3.9 (2007). - CPI period average: 5.8 (2003), 4.4 (2004), 7.2 (2005), 10.0 (2006), 7.0 (2007). - Government finances (Table 2, percent of GDP): - Revenue: 28.8 (2003), 27.2 (2004), 24.0 (2005), 21.9 (2006), 22.0 (2007). - Oil-related revenue: 14.7 (2003), 11.2 (2004), 7.1 (2005), 4.5 (2006), 3.8 (2007). - Non-oil revenue: 14.0 (2003), 16.0 (2004), 16.9 (2005), 17.4 (2006), 18.2 (2007). - Expenditure: 31.4 (2003), 31.4 (2004), 28.4 (2005), 27.6 (2006), 27.0 (2007). - Overall balance: -2.6 (2003), -4.2 (2004), -4.4 (2005), -5.7 (2006), -5.0 (2007). - Non-oil budget balance: -17.3 (2003), -15.4 (2004), -11.6 (2005), -10.2 (2006), -8.9 (2007). - Gross debt: 84.7 (2003), 82.6 (2004), 35.9 (2005), 35.9 (2006), 37.8 (2007). - Monetary aggregates and credit (Table 4 and Table 5, selected figures): - Money and quasi-money (M2) (percent change): 7.6 (2003), 13.5 (2004), 12.0 (2005), 14.6 (2006), 15.5 (2007). - Credit to private sector (change in percent): 30.3 (2003), 35.0 (2004), 45.9 (2005), 18.4 (2006), 19.2 (2007). - Reserve money (change in percent): 10.2 (2003), 25.2 (2004), 7.7 (2005), 9.7 (2006), 13.3 (2007). - Central bank net foreign assets (in millions of U.S. dollars): 4,926 (2003), 5,391 (2004), 6,130 (2005), 6,721 (2006), 6,417 (2007). - Balance of payments (Table 6, selected figures in millions of U.S. dollars and percent of GDP): - Current account balance: 181 (2003), -811 (2004), -1,177 (2005), -2,133 (2006), -2,153 (2007) — in percent of GDP: 0.8 (2003), -3.2 (2004), -4.1 (2005), -6.1 (2006), -5.8 (2007). - Exports, f.o.b.: 4,111 (2003), 3,395 (2004), 4,300 (2005), 4,076 (2006), 3,869 (2007). - Imports, f.o.b.: -737 (2003), -1,156 (2004), -2,473 (2005), -2,883 (2006), -3,046 (2007). - Net change in reserves (increase = -): -585 (2003), -202 (2004), -187 (2005), 536 (2006), 08 (2007). - Government external debt (in millions of dollars): 17,537 (2003), 18,318 (2004), 6,682 (2005), 6,778 (2006), 6,340 (2007); (in percent of GDP) 77.3 (2003), 73.2 (2004), 23.3 (2005), 19.4 (2006), 17.2 (2007). - Financial soundness indicators (Table 11, 2005–06, selected): - Non-performing loans/loan portfolio: 13.1 (2005), 12.1 (2006) for All Banks; Public Banks 0.5 (2005), 1.0 (2006); Private Banks 12.2 (2005), 10.6 (2006). - Return on Assets (RoA): 1.2 (2005), 0.5 (2006) All Banks. - Return on Equity (RoE): 25.7 (2005), 3.6 (2006) All Banks. - Customer loans/total deposits: 44.5 (2005), 52.6 (2006) All Banks. - Deposit dollarization ratio: 9.0 (2005), 11.8 (2006) All Banks. _Compiled from "Appendix I. Syrian Arab Republic: Reforms Since the Last Article IV Consultation" (IMF staff report informational annex content)._ ### Annex I. Syrian Arab Republic: Fund Relations ### Annex I. Syrian Arab Republic: Fund Relations (As of May 31, 2007) ### I. Membership - Status: Joined April 10, 1947; Article XIV ### II. General Resources Account — Key Numbers - Quota: 293.60 SDR Million — 100.00 percent of Quota - Fund holdings of currency: 293.60 SDR Million — 100.00 percent of Quota - Reserve position in Fund: 0.01 SDR Million — 0.00 percent of Quota (Note: "Under the Eleventh General Review." footnote present in source.) ### III. SDR Department - Net cumulative allocation: 36.56 SDR Million — 100.00 percent of Allocation - Holdings: 36.57 SDR Million — 100.03 percent of Allocation ### IV. Outstanding Purchases and Loans - None ### V. Financial Arrangements - None ### VI. Projected Obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs) - Forthcoming charges/interest by year: - 2007: 0.00 - 2008: 0.00 - 2009: 0.00 - 2010: 0.00 - 2011: 0.00 - Total (2007–2011): 0.00 ### VII. Exchange Rate Arrangement — Description and Classification - The central bank issues daily quotations for buying and selling exchange rates for the Syrian pound against major currencies. - Until end-December 2006, the budget exchange rate (applicable to all public sector transactions) was pegged to the U.S. dollar. - Since the abolition of the budget rate on January 1, 2007 and its unification with the private sector exchange rate, the central bank has been managing the currency vis-à-vis the U.S. dollar within a tight trading range. - De facto exchange rate arrangement classification: conventional peg. ### VIII. Article IV Consultations - Syria is on an annual consultation cycle. - Last Article IV consultation: held in April/May 2006; completed by the Board on July 31, 2006 (IMF Country Report No. 06/294). ### IX. Article XIV and Article VIII Restrictions — Current Measures and Board Action - Syria maintains, under Article XIV, restrictions on payments and transfers for current international transactions, including administrative allocation of foreign exchange. - Exchange measures subject to Fund approval under Article VIII maintained by Syria: - (i) prohibition against purchases by private parties of foreign exchange from the banking system for some current international transactions; - (ii) a multiple currency practice resulting from divergences of more than 2 percent between the official exchange rate and officially recognized market exchange rates; - (iii) a non-interest-bearing advance import deposit requirement of 75–100 percent for public sector imports; - (iv) an exchange restriction arising from the net debt under inoperative bilateral payments arrangements with the Islamic Republic of Iran, and Sri Lanka. - Executive Board decision No. 13766-(06/71) adopted July 31, 2006 — key points: - The Fund takes the decision relating to Syria’s exchange measures subject to Article VIII, Sections 2(a) and 3, and concludes the 2006 Article XIV consultation in light of the 2006 Article IV consultation conducted under Decision No. 5392-(77/63), adopted April 29, 1977, as amended (Surveillance over Exchange Rate Policies). - The Syrian Arab Republic maintains restrictions under Article XIV, Section 2, and exchange measures subject to approval under Article VIII, as described in IMF Country Report No. 06/294. - The Fund encourages Syria to: - eliminate the restrictions maintained under Article XIV, Section 2 as soon as its balance of payments position permits; and - eliminate the measures that are subject to approval under Article VIII as soon as possible. ### X. Technical Assistance — Departments, Topics, and Dates/Status - METAC: Central Bank Accounting — Ongoing - MCM: Strategic Planning at the Central Bank of Syria and New Central Bank Law — November 2006 - FAD: Public Financial Management — February 2006 - METAC: Revenue Administration — Ongoing - METAC: Consumer Price Index — Ongoing - MFD: Long-Term Advisors on Central Bank Accounting, Reserves Management, and Monetary Policy Issues — Ongoing - MFD: Foreign Exchange Market Development, Unification and Exchange Regime — January 2006 - LEG/MFD: AML/CFT outreach training — December 2005 - MFD: Long-Term Advisor on Securities Market — September 2005 - MFD: Centralization of Official Foreign Reserves and Associated Accounting, Reserves and Public Debt Management Issues — September 2005 - METAC: National Accounts — Ongoing - MAE: Bank Regulation and Supervision — Ongoing - MFD: Re-organization of the Central Bank of Syria — May 2005 - FAD: Revenue Administration — March 2005 - LEG/MFD: AML/CFT legal drafting — Feb/March 2005 - STA: Multi-Sector Statistics (National Accounts, Fiscal, Monetary, and Balance of Payments) — June 2004 - FAD: Value-Added Tax — July 2004 - MAE: Two Long-Term Advisors on Bank Regulation and Supervision — 2002–2004 - MAE: Two-Day Workshop on On-Site Banking Supervision — July 2002 - MAE: Workshop on Off-Site Banking Supervision — March 2002 *IMF staff report: Annex I. Syrian Arab Republic: Fund Relations (As of May 31, 2007).* ### 13. The mission recommended the adoption of a new foreign exchange form (developed by ### _cr07288 - 13. The mission recommended the adoption of a new foreign exchange form (developed by ### Mission recommendations and technical-assistance priorities - Adopt a new foreign exchange form (developed by the mission) to improve source data. - Establish an enterprise register to estimate foreign direct investment. - Disseminate international reserves and external debt data (neither was being disseminated for reasons of confidentiality). - METAC/STA recommended five priority areas for technical assistance: - compiling reliable import and export data based on information from the banking system and data sources other than the Customs Department/CBS; - estimating FDI data based on information from the Ministry of Planning and/or a sample of FDI companies; - implementing the new reporting form for commercial banks (to improve various components of the BOP, specifically services); - deriving flow data from the balance sheets from commercial banks and the CBS (financial account transactions); - hands-on training for the new staff. ### METAC/STA mission findings, actions requested, and implementation status - February 2006 STA assessment mission: - Reported minimal progress in implementing the work program and in addressing weaknesses. - Recommended the five priority technical-assistance areas listed above. - METAC mission (June 26–29, 2006) agreed actions with the CBS: - establish a balance of payments division/department with a start-up staffing of at least 6 persons and provide adequate computing resources; - provide to METAC by end-August 2006, ITRS-based data reported by commercial banks; - provide by end-July 2006 detailed breakdowns of the central bank balance sheet; - provide by end-July 2006 detailed bridge tables (in English and electronic) that explain how the central bank balance sheet and the commercial banks' balance sheet are mapped to the monetary survey. - METAC mission (January 18, 2007) assessment of progress: - Found little progress in implementation of previous advice; the Balance of Payments Department was not yet created. - Authorities indicated management discussions on the proposed structure were completed but implementation of changes to the RASD was to coincide with overall restructuring of the CBS to be completed during 2007. - ITRS implementation issues: - Of the initial seven banks targeted (the Commercial Bank of Syria and six private banks), only five banks responded. - Quality of ITRS data reported is poor: lack of disaggregation, misclassifications, lack of reconciliation with old bank reporting form. - Missing monthly reports, incomplete reporting (missing branches), lengthy delays in reporting — CBS lacked a consolidated ITRS report for any single month in 2006. - CBS decided not to target banks in the free zones during 2006; implementation indicated for reporting year 2007. - Authorities requested METAC assistance in training banks’ staff (including Commercial Bank of Syria’s extensive branches) in completing the ITRS form. - International reserves data issues: - Data are derived from the monetary statistics and may contain foreign currency holdings/deposits of commercial banks that are not under central bank control. - Authorities agreed to provide METAC (within one week from the date of the meeting) revised data on reserve assets, identifying removed items. - Authorities submitted to STA international reserves data, which are currently being reviewed. ### Data dissemination and periodicity (selected indicators from the Table of Common Indicators Required for Surveillance, As of June 22, 2007) - Exchange Rates: Date of latest observation May. 2006; Date received Jun. 2006; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Feb. 2006; Date received Mar. 2006; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Reserve/Base Money: Date of latest observation Oct. 2006; Date received Jan. 2007; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Broad Money: Date of latest observation Oct..2005; Date received Apr. 2006; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Central Bank Balance Sheet: Date of latest observation Oct. 2006; Date received Jan. 2007; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Consolidated Balance Sheet of the Banking System: Date of latest observation Oct..2005; Date received Apr. 2006; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Interest Rates: Date of latest observation Apr. 2006; Date received Jul. 2006; Frequency of Data M; Frequency of Reporting ...; Frequency of publication M. - Consumer Price Index: Date of latest observation Dec. 2004; Date received Apr. 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation 2003; Date received Apr. 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - External Current Account Balance: Date of latest observation Dec. 2005; Date received Oct. 2006; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - Exports and Imports of Goods and Services: Date of latest observation Dec. 2005; Date received Oct. 2006; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - GDP/GNP: Date of latest observation Dec. 2003; Date received Apr. 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - Gross External Debt: Date of latest observation Dec. 2003; Date received Apr. 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. ### Executive Board assessment and policy recommendations (Public Information Notice No. 07/104, August 15, 2007) - Background observations: - Over the past three years, Syria recovered from a half decade of weak growth despite a sharp drop in oil production. - Economic recovery benefited from inflows from Iraqi refugees and abundant liquidity in the Gulf region. - Private investment strengthened; exports made strong gains in some Arab markets. - Despite a sharp drop in oil proceeds (10 percentage points of GDP over the last three years) and the large demand shock associated with Iraqi refugees, inflationary pressures have been contained. - Fiscal policy aimed to reduce the overall budget deficit to 5 percent of GDP in 2007 (from 5.7 percent in 2006), notwithstanding an expected further decline in oil revenues of about ¾ percentage points of GDP. - Required reduction in the non-oil budget deficit of some 1½ percent of GDP to meet the 2007 target, planned through rationalization of capital spending. - Authorities intend to continue using the exchange rate as a nominal anchor, while allowing some limited flexibility. - Directors’ key assessments and recommendations: - Commended sustained, timely and significant fiscal adjustment and welcomed the lowering of corporate income taxes. - Recommended introducing a VAT and phasing out petroleum price subsidies as main pillars of required fiscal adjustment. - Urged accelerating tax administration reforms supporting VAT introduction. - Stressed need to enact a new foreign exchange law to abrogate existing complex foreign exchange laws and enshrine full current account convertibility and a unified exchange rate. - Recommended monitoring the impact of recent real exchange rate strengthening on external competitiveness given depletion of oil reserves and uncertainties about the current account deficit financing. - Supported adoption of a bank law granting the central bank operational independence in monetary and exchange rate management, supported by: - introduction of market-based instruments of monetary control; - centralization of official foreign exchange reserves at the central bank; - establishment of the government securities market. - Recommended accelerating licensing of foreign exchange bureaus and launching an interbank foreign exchange market. - Urged priority to strengthen bank supervision capacity and to speed state bank restructuring to stem bad debt accumulation and allow greater competition. - Encouraged further trade liberalization: - streamline the list of prohibited imports; - abolish the system of industrial quotas; - reduce the number of tariff bands; - eliminate nontariff barriers. - Emphasized strengthening domestic capacity: - introduce a special fast-track scheme to attract highly skilled managers; - provide intensive training to newly hired young graduates; - continue far-reaching civil service reform. - Urged improving the quality and timeliness of economic statistics, especially in the external and real sector, with priority given to improving balance of payments statistics. ### Selected economic indicators (highlights, 2003–07) - Real GDP (change in percent): 2003 1.1; 2004 2.8; 2005 3.3; 2006 4.4; 2007 3.9. - Real non-oil GDP (change in percent): 2003 2.5; 2004 5.0; 2005 6.0; 2006 6.5; 2007 5.8. - CPI period average (change in percent): 2003 5.8; 2004 4.4; 2005 7.2; 2006 10.0; 2007 7.0. - Oil export price ($ per barrel): 2003 26.9; 2004 33.4; 2005 48.3; 2006 57.9; 2007 57.4. - Public finances (In percent of GDP) — Revenue: 2003 28.8; 2004 27.2; 2005 24.0; 2006 21.9; 2007 22.0. - Public finances — Oil-related revenue (% of GDP): 2003 14.7; 2004 11.2; 2005 7.1; 2006 4.5; 2007 3.8. - Public finances — Non-oil revenue (% of GDP): 2003 14.0; 2004 16.0; 2005 16.9; 2006 17.4; 2007 18.2. - Expenditure (In percent of GDP): 2003 31.4; 2004 31.4; 2005 28.4; 2006 27.6; 2007 27.0. - Overall balance (In percent of GDP): 2003 -2.6; 2004 -4.2; 2005 -4.4; 2006 -5.7; 2007 -5.0. - Non-oil budget balance (In percent of GDP): 2003 -17.3; 2004 -15.4; 2005 -11.6; 2006 -10.2; 2007 -8.9. - Gross debt (In percent of GDP): 2003 84.7; 2004 82.6; 2005 35.9; 2006 35.9; 2007 37.8. - Money and quasi-money (change in percent of initial stock): 2003 7.6; 2004 13.5; 2005 12.0; 2006 14.6; 2007 15.5. - Net foreign assets (change in percent): 2003 4.2; 2004 7.1; 2005 2.3; 2006 -1.7; 2007 4.0. - Credit to private sector (change in percent): 2003 30.3; 2004 35.0; 2005 45.9; 2006 18.4; 2007 19.2. - Reserve money (change in percent): 2003 10.2; 2004 25.2; 2005 7.7; 2006 9.7; 2007 13.3. - Balance of goods and services (In billions of U.S. dollars): 2003 14.5; 2004 17.0; 2005 18.6; 2006 20.7; 2007 23.1. - Non-oil exports of goods & services (In billions of U.S. dollars): 2003 4.6; 2004 6.4; 2005 7.7; 2006 8.4; 2007 10.1. - Non-oil imports of goods & services (In billions of U.S. dollars): 2003 -7.5; 2004 -9.4; 2005 -10.4; 2006 -12.2; 2007 -13.1. - Current account balance (In billions of U.S. dollars): 2003 0.2; 2004 -0.8; 2005 -1.2; 2006 -2.1; 2007 -2.2. - Foreign direct investment (in percent of GDP): 2003 0.7; 2004 1.1; 2005 1.7; 2006 1.7; 2007 3.1. - Overall balance (In billions of U.S. dollars): 2003 0.6; 2004 0.2; 2005 0.0; 2006 -0.8; 2007 -0.6. - Official net foreign assets (In billions of U.S. dollars): 2003 17.4; 2004 17.6; 2005 17.6; 2006 16.8; 2007 16.2. - Official net foreign assets (in months of imports of G&S): 2003 25.4; 2004 20.0; 2005 16.4; 2006 13.4; 2007 12.1. - External debt (percent of GDP): 2003 77.3; 2004 73.2; 2005 23.3; 2006 19.4; 2007 17.2. - Debt service-to-exports ratio (payments basis): 2003 10.8; 2004 5.9; 2005 4.7; 2006 5.4; 2007 7.3. - Weighted average nominal exchange rate LS/$ (trade-weighted average of official and parallel market rates): 2003 49.3; 2004 50.5; 2005 52.2; 2006 51.0; 2007 ... - Official transaction rate LS/$: 2003 46.5; 2004 48.7; 2005 50.0; 2006 50.0; 2007 ... - Parallel market rate (Beirut/Amman): 2003 52.8; 2004 52.3; 2005 54.3; 2006 52.0; 2007 ... - Real effective exchange rate (1990=100): 2003 58.9; 2004 58.8; 2005 59.8; 2006 66.0; 2007 ... - Real effective exchange rate (change in percent): 2003 3.4; 2004 -0.2; 2005 1.7; 2006 10.3; 2007 ... *Source: IMF staff report and Public Information Notice for the 2007 Article IV Consultation with the Syrian Arab Republic.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07288.pdf_