## _cr0955

## Source details

**Canonical URL:** [_cr0955](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0955.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0955.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0955.pdf.json)

---

### Executive Summary — Background and recent developments
- Economic recovery that started in 2004 continued in 2007, with non-oil GDP growth in excess of 5 percent.
- Oil output remained on a downward trend.
- Fiscal and external deficits widened slightly to still-sustainable levels; official net foreign assets remained comfortable.
- Short-term impact of adverse global and regional developments expected to be relatively moderate—operating through weakening FDI, remittances, and demand for Syrian exports from the Gulf region.
- Medium-term outlook: non-oil growth accelerating to about 6.5 percent by 2013; fiscal and external current account deficits projected to stabilize at about 3 and 4 percent, respectively.
- Positive outlook contingent on perseverance in advancing fiscal and structural reforms and improvement in global conditions over the medium term.

### Macroeconomic performance and indicators
- Non-oil GDP growth estimated about 6 percent in 2007 despite unfavorable weather; overall growth about 4 percent in 2007 due to declining oil production.
- Preliminary 2008: non-oil growth similar to 2007; overall growth expected about 5 percent for 2008.
- Inflation: accelerated in 2008 to 17–20 percent by mid-2008 (up from 5 percent in 2007); projected to average about 15 percent for 2008.
- Fiscal and external aggregates:
  - Fiscal deficit increased to about 3.5 percent of GDP in 2007.
  - Oil revenue decreased by about 2 percent of GDP in 2007.
  - External current account deficit expected to widen to about 4 percent of GDP in 2008, from 3.3 percent in 2007.
- Reserves and exchange rate:
  - Net official foreign assets stable at about $17 billion (10 months of imports).
  - Real effective exchange rate appreciated by 4 percent in 2007 and about 9 percent in the first three quarters of 2008.
- Monetary and credit:
  - Broad money growth aligned with nominal GDP; credit to public enterprises grew by about 40 percent in 2007 and by 60 percent in the first half of 2008 (y-o-y).
  - Credit to private sector growth about 20 percent in 2007 and expected 25 percent in 2008; credit to private sector about 15 percent of GDP since 2005.
  - Broad money to GDP ratio about 65 percent at end-2007.
  - Private banks' capital adequacy ratio about 13 percent in mid-2008 (CBS minimum requirement 12 percent).
  - Nonperforming loans reported about 5 percent of total loans for all banks at end-2007.
  - Public banks’ loan classification data remain weak, hindering meaningful calculation of their capital adequacy or NPLs ratios.

### Fiscal policy: findings and recommendations
- Further fiscal consolidation necessary.
- Essential measures:
  - Further reduce petroleum subsidies.
  - Advance preparatory work to launch the VAT in 2010.
  - Continue to restrain public expenditure.
  - Encourage public-private partnership agreements, with adequate safeguards, for infrastructure investment.
- Fuel subsidy reform (May 2008):
  - Gasoline and diesel prices increased by 33 and 240 percent, respectively.
  - Authorities issued coupons allowing purchase of diesel up to 1,000 liters per household at 9 SYP/liter.
  - Fuel oil price (used by large industrial establishments and power plants) raised by 33 percent in December, 2008.
- Authorities aim to fully eliminate fuel subsidies by 2010; moving from fuel coupons to targeted cash transfers under consideration due to illegal coupon trading.
- Preliminary 2009 budget indicates a small reduction in expenditure in real terms.

### VAT introduction and tax reform
- VAT initially planned for 2009 delayed to January 2010 to avoid adding inflationary pressures amid fuel subsidy phasing-out and to ensure tax administration readiness.
- Staff recommendations to ensure VAT success:
  - adopt a single rate with few exemptions;
  - put in place an adequate tax procedure code and information technology system;
  - ensure large and medium taxpayer offices administering the VAT report directly to the central Syrian Tax Commission.
- Advance other tax reforms: simplify the income tax regime and rationalize excises.

### Monetary policy, liquidity management and financial sector reform
- 2008 FSAP priorities:
  - Audit and restructure state banks.
  - Build regulatory and supervisory capacity and strengthen enforcement.
  - Enhance monetary policy framework by modernizing the central bank and developing indirect monetary policy instruments.
- Key FSAP findings:
  - Financial system dominated by state banks holding 80 percent of bank assets.
  - Private banks grew rapidly since 2004; private insurance licensing started in 2005; a stock market to be opened in 2009.
  - Payment and settlement system needs strengthening.
  - CBS lacks effective monetary policy tools and independence; no bills for open market operations and no standing facilities.
  - CBS does not have full control over international reserves; substantial part held by Commercial Bank of Syria (CBoS).
  - Public banks’ financial statements not audited according to international standards; serious data deficiencies hamper soundness assessment.
  - Risks: public banks—weak balance sheets, low capitalization, poor profitability; private banks—rapid growth, new untested business lines, high loan concentration.
- FSAP recommendations:
  - Accelerate CBS modernization and reform; strengthen research capacity and financial sector risk management; develop debt market; transfer official foreign exchange reserves held by the CBoS to the CBS.
  - Develop systemic liquidity management via money and FX instruments and markets.
  - Build regulatory and supervisory capacity.
  - Conduct comprehensive diagnostic audits of state banks, produce reliable FSIs, and restructure them.
- Exchange rate policy:
  - Switch of de jure peg from the dollar to the SDR assessed as appropriate.
  - Gradual increase in exchange rate flexibility would be beneficial but should be preceded by development of indirect monetary tools.

### Banking supervision, AML/CFT and payments systems
- CBS priorities and progress:
  - Strengthen bank supervision, improve off-site surveillance and methodologies to calculate capital adequacy.
  - Enhance supervision of state banks; state banks have begun producing some key FSIs and reporting them to the CBS.
  - Free-zone banks to be brought under CBS supervision in 2009.
- AML/CFT enhancements:
  - creation of a high level financial intelligence unit;
  - tightened assessment criteria;
  - scope of AML/CFT extended to foreign currency changers, insurance companies, and brokerage houses.
- Staff recommendations:
  - continue FSAP implementation;
  - enforce prudential regulations for public banks;
  - require annual audits by independent firms for all banks and timely provision of FSIs to CBS;
  - prioritize restructuring state banks to operate on a commercial basis.

### External sector, exchange rate assessments, and outlook
- External effects of global developments expected mainly via FDI, remittances, and demand for exports from Gulf.
- Syrian financial sector appears insulated from international financial turmoil due to limited integration and CBS regulations limiting banks’ foreign exposure.
- Projections and medium-term:
  - Non-oil growth projected to slow by about one percentage point to around 5 percent over the next two years because of regional slowdown.
  - External current account expected to narrow slightly as decline in oil prices should reduce cost of net petroleum imports.
  - Fiscal deficit projected to narrow due to fuel subsidy reduction.
  - Medium-term projections: non-oil GDP could accelerate to 6.5 percent by 2013; external current account deficit stabilize at about 4 percent of GDP; fiscal deficit stabilize at about 3 percent of GDP.
- Exchange rate assessments (noted as unreliable due to data and methodological shortcomings):
  - ERER methodology points to an overvaluation by about 14 percent.
  - Macroeconomic balance approach indicates an overvaluation by about 12 percent (equilibrium current account norm: surplus of about 1 percent of GDP vs. projected deficit of about 4 percent of GDP).
  - External sustainability approach results range from an undervaluation of 14 percent to an overvaluation of about 3.5 percent depending on assumptions.
- Authorities’ intentions:
  - remove remaining foreign exchange restrictions and multiple currency practices;
  - allow use of credit cards to pay for foreign transactions starting in June 2008;
  - consider Fund TA for a comprehensive review and hope to accept obligations under Article VIII in the near future.
- Staff recommendations:
  - maintain current nominal exchange rate level in the present context;
  - prepare for gradual move toward greater exchange rate flexibility in the medium term, preceded by market-based monetary management and FX expertise development;
  - eliminate remaining restrictions and multiple currency practices and accept comprehensive review upon request.

### Public expenditure monitoring and management
- Current reporting: local authorities report frequently to the Central Accounting Authority; ministry of finance receives information with considerable lag.
- Large quasi-fiscal operations, particularly to finance fuel and other subsidies, conducted through the banking system.
  - Authorities agree these operations should be reduced but are concerned bringing them on-budget could soften financing constraints.
  - Ministry of finance favors streamlining within an overall reform strategy to reduce and modernize subsidies.
- Staff recommendations:
  - improve monitoring of expenditures at the regional level;
  - establish a single treasury account;
  - reduce extra-budgetary and quasi-fiscal operations by bringing them on budget;
  - finance consolidated budget deficit primarily by treasury bills with market-determined interest.

### Data quality, statistical shortcomings and TA
- Serious shortcomings in national accounts, balance of payments, fiscal statistics hamper surveillance.
- Syria began participation in GDDS in December 2007; STA-resident statistics advisor in place since July 2008.
- Real sector statistics:
  - Annual national accounts by expenditure reported in IFS with about 2-years lag.
  - Significant weaknesses in source data and techniques; METAC assistance provided.
- Government finance statistics:
  - Major deficiencies in definitions, coverage, classification, methodology, accuracy, reliability, and timeliness.
  - Fiscal statistics not provided for publication in the IFS; compilation methodology does not follow GFSM 2001 or GFSM 1986.
  - Actions from June 2004 multisector mission: bridge table to GFSM 2001, seminar, institutional table, work plan for DPS to compile annual GFS per GFSM 2001.
- Monetary and financial statistics:
  - Monthly monetary statistics reported with about 10-month lags (GDDS recommendation: 3-month lags).
  - Deficiencies from different exchange rates used for valuations, non-market-price valuation, accounting procedures for public sector accounts.
  - November–December 2008 TA worked on SRF reporting based on MFSM principles.
- External sector statistics:
  - BOP compiled provisionally by CBS; trade data monthly by Customs with six-month lag.
  - BPM5 format used but not entirely consistent; METAC/STA missions and follow-ups in 2007–08.
  - Further efforts needed: ITRS and surveys, undercoverage of imports, transfers related to Iraqi immigrants, coverage of reserves, financial account coverage for private sector.
- Selected TA entries (examples):
  - METAC: Central Bank Accounting — Ongoing.
  - FAD: Tax administration — July 2008.
  - STA: Multi-Sector Statistics — December 2007.
  - MCM: Strategic Planning at the Central Bank of Syria and New Central Bank Law — November 2006.
  - MFD: Bank Regulation and Supervision — Ongoing.
  - (Full list of TA items provided in source.)

### Article IV consultation timing
- Proposed next Article IV consultation on the standard 12-month cycle.
- Syria on an annual consultation cycle; last Article IV consultation held April/May 2007 and completed by the Board on July 31, 2007 (CR/07/288).

### Macroeconomic projections and selected indicators (key table entries, 2004–2009 and medium term)
- Real GDP growth (change in percent): 2004: 6.7; 2005: 4.5; 2006: 5.1; 2007: 4.2; 2008: 5.2; 2009 (Proj.): 3.9.
- Oil sector growth (change in percent): 2004: -6.1; 2005: -8.6; 2006: -7.1; 2007: -5.0; 2008: -0.1; 2009 (Proj.): -2.6.
- Non-oil growth (change in percent): 2004: 10.2; 2005: 7.5; 2006: 6.9; 2007: 5.8; 2008: 6.0; 2009 (Proj.): 4.7.
- Nominal GDP (LS billions): 2004: 1,263; 2005: 1,491; 2006: 1,709; 2007: 2,025; 2008: 2,567; 2009 (Proj.): 2,477.
- Nominal GDP ($ billions): 2004: 25.0; 2005: 28.6; 2006: 33.5; 2007: 40.6; 2008: 55.2; 2009 (Proj.): 50.7.
- Crude oil production ('000 barrels/day): 2004: 462; 2005: 431; 2006: 400; 2007: 380; 2008: 380; 2009 (Proj.): 370.
- Oil export price ($ per barrel): 2004: 33.5; 2005: 48.1; 2006: 57.6; 2007: 65.3; 2008: 90.0; 2009 (Proj.): 48.9.
- CPI period average: 2004: 4.4; 2005: 7.2; 2006: 10.4; 2007: 4.7; 2008: 14.5; 2009 (Proj.): 8.0.
- Government finances (percent of GDP) — selected:
  - Revenue: 2004: 27.2; 2005: 24.0; 2006: 25.5; 2007: 22.3; 2008: 21.4; 2009 (Proj.): 21.8.
  - Expenditure: 2004: 31.4; 2005: 28.5; 2006: 26.6; 2007: 25.7; 2008: 24.9; 2009 (Proj.): 25.0.
  - Overall balance: 2004: -4.2; 2005: -4.5; 2006: -1.2; 2007: -3.4; 2008: -3.5; 2009 (Proj.): -3.1.
- Monetary indicators:
  - Broad money (12-month change in percent): 2004: 11.1; 2005: 11.5; 2006: 9.4; 2007: 9.8; 2008: 19.0; 2009 (Proj.): 13.0.
  - Credit to private sector (change in percent): 2004: 35.0; 2005: 45.9; 2006: 17.9; 2007: 20.2; 2008: 25.8; 2009 (Proj.): 18.0.
  - Credit to private sector (in percent of GDP): 2004: 11.7; 2005: 14.5; 2006: 14.9; 2007: 15.1; 2008: 15.0; 2009 (Proj.): 18.3.
- Balance of payments (selected):
  - Current account balance (millions of U.S. dollars): 2004: -396; 2005: -632; 2006: -923; 2007: -1,352; 2008: -2,254; 2009 (Proj.): -1,895.
  - Official net foreign assets (millions): 2004: 17,567; 2005: 17,585; 2006: 16,831; 2007: 17,474; 2008: 17,119; 2009 (Proj.): 17,533.
  - Official net foreign assets (in months of imports of GNFS): 2004: 20.2; 2005: 16.4; 2006: 13.7; 2007: 11.6; 2008: 9.4; 2009 (Proj.): 10.5.
- Medium-term projections (selected, 2010–2013):
  - Real GDP growth (change in percent): 2010: 3.3; 2011: 5.3; 2012: 5.2; 2013: 5.7.
  - CPI period average projections: 2010: 6.0; 2011: 5.0; 2012: 5.0; 2013: 5.0.
  - Government finances (percent of GDP, projections): Revenue 2010: 21.5; 2011: 21.2; 2012: 20.7; 2013: 20.8. Expenditure 2010: 23.9; 2011: 23.9; 2012: 23.8; 2013: 23.8. Overall balance 2010: -2.4; 2011: -2.6; 2012: -3.1; 2013: -3.0.
  - Gross public debt projections (percent of GDP): 2010: 23.6; 2011: 23.5; 2012: 24.8; 2013: 25.8.

### Decision on exchange measures, external restrictions and Fund relations
- Fund decision relates 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.
- Syria maintains restrictions under Article XIV on payments and transfers for current international transactions.
- Syria maintains exchange measures subject to Fund approval under Article VIII (described in CR/06/294).
- Fund encourages elimination of Article XIV restrictions and Article VIII measures as balance-of-payments conditions permit.
- Relations with the Fund (as of October 31, 2008):
  - Membership Status: Joined April 10, 1947; Article XIV.
  - Quota (SDR Million): 293.60; Fund holdings of currency: 293.60; Reserve position in Fund: 0.01.
  - SDR Department: Net cumulative allocation: 36.56; Holdings: 36.57.
  - Outstanding Purchases and Loans: None.
  - Financial Arrangements: None.
  - Projected Obligations to Fund (SDR million; forthcoming 2008–2012): Charges/Interest: 0.00 for each year; Total: 0.00.
  - Executive Board decision No. 13958 (07/67) adopted July 31, 2007.

### Technical Assistance and relations with the World Bank Group
- Extensive TA program entries listed (METAC, FAD, STA, MCM, MFD, LEG, MAE) covering central bank accounting, tax administration, multi-sector statistics, public financial management, AML/CFT, bank regulation, securities market, and reserve centralization.
- World Bank relations:
  - Syria joined World Bank in 1947; IDA credits and IBRD loans listed historically.
  - No current World Bank CAS; MoU covered 2005-07 for advisory and analytical services.
  - IFC investments since 1999; total held portfolio $20 million.

### New information since staff report (post-issuance updates)
- December 1, 2008: authorities increased domestic price of fuel oil by 46 percent (larger than initially anticipated 33 percent).
  - Additional revenue equivalent to about 0.85 percent of GDP.
- Lower WEO oil price projection of January 6, 2009 would have a positive fiscal impact equivalent to about 0.25 percent of GDP due to smaller cost of negative external net oil balance.
- Staff revisions for 2009:
  - Wage expenditures revised upwards by about 0.7 percent of GDP.
  - Development expenditures revised upwards by about 0.6 percent of GDP.
- Net impact on 2009 fiscal deficit:
  - Revised fiscal deficit projection for 2009 would be about 3.3 percent of GDP, slightly above initial projection of 3.1 percent.
- Policy implication:
  - Need to restrain expenditure and further advance fiscal reform efforts—particularly fully eliminating oil subsidies and introducing VAT by 2010.

### Executive Board assessment (summarized)
- Directors welcomed Syria’s strong recent macro performance: rapid non-oil GDP growth, comfortable foreign reserves, and low and declining government debt.
- Risks and challenges: declining oil production and exports; Syria a net oil importer; high but declining inflation; downside growth risks from global/regional developments.
- Directors’ policy emphasis:
  - Reduce non-oil fiscal deficit via mobilizing non-oil revenue, restraining current expenditure (wages, subsidies), and prioritizing investment projects.
  - Introduce VAT by 2010 with single rate and limited exemptions.
  - Eliminate fuel subsidies by 2010 with well-targeted compensation for the poor.
  - Strengthen public expenditure management: reform budget process, improve regional monitoring, establish single treasury account, reduce extra-budgetary/quasi-fiscal operations and finance deficits with market-determined treasury bills.
  - Issue treasury bills in 2009 welcomed; maintain cautious monetary policy; limit directed lending by public banks; develop indirect instruments; liberalize interest rates; modernize central bank.
  - Strengthen bank supervision; require annual independent audits and timely FSIs; prioritize state bank restructuring.
  - Keep SDR peg appropriate; prepare for gradual exchange rate flexibility; remove exchange restrictions and multiple currency practice.
  - Continue trade liberalization, improve business environment, and fix statistical shortcomings.

### Fiscal outcomes and composition (additional details)
- Overall fiscal deficit: 2006: 1.2 percent of GDP; 2007: 3.3 percent of GDP.
- Balance excluding oil revenue: improved by 7 percentage points of GDP between 2004 and 2007.
- Favorable outcome achieved through underspending of current and capital outlays despite pressures from Iraqi refugees.
- Non-oil revenue strengthened mainly via increased indirect taxes and public enterprise surpluses.
- Public sector wage response: 25 percent public sector wage increases; public wage bill kept under control and declining as share of GDP.
- Public debt: fell to 22 percent of GDP by end-2008.
- Fiscal policy 2009 stance: constrained to consolidate gains; new budget expected to deliver additional 1 percentage point reduction in non-oil fiscal balance by constraining current and capital outlays.
- Authorities considering targeted cash transfers and further fuel price adjustments consistent with plan to eliminate subsidies by 2010.
- VAT viewed as key revenue source to offset dwindling oil revenues; customs reform proceeding under EU project; METAC assisting with medium-term expenditure framework and single treasury account IT system.

### Monetary, exchange rate and banking sector developments (additional details)
- Monetary policy cautious; CBS pursuing institutional and system reforms.
- Treasury bills issued in two pilot auctions in July 2008; regular auctions set to launch in 2009.
- CBS may issue its own certificates of deposit if treasury bill launch delayed.
- Transfer of state foreign exchange assets held by CBoS to CBS due to be completed in 2009.
- Liquidity framework under development; CBS reforms to modernize operations, expand research capacity, and strengthen financial sector risk management.
- Peg to the SDR served as credible monetary anchor per authorities; liberalization of FX trading solidified market confidence and helped curb inflationary pressures.
- Banking system described as well capitalized and well provisioned; private banks’ share nearly 20 percent of bank assets as of text; state banks improving reporting and preparing restructuring plans; supervision strengthened; private and foreign bank entry increased incentives for state bank reform.

*Source: IMF staff report content provided in the input.*

### Executive Summary ......................................................................................................

### Executive Summary

### Background and recent developments
- The economic recovery that started in 2004 continued in 2007, with non-oil GDP growth in excess of 5 percent.
- Oil output remained on a downward trend.
- The fiscal and external deficits widened slightly to still-sustainable levels, and the level of official net foreign assets remained comfortable.
- Short-term impact of adverse global and regional developments is expected to be relatively moderate, operating through weakening FDI, remittances, and demand for Syrian exports from the Gulf region.
- Medium-term outlook expected to improve as global and regional economies recover, with non-oil growth accelerating to about 6.5 percent by 2013.
- Fiscal and external current account deficits projected to stabilize at about 3 and 4 percent, respectively.
- The positive outlook is contingent on perseverance in advancing fiscal and structural reforms and an improvement in global conditions over the medium term.

### Macroeconomic performance and indicators
- Non-oil GDP growth is estimated to have been about 6 percent in 2007 despite unfavorable weather conditions affecting agriculture.
- Overall growth registered about 4 percent in 2007 due to declining oil production.
- Preliminary data for 2008 indicate a rate of non-oil growth similar to 2007; overall growth expected to be about 5 percent for 2008.
- Inflation accelerated in 2008 to 17–20 percent by mid-2008, up from a reported 5 percent in 2007; projected to average about 15 percent for the year.
- The fiscal deficit increased to about 3.5 percent of GDP in 2007; the non-oil deficit improved slightly.
- Oil revenue decreased by about 2 percent of GDP in 2007.
- The external current account deficit expected to widen to about 4 percent of GDP in 2008, from 3.3 percent in 2007.
- Net official foreign assets stable at about $17 billion (10 months of imports).
- The real effective exchange rate of the Syrian pound appreciated by 4 percent in 2007, and about 9 percent in the first three quarters of 2008.
- Broad money growth aligned with nominal GDP growth; credit to public enterprises grew by about 40 percent in 2007 and by 60 percent in the first half of 2008 (y-o-y).
- Growth of credit to the private sector was about 20 percent in 2007 and expected to be 25 percent in 2008.
- Credit to the private sector about 15 percent of GDP since 2005.
- Broad money to GDP ratio about 65 percent at end-2007.
- Private banks' overall capital adequacy ratio reported at about 13 percent in mid-2008 (CBS minimum requirement 12 percent).
- Nonperforming loans reported at about 5 percent of total loans for all banks at end-2007.
- Public banks’ data on loan classification remain weak, hindering meaningful calculation of their capital adequacy or NPLs ratios.

### Fiscal policy: findings and recommendations
- Further fiscal consolidation is necessary.
- Essential measures:
  - Further reduce petroleum subsidies.
  - Advance preparatory work to launch the VAT in 2010.
  - Continue to restrain public expenditure.
  - Encourage public-private partnership agreements, with adequate safeguards, for investment in infrastructure.
- The authorities launched a program to phase out petroleum subsidies in May 2008:
  - Gasoline and diesel prices increased by 33 and 240 percent, respectively.
  - Authorities issued coupons to all Syrian households that allow purchase of diesel up to 1,000 liters per household at 9 SYP/liter.
  - Fuel oil price (used by large industrial establishments and power plants) raised by 33 percent in December, 2008.
- The fiscal deficit expected to stabilize in 2008 mainly as a result of the reduction in fuel subsidies.
- Authorities aim to fully eliminate fuel subsidies by 2010.
- Consideration being given to moving from fuel coupons to targeted cash transfers due to development of a secondary market for illegal coupon trading.
- Authorities intend to continue to restrain both current and capital outlays; preliminary 2009 budget information indicates a small reduction in expenditure in real terms.

### Monetary policy and financial sector reform
- The 2008 FSAP identified financial sector reform priorities:
  - Audit and restructure state banks.
  - Build up regulatory and supervisory capacity and strengthen enforcement of regulations.
  - Enhance the monetary policy framework by modernizing the central bank and developing indirect monetary policy instruments.
- Key FSAP findings:
  - Financial system dominated by state banks, which hold 80 percent of bank assets.
  - Private banks have grown rapidly since first licensed in 2004; licensing of private insurance companies started in 2005; a stock market will be opened in 2009.
  - Payment and settlement system needs strengthening.
  - CBS lacks effective monetary policy tools and independence; no bills to conduct open market operations and no standing facilities.
  - CBS does not have full control over international reserves, a substantial part of which is held by the Commercial Bank of Syria (CBoS).
  - Basic supervisory and regulatory framework in place, but enforcement needs strengthening; CBS should enhance supervision of public banks.
  - Assessment of soundness hampered by serious data deficiencies in public banks; public banks' financial statements not audited according to international standards.
  - Risks for public banks: possibly weak balance sheets, low capitalization, poor underlying profitability, outdated business practices.
  - Risks for private banks: recent rapid growth, entry into new untested business lines, high loan concentration.
- FSAP key recommendations:
  - Accelerate CBS modernization and reform, including enhancing research capacity, strengthening financial sector risk management, developing the debt market, and transferring the official foreign exchange reserves held by the CBoS to the CBS.
  - Develop systemic liquidity management by creating money and foreign exchange instruments and markets.
  - Build up adequate regulatory and supervisory capacity.
  - Conduct a comprehensive diagnostic audit for state banks, produce reliable financial soundness indicators for these banks, and restructure them.
- The switch of the de jure peg from the dollar to the SDR is assessed as appropriate for Syria.
- A gradual increase in exchange rate flexibility would be beneficial, but should be preceded by development of indirect monetary policy tools.

### External sector and outlook
- External effects of global developments expected mainly through FDI, remittances, and demand for exports from the Gulf.
- The worsening of international financial conditions does not appear to have affected Syria’s financial sector directly due to limited integration and CBS regulations limiting banks’ foreign exposure.
- Non-oil growth projected to slow by about one percentage point (to around 5 percent) over the next two years because of regional slowdown.
- External current account expected to narrow slightly as decline in oil prices should reduce cost of net petroleum imports.
- Fiscal deficit projected to narrow due to reduction in fuel subsidies.
- Medium-term projections:
  - Non-oil GDP could accelerate gradually to 6.5 percent by 2013.
  - External current account deficit projected to stabilize at about 4 percent of GDP.
  - Fiscal deficit projected to stabilize at about 3 percent of GDP.
- Downside risks: weakening of fiscal and structural reform efforts, continuation of severe weather conditions affecting agriculture, or a deeper regional slowdown.

### Structural reforms and other issues
- Continue efforts to transition toward a market-based economy.
- Policy recommendations:
  - Enhance the business environment by modernizing and streamlining the regulatory framework.
  - Further liberalize trade to enhance medium-term growth prospects.
  - Encourage public-private partnerships for infrastructure with adequate safeguards.
- Other considerations:
  - Large number of Iraqi refugees in Syria has contributed to growth but strained public expenditures for petroleum and food subsidies, education, health, and utilities; as refugees deplete savings they may seek work and add pressure to the labor market.
  - Authorities stepped up exploration efforts and bidding rounds on over 20 blocks to slow oil production decline; authorities expect production to continue declining, bottoming out at about 300,000 bpd by 2025 and remaining constant thereafter; at those production levels current recoverable reserves would be depleted by 2030.

_International Monetary Fund staff_

### 13.      Good progress is being made in the preparatory work for the VAT. However, the

### _cr0955 - 13.      Good progress is being made in the preparatory work for the VAT. However, the

### VAT introduction and tax reform
- Introduction of the VAT, initially planned for 2009, has been delayed until January 2010 to avoid contributing to inflationary pressures amid the ongoing phasing out of fuel subsidies and to ensure readiness of tax administration and the public.
- Staff recommendations to ensure VAT success:
  - adopt a single rate with few exemptions;
  - put in place an adequate tax procedure code and information technology system;
  - ensure that the existing large and medium taxpayer offices—which will administer the VAT—report directly to the central Syrian Tax Commission.
- Staff also recommends advancing other tax reforms, including simplifying the income tax regime and rationalizing excises.

### Public expenditure monitoring and management
- Current reporting arrangements: local authorities report expenditures frequently to the Central Accounting Authority; the ministry of finance receives such information with a considerable lag.
- Large quasi-fiscal operations, particularly to finance fuel and other subsidies, are conducted through the banking system.
  - Authorities agree these operations should be reduced but are concerned that simply bringing them on-budget could perversely soften their financing constraint.
  - The ministry of finance favors addressing streamlining within an overall reform strategy to reduce size and modernize the subsidies system.
- Staff recommendations:
  - improve monitoring of expenditures at the regional level;
  - establish a single treasury account;
  - reduce extra budgetary and quasi-fiscal operations conducted by public enterprises and financed by the banking system by bringing them on budget;
  - finance the consolidated budget deficit primarily by treasury bills with market-determined interest.

### Monetary policy and liquidity
- Excess liquidity in the banking system; real interest rates have become largely negative.
  - CBS increased the reserves requirement ratio from 5 percent to 10 percent in October, 2008 to help mop up part of the excess liquidity.
  - Note: Interest rates on deposits are subject to rules effectively imposing a 5-11 percent band.
- No indirect monetary policy instruments or standing facilities currently exist.
  - CBS has held two trial auctions of treasury bills; full-fledged issues expected in 2009. If delayed, CBS would consider issuing its own certificates of deposit.
  - Transfer of international reserves from the CBoS to CBS is expected to be completed in 2009.
  - CBS has embarked on a technical cooperation program with the Fund to modernize its structure and enhance the payments system.
- Staff recommendations:
  - maintain a cautious monetary policy stance;
  - instruct public banks to strictly limit directed lending;
  - develop indirect monetary policy instruments and further liberalize interest rates;
  - if treasury bill launch delayed, CBS should issue its own certificates of deposit;
  - consider establishing standing facilities at the CBS;
  - enhance CBS independence and give it control over all official international reserves.

### Banking supervision and AML/CFT
- CBS priorities and progress:
  - strengthening bank supervision, improving off-site surveillance techniques and methodologies to calculate capital adequacy measures;
  - enhancing supervision of state banks; state banks have begun producing some key FSIs and reporting them to the CBS;
  - free-zone banks to be brought under CBS supervision in 2009.
- AML/CFT framework enhancements:
  - creation of a high level financial intelligence unit;
  - tightened assessment criteria;
  - scope of AML/CFT extended to cover foreign currency changers, insurance companies, and brokerage houses.
- Staff recommendations:
  - continue implementing FSAP recommendations;
  - enforce compliance with prudential regulations by public banks;
  - require all banks to be subject to annual audits by independent firms and provide timely information to the CBS, including financial soundness indicators;
  - prioritize restructuring state banks to operate on a commercial basis.

### External sector and exchange rate
- De jure exchange rate peg switched from the dollar to the SDR in August 2007.
  - De facto, the pound traded within a narrow band against the SDR and appreciated against the dollar by about 7 percent (as of end-September 2008).
- Econometric estimates (noted as unreliable due to data and methodological shortcomings) suggest the real exchange rate of the pound may be moderately overvalued.
  - Exchange Rate Assessment (Box 3) results:
    - Equilibrium real exchange rate (ERER) methodology points to an overvaluation by about 14 percent.
    - Macroeconomic balance (MB) approach indicates an overvaluation by about 12 percent (equilibrium current account norm: surplus of about 1 percent of GDP vs. projected deficit of about 4 percent of GDP).
    - External sustainability (ES) approach results range from an undervaluation of 14 percent to an overvaluation of about 3.5 percent depending on assumptions.
- Authorities’ intentions:
  - remove remaining foreign exchange restrictions and multiple currency practices;
  - allow use of credit cards to pay for foreign transactions starting in June 2008;
  - consider requesting Fund TA for a comprehensive review of the exchange system and hope to accept obligations under Article VIII in the near future.
- Staff recommendations:
  - maintain the current level of the nominal exchange rate in the present context;
  - prepare the ground for a gradual move toward greater exchange rate flexibility in the medium term, preceded by market-based monetary management and development of expertise in foreign exchange operations;
  - advise authorities to eliminate remaining restrictions and multiple currency practices and offer to conduct a comprehensive review upon request.

### Structural reforms and business environment
- Progress:
  - advances in trade liberalization by substantially reducing the tariff schedule;
  - trade liberalization continued via bilateral and regional trade agreements;
  - reforms underway: streamlining agricultural subsidies, introduction of a one-stop shop for company registration, incorporation of the Syrian Telecommunication company, creation of an independent regulatory body.
- Remaining issues:
  - export of strategic agricultural products remains subject to government approval;
  - considerable scope to improve the business environment as indicated by the high cost of “doing business.”
  - Syria ranked 137 (out of 145) in the World Bank’s 2009 Doing Business Report.
- Recent decrees (2008) to combat under-invoicing of imports:
  - decree allowing the customs department to purchase imported goods at invoice prices (decision by Director General of Customs Department);
  - decree requiring importers to open letters of credit through domestic banks (implementation on hold due to business community objections).
- Staff views:
  - reconsider decisions requiring importers to open letters of credit through local banks and allowing customs to buy imports at invoice prices, as their effectiveness for accurate invoicing is unclear;
  - accelerate structural reform to reduce the impact of the global slowdown, liberalize foreign trade, reduce the cost of doing business, and encourage private investment, exports, and job creation.

### Data, outlook, and overarching staff appraisal
- Data shortcomings:
  - serious shortcomings in economic and financial statistics (national accounts, balance of payments, fiscal statistics) hamper effective surveillance;
  - timelines and quality of data would benefit from enhanced coordination between government agencies.
- Recent economic performance and outlook:
  - non-oil growth remained robust despite severe drought impacts on agriculture;
  - recent acceleration in inflation largely due to temporary increases in food and fuel prices; inflation started to decline in the second half of 2008;
  - fiscal and external current deficits worsened only moderately over the past two years despite significant deterioration in the net oil balance, aided by restraint on public expenditure, ongoing fuel subsidies reform, and strong non-oil exports, remittances, and tourism receipts.
  - adverse global and regional developments expected to have relatively mild short-term impact, manifested via weakening FDI, remittances, and demand for Syrian exports from the Gulf region; medium-term outlook expected to improve as global and regional economies recover.
- Key staff recommendations and priorities:
  - further reduce the non-oil deficit through continued restraint on current expenditures (notably wages and subsidies) and prioritization of investment projects focused on infrastructure;
  - encourage private sector participation in infrastructure projects, including through private-public partnership agreements with adequate safeguards;
  - continue fuel subsidy reform with a view to eliminating these subsidies by 2010 while developing a well-targeted compensation scheme to protect the poor;
  - urgently enhance public expenditure management and monitoring at the regional level, establish a single treasury account, and bring quasi-fiscal operations on-budget financed by market-determined treasury bills;
  - maintain cautious monetary policy while developing market-based instruments and enhancing CBS independence and reserve control;
  - continue strengthening bank supervision, enforce prudential compliance, and restructure state banks toward commercial operations;
  - prepare for gradual exchange rate flexibility over the medium term, contingent on stronger market-based monetary management and FX expertise;
  - improve data quality and provision to facilitate better analysis and policy formulation.

*Source: IMF staff report content provided in the input.*

### 37.      It is proposed that the next Article IV consultation take place on the standard

### _cr0955 - 37.      It is proposed that the next Article IV consultation take place on the standard

### Article IV consultation timing
- It is proposed that the next Article IV consultation take place on the standard 12-month cycle.
- Syria is on an annual consultation cycle. The last Article IV consultation was held in April/May 2007 and was completed by the Board on July 31, 2007 (CR/07/288).

### Macroeconomic performance and projections (selected indicators)
- Real GDP growth (change in percent): 2004: 6.7; 2005: 4.5; 2006: 5.1; 2007: 4.2; 2008: 5.2; 2009 (Proj.): 3.9.
- Oil sector growth (change in percent): 2004: -6.1; 2005: -8.6; 2006: -7.1; 2007: -5.0; 2008: -0.1; 2009 (Proj.): -2.6.
- Non-oil growth (change in percent): 2004: 10.2; 2005: 7.5; 2006: 6.9; 2007: 5.8; 2008: 6.0; 2009 (Proj.): 4.7.
- Nominal GDP (LS billions): 2004: 1,263; 2005: 1,491; 2006: 1,709; 2007: 2,025; 2008: 2,567; 2009 (Proj.): 2,477.
- Nominal GDP ($ billions): 2004: 25.0; 2005: 28.6; 2006: 33.5; 2007: 40.6; 2008: 55.2; 2009 (Proj.): 50.7.
- Crude oil production ('000 barrels/day): 2004: 462; 2005: 431; 2006: 400; 2007: 380; 2008: 380; 2009 (Proj.): 370.
- Oil export price ($ per barrel): 2004: 33.5; 2005: 48.1; 2006: 57.6; 2007: 65.3; 2008: 90.0; 2009 (Proj.): 48.9.
- CPI period average: 2004: 4.4; 2005: 7.2; 2006: 10.4; 2007: 4.7; 2008: 14.5; 2009 (Proj.): 8.0.
- Total population (millions): 2004: 18.8; 2005: 19.3; 2006: 20.4; 2007: 20.8; 2008: 21.3; 2009 (Proj.): 21.8.
- Iraqi Immigrants (millions): 2004: 0.8; 2005: 0.9; 2006: 1.5; 2007: 1.5; 2008: 1.5; 2009 (Proj.): 1.5.

### Government finances (fiscal aggregates and balances)
- Revenue (percent of GDP): 2004: 27.2; 2005: 24.0; 2006: 25.5; 2007: 22.3; 2008: 21.4; 2009 (Proj.): 21.8.
  - Oil-related revenue (percent of GDP): 2004: 11.2; 2005: 7.1; 2006: 7.3; 2007: 4.9; 2008: 4.7; 2009 (Proj.): 4.2.
  - Non-oil revenue (percent of GDP): 2004: 16.1; 2005: 16.9; 2006: 18.2; 2007: 17.3; 2008: 16.7; 2009 (Proj.): 17.6.
- Expenditure (percent of GDP): 2004: 31.4; 2005: 28.5; 2006: 26.6; 2007: 25.7; 2008: 24.9; 2009 (Proj.): 25.0.
  - Current expenditure (percent of GDP): 2004: 19.0; 2005: 18.1; 2006: 16.3; 2007: 16.1; 2008: 15.4; 2009 (Proj.): 15.5.
  - Development expenditure (percent of GDP): 2004: 12.4; 2005: 10.4; 2006: 10.3; 2007: 9.6; 2008: 9.5; 2009 (Proj.): 9.5.
- Overall balance (percent of GDP): 2004: -4.2; 2005: -4.5; 2006: -1.2; 2007: -3.4; 2008: -3.5; 2009 (Proj.): -3.1.
- Non-oil budget balance (percent of GDP): 2004: -15.4; 2005: -11.6; 2006: -8.5; 2007: -8.4; 2008: -8.2; 2009 (Proj.): -7.3.
- Identified financing (percent of GDP): 2004: 3.7; 2005: 5.4; 2006: 3.6; 2007: -0.3; 2008: 2.3; 2009 (Proj.): -0.3; 2010 (Budget): 3.5; 2011 (Prel.): 3.1.
- Government debt (percent of GDP, memorandum): 2004: 82.7; 2005: 35.9; 2006: 36.0; 2007: ...; 2008: 28.9; 2009 (Proj.): ...; 2010 (Budget): 22.0; 2011 (Prel.): 23.6.
  - Domestic debt (percent of GDP): 2004: 9.4; 2005: 12.6; 2006: 16.8; 2007: ...; 2008: 14.4; 2009 (Proj.): ...; 2010 (Budget): 11.7; 2011 (Prel.): 11.5.
  - External debt (percent of GDP) 1/: 2004: 73.3; 2005: 23.4; 2006: 19.2; 2007: ...; 2008: 14.5; 2009 (Proj.): ...; 2010 (Budget): 10.4; 2011 (Prel.): 12.1.
- Notes: Central government budget and Price Stabilization Fund (PSF) coverage; sharp changes in government debt largely reflect restructuring/rescheduling of old Soviet-era debt.

### Monetary and banking sector indicators
- Broad money (12-month change in percent): 2004: 11.1; 2005: 11.5; 2006: 9.4; 2007: 9.8; 2008: 19.0; 2009 (Proj.): 13.0.
- Net foreign assets (change in percent of initial stock of money): 2004: 5.4; 2005: 0.7; 2006: -2.3; 2007: -2.0; 2008: 3.7; 2009 (Proj.): 2.2.
- Domestic credit (change in percent of initial stock of broad money): 2004: 7.6; 2005: 14.7; 2006: 7.2; 2007: 8.7; 2008: 14.5; 2009 (Proj.): 11.0.
- Credit to private sector (change in percent): 2004: 35.0; 2005: 45.9; 2006: 17.9; 2007: 20.2; 2008: 25.8; 2009 (Proj.): 18.0.
- Credit to private sector (in percent of GDP): 2004: 11.7; 2005: 14.5; 2006: 14.9; 2007: 15.1; 2008: 15.0; 2009 (Proj.): 18.3.
- Monetary Survey (in billions of Syrian pounds, selected): Broad money: 2004: 988; 2005: 1,101; 2006: 1,205; 2007: 1,323; 2008: 1,575; 2009 (Proj.): 1,780.
- Banking sector financial soundness indicators (2006–June-08, select items):
  - Non-performing loans to total loans: 2006: 4.7; 2007: 5.0; June-08 (Consolidated): 1.0.
  - Specific provisions to gross non-performing loans: 2006: 61.0; 2007: 61.3; June-08 (Consolidated): 41.7.
  - Return on average assets (ROAA): 2006: 2.0; 2007: 2.3; June-08 (Consolidated): 0.3.
  - Liquid assets to total assets (Consolidated): 2006: 59.6; 2007: 57.7; June-08 (Consolidated): 73.4.
  - FX- deposits to total deposits (Consolidated): 2006: 19.3; 2007: 11.8; June-08 (Consolidated): 54.0.
- Table 7 (Structure of the Financial System, Dec-07 and Jun-08) reports number of banks, total assets, and shares; total financial system assets in percent of GDP: Dec-07: 100; Jun-08: 100; total assets (in billions): Dec-07: 593; Jun-08: 634.

### Balance of payments and external sector
- Current account balance (in millions of U.S. dollars): 2004: -396; 2005: -632; 2006: -923; 2007: -1,352; 2008: -2,254; 2009 (Proj.): -1,895.
- Current account balance (in percent of GDP): 2004: -1.6; 2005: -2.2; 2006: -2.8; 2007: -3.3; 2008: -4.1; 2009 (Proj.): -3.7.
- Goods exports, f.o.b. (millions): 2004: 7,155; 2005: 9,035; 2006: 10,224; 2007: 11,713; 2008: 14,597; 2009 (Proj.): 12,251.
  - Oil exports (millions): 2004: 3,406; 2005: 4,286; 2006: 4,062; 2007: 4,355; 2008: 5,630; 2009 (Proj.): 2,914.
  - Non-oil exports (millions): 2004: 3,749; 2005: 4,749; 2006: 6,162; 2007: 7,358; 2008: 8,967; 2009 (Proj.): 9,338.
- Goods imports, f.o.b. (millions): 2004: -8,033; 2005: -10,305; 2006: -11,917; 2007: -14,538; 2008: -17,657; 2009 (Proj.): -15,654.
- Services net (millions): 2004: 228; 2005: 327; 2006: 93; 2007: 366; 2008: 286; 2009 (Proj.): 360.
- Income (net, millions): 2004: -729; 2005: -975; 2006: -935; 2007: -689; 2008: -1,104; 2009 (Proj.): -359.
  - Oil companies' profits (debit, millions): 2004: -931; 2005: -1,200; 2006: -1,165; 2007: -1,085; 2008: -1,494; 2009 (Proj.): -807.
- Transfers (millions): 2004: 984; 2005: 1,286; 2006: 1,612; 2007: 1,796; 2008: 1,624; 2009 (Proj.): 1,506.
  - Workers' remittances (millions): 2004: 689; 2005: 761; 2006: 610; 2007: 831; 2008: 839; 2009 (Proj.): 881.
- Capital and financial account balance (millions): 2004: 288; 2005: 669; 2006: -586; 2007: 1,019; 2008: 1,899; 2009 (Proj.): 2,238.
- Official net foreign assets (NFA of the Central Bank and CBoS, millions): 2004: 17,567; 2005: 17,585; 2006: 16,831; 2007: 17,474; 2008: 17,119; 2009 (Proj.): 17,533.
- Official net foreign assets (in months of imports of GNFS): 2004: 20.2; 2005: 16.4; 2006: 13.7; 2007: 11.6; 2008: 9.4; 2009 (Proj.): 10.5.
- Oil balance (in percent of GDP) 1/: 2004: 5.3; 2005: 2.1; 2006: 0.0; 2007: -2.4; 2008: -2.6; 2009 (Proj.): -2.7.
- Overall balance (millions): 2004: 202; 2005: 18; 2006: -753; 2007: 671; 2008: -355; 2009 (Proj.): 343.

### Medium-term macroeconomic framework (2004–13, selected projections)
- Real GDP growth (change in percent) projections: 2010: 3.3; 2011: 5.3; 2012: 5.2; 2013: 5.7.
- Crude oil production ('000 barrels/day) projections: 2010: 335; 2011: 339; 2012: 329; 2013: 319.
- Oil export price ($ per barrel) projections: 2010: 58.6; 2011: 64.4; 2012: 67.8; 2013: 70.1.
- CPI period average projections: 2010: 6.0; 2011: 5.0; 2012: 5.0; 2013: 5.0.
- Government finances (percent of GDP, projections): Revenue 2010: 21.5; 2011: 21.2; 2012: 20.7; 2013: 20.8. Expenditure 2010: 23.9; 2011: 23.9; 2012: 23.8; 2013: 23.8. Overall balance 2010: -2.4; 2011: -2.6; 2012: -3.1; 2013: -3.0.
- Gross public debt projections (percent of GDP): 2010: 23.6; 2011: 23.5; 2012: 24.8; 2013: 25.8.

### Exchange rate arrangement, external restrictions, and relations with the Fund
- Exchange rate arrangement:
  - The Central Bank of Syria issues daily quotations for buying and selling exchange rates for the Syrian pound against major currencies.
  - The official budget exchange rate was pegged to the U.S. dollar until end-December 2006.
  - Since abolition of the official “budget” rate on January 1, 2007 and its unification with the private sector exchange rate, the central bank has been managing the value of the currency vis-à-vis the U.S. dollar within a tight trading range.
  - The authorities switched the reference currency from the U.S. dollar to the SDR in August 2007.
  - The de facto exchange rate arrangement is classified as a peg to a basket.
- Article XIV / Article VIII restrictions:
  - Syria maintains, under Article XIV, restrictions on payments and transfers for current international transactions, including administrative allocation of foreign exchange.
  - Syria maintains exchange measures subject to Fund approval under Article VIII, including:
    - prohibition against purchases by private parties of foreign exchange from the banking system for some current international transactions;
    - a multiple currency practice resulting from divergences of more than 2 percent between the official exchange rate and officially recognized market exchange rates;
    - a non-interest-bearing advance import deposit requirement of 75–100 percent for public sector imports;
    - an exchange restriction arising from the net debt under inoperative bilateral payments arrangements with the Islamic Republic of Iran, and Sri Lanka.
- Relations with the Fund (Appendix I, as of October 31, 2008):
  - Membership Status: Joined April 10, 1947; Article XIV.
  - Quota (SDR Million): 293.60; Fund holdings of currency: 293.60; Reserve position in Fund: 0.01.
  - SDR Department: Net cumulative allocation: 36.56; Holdings: 36.57.
  - Outstanding Purchases and Loans: None.
  - Financial Arrangements: None.
  - Projected Obligations to Fund (SDR million; forthcoming 2008–2012): Charges/Interest: 0.00 for each year; Total: 0.00.
  - The Executive Board adopted decision No. 13958 (07/67) at the Board meeting on July 31, 2007.

### Key risks and fiscal/monetary considerations highlighted in the data
- Reliance on oil-related revenue: oil-related revenue fell from 11.2 percent of GDP in 2004 to projected 4.2 percent in 2009, increasing susceptibility to oil price and production shocks.
- Current account and oil balance deterioration: current account (percent of GDP) weakened to -4.1 in 2008 with oil balance negative in 2007–2009.
- Monetary and banking system indicators show sizable FX exposures and concentrated loan sectors (e.g., wholesale and retail trade) alongside substantial liquid asset ratios.
- Public debt volatility driven by external debt restructuring/rescheduling events (old Soviet-era debt).

*Source: IMF Staff Report for the 2008 Article IV Consultation—Informational Annex (selected tables and Appendix I).*

### 38.      The Fund takes this decision relating to the Syrian Arab Republic’s exchange

### _cr0955 - 38.      The Fund takes this decision relating to the Syrian Arab Republic’s exchange

### Decision on Exchange Measures and Consultation Status
- The Fund takes this decision relating to the Syrian Arab Republic’s exchange measures subject to Article VIII, Sections 2(a) and 3, and in concluding the 2006 Article XIV consultation with the Syrian Arab Republic, in light of the 2006 Article IV consultation with the Syrian Arab Republic conducted under Decision No. 5392-(77/63), adopted April 29, 1977, as amended (Surveillance over Exchange Rate Policies).
- The Syrian Arab Republic maintains restrictions on the making of payments and transfers for current international transactions in accordance with Article XIV, Section 2, as described in CR/06/294.
- The Syrian Arab Republic maintains exchange measures subject to approval under Article VIII, as described in CR/06/294.
- The Fund encourages:
  - the Syrian Arab Republic to eliminate the restrictions maintained under Article XIV, Section 2 as soon as its balance of payments position permits, and
  - to eliminate the measures that are subject to approval under Article VIII as soon as possible. (CR/07/288).

### Technical Assistance (selected entries)
- METAC: Central Bank Accounting — Ongoing
- FAD: Tax administration — July 2008
- STA: Multi-Sector Statistics (National Accounts, Fiscal, Monetary, and Balance of Payments) — December 2007
- 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
- MFD: 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 — 2002–04
- MAE: Two-Day Workshop on On-Site Banking Supervision — July 2002
- MAE: Workshop on Off-Site Banking Supervision — March 2002

### Relations with the World Bank Group (summary)
- Syria joined the World Bank in 1947.
- IDA approved four credits for Syria totaling $48.6 million between 1963 and 1974.
- After graduating from IDA in 1974, IBRD approved 15 loans during 1974-86.
- In 1986 Syria ceased debt service payments to the Bank, prompting a suspension of Bank disbursements.
- By July 1, 2002, Syria settled all its overdue service payments to IBRD and IDA, reinstating eligibility for disbursement.
- There is currently no World Bank Country Assistance Strategy (CAS) for Syria; a Memorandum of Understanding (MoU) covered 2005-07 for advisory and analytical services.
- World Bank advisory activities under the MoU included:
  - advise on restructuring public banks and establishing a government securities market;
  - FIAS support reviewing the recently adopted Investment Law;
  - analytical work on energy subsidies and advice on drafting a Basic Finance Law and improving public financial management.
- Syrian authorities expressed interest in World Bank Group services in three areas:
  - Economic Growth and Transition Support: Trade reform; fiscal sustainability; price liberalization; sources of non-oil growth; private sector development and business environment.
  - Human Development and Social Protection: Enhancing policymaking and implementation capacity in social protection; support to avian influenza preparedness; reform options for social insurance; and education sector strategy.
  - Sustainable Development: Electricity sector strategy; agriculture sector reform; solid waste technical assistance; water and wastewater technical assistance; and transport sector technical assistance.
- IFC activities since 1999:
  - first investment: $1 million equity stake in a manufacturer of drip irrigation systems;
  - two other investments including an equity position in the first private sector bank in Syria and a loan to a chemicals company;
  - total held portfolio is $20 million;
  - conducted technical assistance work, including studies of aspects of the financial sector.

### Statistical Issues — Overview
- "Data provision has serious shortcomings that significantly hamper surveillance."
- Weak statistical infrastructure; difficulties in recording flows to and from Iraq exacerbate challenges.
- Syria began participating in the General Data Dissemination System (GDDS) in December 2007; plans are posted on the Fund’s Dissemination Standards Bulletin Board.
- A STA-resident statistics advisor has been in place since July 2008 to implement recommendations of the December 2007 multisector mission.

A. Real Sector Statistics
- Annual national accounts by expenditure reported in IFS with about 2-years lag.
- Significant weaknesses remain in source data and statistical techniques for national accounts.
- METAC provided technical assistance to improve data sources and methods in accordance with the System of National Accounts, 1993 (1993 SNA).
- Economic surveys covering private sector enterprises were conducted for years 2004–06; results are yet to be fully processed and validated.
- CBStat made steady progress implementing mission recommendations.

B. Government Finance Statistics (GFS)
- GFS suffer major deficiencies: definitions, coverage, classification, methodology, accuracy, reliability, and timeliness.
- Fiscal statistics are not provided for publication in the IFS.
- Compilation methodology does not follow GFSM 2001 or GFSM 1986.
- Budget data available with very long lags (two years for final budget accounts); financing data are not available.
- No dissemination of GFS data; access to key data sources by GFS compilers within the Ministry of Finance (MOF) is problematic.
- Largest discrepancies are between financing requirements of the budget (MOF) and government financing as reported by the Central Bank of Syria (CBS).
  - Causes: lack of common and regularly updated government sector coverage between MOF and CBS; misclassification of public enterprises investment expenditure; timing and valuation issues.
- Other discrepancies: CBS unorthodox treatment of some transactions with government (parallel rise of government deposits and claims on government; government withdrawals being counted as credit and not netted out; profits transferred to government treated as permanent claim on government).
- June 2004 multisector mission actions:
  - developed a preliminary bridge table mapping budgetary source data codes to GFSM 2001 classification codes;
  - conducted a seminar on GFSM 2001 methodology for MOF officials;
  - provided an updated institutional table for proper sectorization and circulation to relevant agencies;
  - formulated a detailed work plan for DPS to compile annual GFS data according to GFSM 2001 and resume reporting to STA for publication in GFSY and IFS;
  - recommended improvement in timeliness of annual data and a start on sub-annual data compilation.

C. Monetary and Financial Statistics
- Major deficiencies hamper meaningful analysis of monetary developments.
- Monthly monetary statistics are reported for publication in the IFS with about 10-month lags (GDDS recommendation: 3-month lags).
- Progress: inclusion in monetary survey of private banks, the Savings Bank, and banks/bank branches in Free Zones.
- Deficiencies in source data arise from:
  - use of different exchange rates at the CBS and other banks for valuing foreign-currency positions;
  - financial positions not valued at market prices or market-price equivalents;
  - accounting procedures for public sector accounts causing distortions in measurement of gross positions;
  - disparities between institutional coverage of public sector in monetary statistics and government finance statistics.
- November–December 2008 technical assistance mission worked on data reporting based on Standardized Report Forms (SRFs) reflecting MFSM-recommended compilation principles.

D. External Sector Statistics
- Balance of payments (BOP) statistics compiled by CBS on a provisional basis.
- Trade data compiled monthly by Customs Department and reported quarterly by CBStat in local currency units with a six-month lag.
- BOP presented in BPM5 format, but compilation method not entirely consistent with BPM5 methodology.
- February 2006 STA assessment mission provided basis for METAC technical assistance on external sector statistics.
- December 2007 STA multisector mission in collaboration with METAC; follow-up METAC missions in January and July 2008.
- September 2008 STA inspection visit followed up on 2007 recommendations and discussed reporting and publication of international liquidity for IFS.
- October 2008 STA BOP statistics mission advised on international reserves, trade data, and treatment of Iraqi immigrants; assisted CBS to compile January-July 2008 BOP in BPM5 format and adjusted 2007 data where needed.
- Further efforts needed to improve BOP accuracy for surveillance:
  - continue data collection initiatives (ITRS and surveys) to strengthen source data and ensure coverage of free zones;
  - improve the undercoverage of imports;
  - examine the scope of transfers, including treatment of inflows related to Iraqi immigrants;
  - review the coverage of reserves;
  - improve the coverage of financial account data of the private sector (bank and nonbank).
- Customs Department adopted Automated System for Customs Data (ASYCUDA) and formed a Statistical Committee on Foreign Trade Statistics; significant weaknesses remain in source data and techniques for foreign trade statistics.

### Table of Common Indicators Required for Surveillance (As of November 20, 2008) — Selected entries
- Date of latest observation / Date received / Frequency of Data / Frequency of Reporting / Frequency of publication
  - Exchange Rates — Nov. 19, 2008 / Nov. 20, 2008 / D / D / D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Feb. 2006 / Mar. 2006 / M / Q / M
  - Reserve/Base Money — Dec. 2007 / Aug. 2008 / M / Q / M
  - Broad Money — Dec. 2007 / Oct. 2008 / M / Q / M
  - Central Bank Balance Sheet — Dec. 2007 / Aug. 2008 / M / Q / M
  - Consolidated Balance Sheet of the Banking System — Dec.2007 / Oct. 2008 / M / Q / M
  - Interest Rates — Sep. 2008 / Oct. 2008 / M / Q / M
  - Consumer Price Index — Sep. 2008 / Oct. 2008 / M / M / M
  - Revenue, Expenditure, Balance and Composition of Financing – General Government — 2007 / Oct. 2008 / A / A / A
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government — 2007 / Oct. 2008 / A / A / A
  - Stocks of Central Government and Central Government-Guaranteed Debt — 2007 / Oct. 2008 / A / A / A
  - External Current Account Balance — 2007 / Oct. 2008 / A / A / A
  - Exports and Imports of Goods and Services — Jun. 2008 / Oct. 2008 / Q / Q / Q
  - GDP/GNP — 2007 / Oct. 2008 / A / A / A
  - Gross External Debt — 2007 / Oct. 2008 / A / A / A
  - International Investment Position — NA / NA / NA / NA / NA

- Footnotes (selected, verbatim):
  - 1 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
  - 2 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
  - 3 Foreign, domestic bank, and domestic nonbank financing.
  - 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
  - 5 Including currency and maturity composition.
  - 6 Includes external gross financial asset and liability positions vis-à-vis nonresidents.
  - 7 Daily (D); Weekly (W); Monthly (M); Bi-monthly (B); Quarterly (Q); Annually (A); Irregular (I); Not available (NA).

Statement by the IMF Staff Representative — January 9, 2009

*Source: _cr0955 - 38.      The Fund takes this decision relating to the Syrian Arab Republic’s exchange*

### 1.      The following information has become available since the staff report was issued. It

### The following information has become available since the staff report was issued.

### New information since the staff report
- The new information does not change the thrust of the staff appraisal.
- On December 1, 2008, the authorities increased the domestic price of fuel oil by 46 percent, larger than the initially anticipated 33 percent.
- The additional revenue from the larger fuel price increase is equivalent to about 0.85 percent of GDP.
- The lower WEO oil price projection of January 6, 2009 would have a positive impact on the fiscal deficit equivalent to about 0.25 percent of GDP due to the smaller cost of the negative external net oil balance.
- Staff revised projections for 2009:
  - Wage expenditures revised upwards by about 0.7 percent of GDP.
  - Development expenditures revised upwards by about 0.6 percent of GDP.
- Net impact on 2009 fiscal deficit:
  - Revised fiscal deficit projection for 2009 would be about 3.3 percent of GDP, slightly above the initial projection of 3.1 percent.
- Policy implication highlighted:
  - Need to restrain expenditure and further advance fiscal reform efforts, particularly those aimed at fully eliminating oil subsidies and introducing the value added tax by 2010.

### Macroeconomic performance and outlook (summary of Public Information Notice No. 09/07, January 26, 2009)
- Growth and inflation:
  - Non-oil real GDP estimated about 6 percent in 2007 despite unfavorable weather affecting agriculture.
  - Overall growth in 2007 registered about 4 percent.
  - Preliminary data for 2008 indicate non-oil growth similar to 2007; overall growth expected to be about 5 percent in 2008.
  - Inflation accelerated to 17-20 percent by mid-2008 (up from a reported 5 percent in 2007), then started to decline in Q4 2008; projected to average about 15 percent for 2008.
- Fiscal developments:
  - Overall fiscal deficit increased to about 3.5 percent of GDP in 2007.
  - Non-oil deficit improved slightly in 2007.
  - Oil revenue decreased by about 2 percent of GDP in 2007.
  - Current and capital outlays reduced by about 1 percent of GDP in total.
  - Fiscal deficit expected to stabilize in 2008, mainly due to reduction in fuel subsidies initiated May 2008.
- External sector and reserves:
  - External current account deficit expected to widen to about 4 percent of GDP in 2008, from 3.3 percent in 2007.
  - Net oil balance turned negative.
  - Net official foreign assets stable at about $17 billion (10 months of imports).
  - Real effective exchange rate of the Syrian pound appreciated by 4 percent in 2007, and about 9 percent in the first three quarters of 2008.
- Monetary and credit conditions:
  - Broad money growing in line with nominal GDP.
  - Credit to public enterprises grew by about 40 percent in 2007 and by 60 percent in the first half of 2008 (y-o-y).
  - Growth of credit to the private sector about 20 percent in 2007 and expected 25 percent in 2008.
  - Interest rates remained low and largely negative in real terms with the rise in inflation in 2008.
- Impact of global developments:
  - Adverse global and regional developments expected to have relatively mild short-term effects, mainly via weakening FDI, remittances, and demand for exports from the Gulf region.
  - Medium-term outlook contingent on fiscal and structural reforms and gradual global recovery over the next two years.

### Executive Board assessment (summarized)
- Directors welcomed Syria’s strong recent macroeconomic performance: rapid non-oil GDP growth, comfortable foreign reserves, and low and declining government debt.
- Risks and challenges noted:
  - Declining oil production and exports; Syria a net oil importer.
  - High but declining inflation.
  - Downside growth risks from global and regional developments.
- Policy recommendations emphasized by Directors:
  - Continue reducing the non-oil fiscal deficit through:
    - Mobilization of non-oil revenue.
    - Restraint on current expenditure—notably wages and subsidies.
    - Prioritization of investment projects.
  - Adhere to plans to introduce the value added tax by the new target date of 2010; support adoption of a single rate with limited exemptions.
  - Eliminate fuel subsidies by 2010 as planned, while developing a well-targeted compensation scheme to mitigate impact on the poor.
  - Strengthen public expenditure management by:
    - Reforming the budget process.
    - Improving monitoring of expenditures at the regional level.
    - Establishing a single treasury account.
    - Reducing extra-budgetary and quasi-fiscal operations through the banking system and bringing them on budget.
  - Authorities’ intention to issue treasury bills in 2009 welcomed as supportive of domestic capital market development and monetary policy.
  - Maintain cautious monetary policy stance; steps urged:
    - Strictly limit directed lending by public banks.
    - Develop indirect monetary policy instruments.
    - Further liberalize interest rates.
    - Modernize the role and responsibilities of the central bank.
  - Financial sector recommendations:
    - Strengthen bank supervision.
    - Ensure all banks subject to annual independent audits and provide timely information to the central bank.
    - Prioritize restructuring and commercializing operations of state-owned banks.
    - Enhance availability of reliable financial sector indicators.
  - Exchange rate and external policy:
    - Peg of the Syrian pound to the SDR deemed appropriate.
    - Prepare ground for gradual move toward greater exchange rate flexibility over the medium term.
    - Remove existing exchange restrictions and multiple currency practice.
  - Structural reforms:
    - Continue trade liberalization and improve business environment.
    - Address shortcomings in economic and financial statistics; improve quality and timeliness of economic data.

### Key quantified indicators (selected from "Syrian Arab Republic: Selected Economic Indicators, 2004–08")
- Real GDP growth rates: 2004: 6.7; 2005: 4.5; 2006: 5.1; 2007: 4.2; 2008 (Prel./Proj.): 5.2 (table shows 5.2 under 2008 column heading in the first line).
- Oil sector real GDP changes: 2004: -6.1; 2005: -8.6; 2006: -7.1; 2007: -5.0; 2008: -0.1.
- Non-oil real GDP changes (per table entries): 2004: 10.2; 2005: 7.5; 2006: 6.9; 2007: 5.8; 2008: 6.0.
- Nominal GDP (LS billions): 2007: 2,025; 2008: 2,567.
- Nominal GDP ($ billions): 2004: 25.0; 2005: 28.6; 2006: 33.5; 2007: 40.6; 2008: 55.2.
- Crude oil production (‘000 barrels/day): 2004: 462; 2005: 431; 2006: 400; 2007: 380; 2008: 380.
- GDP deflator: 2004: 10.9; 2005: 12.9; 2006: 9.1; 2007: 13.7; 2008: 20.6.
- Oil export price ($ per barrel): 2004: 33.5; 2005: 48.1; 2006: 57.6; 2007: 65.3; 2008: 90.0.
- CPI period average: 2004: 4.4; 2005: 7.2; 2006: 10.4; 2007: 4.7; 2008: 14.5.
- Total population (millions): 2004: 18.8; 2005: 19.3; 2006: 20.4; 2007: 20.8; 2008: 21.3.
- Government finances (percent of GDP):
  - Revenue: 2004: 27.2; 2005: 24.0; 2006: 25.5; 2007: 22.3; 2008: 21.4.
  - Oil-related revenue: 2004: 11.2; 2005: 7.1; 2006: 7.3; 2007: 4.9; 2008: 4.7.
  - Non-oil revenue: 2004: 16.1; 2005: 16.9; 2006: 18.2; 2007: 17.3; 2008: 16.7.
  - Expenditure: 2004: 31.4; 2005: 28.5; 2006: 26.6; 2007: 25.7; 2008: 24.9.
  - Current expenditure: 2004: 19.0; 2005: 18.1; 2006: 16.3; 2007: 16.1; 2008: 15.4.
  - Development expenditure: 2004: 12.4; 2005: 10.4; 2006: 10.3; 2007: 9.6; 2008: 9.5.
  - Overall balance: 2004: -4.2; 2005: -4.5; 2006: -1.2; 2007: -3.4; 2008: -3.5.
  - Non-oil budget balance: 2004: -15.4; 2005: -11.6; 2006: -8.5; 2007: -8.4; 2008: -8.2.
- Monetary aggregates (changes in percent of initial stock of money):
  - Broad money: 2004: 11.1; 2005: 11.5; 2006: 9.4; 2007: 9.8; 2008: 19.0.
  - Net foreign assets: 2004: 5.4; 2005: 0.7; 2006: -2.3; 2007: -2.0; 2008: 3.7.
  - Net domestic assets: 2004: 5.8; 2005: 10.8; 2006: 11.7; 2007: 11.9; 2008: 15.3.
  - Credit to government: 2004: 2.8; 2005: 6.1; 2006: 0.3; 2007: -3.1; 2008: -0.7.
  - Credit to public enterprises: 2004: 0.5; 2005: 1.7; 2006: 3.4; 2007: 7.6; 2008: 9.2.
  - Credit to private sector: 2004: 4.3; 2005: 6.9; 2006: 3.5; 2007: 4.3; 2008: 6.0.
  - Credit to private sector (change in percent): 2004: 35.0; 2005: 45.9; 2006: 17.9; 2007: 20.2; 2008: 25.8.
  - Credit to private sector (in percent of GDP): 2004: 11.7; 2005: 14.5; 2006: 14.9; 2007: 15.1; 2008: 15.0.
- Balance of payments (in billions of U.S. dollars unless otherwise indicated):
  - Current account balance: 2004: -0.4; 2005: -0.6; 2006: -0.9; 2007: -1.4; 2008: -2.3.
  - Current account (in percent of GDP): 2004: -1.6; 2005: -2.2; 2006: -2.8; 2007: -3.3; 2008: -4.1.
  - Overall oil balance 1/: 2004: 1.3; 2005: 0.7; 2006: 0.0; 2007: -1.0; 2008: -2.1.
  - Overall oil balance (in percent of GDP): 2004: 5.3; 2005: 2.1; 2006: 0.0; 2007: -2.4; 2008: -2.6.
  - Non-oil exports of goods and services (in percent of GDP): 2004: 6.4; 2005: 7.7; 2006: 9.1; 2007: 11.2; 2008: 13.5.
  - Non-oil exports (change in percent): 2004: 99.2; 2005: 20.4; 2006: 18.6; 2007: 23.5; 2008: 20.2.
  - Non-oil imports of goods and services (in percent of GDP): 2004: -9.3; 2005: -10.4; 2006: -11.9; 2007: -13.8; 2008: -15.6.
  - Non-oil imports (change in percent): 2004: 20.8; 2005: 12.5; 2006: 13.9; 2007: 16.2; 2008: 13.2.
  - Overall balance: 2004: 0.2; 2005: 0.0; 2006: -0.8; 2007: 0.7; 2008: -0.4.
  - Official net foreign assets: 2004: 17.6; 2005: 17.6; 2006: 16.8; 2007: 17.5; 2008: 17.1.
  - Official net foreign assets (in months of imports of GNFS): 2004: 20.2; 2005: 16.4; 2006: 13.7; 2007: 11.6; 2008: 9.4.
  - Weighted average nominal exchange rate LS/$2/: 2004: 50.5; 2005: 52.2; 2006: 51.0; 2007: 49.9; 2008: 46.5.
  - Real effective exchange rate (in percent, + appreciation) 3/: 2004: 0.0; 2005: 1.7; 2006: 10.7; 2007: 4.9; 2008: 9.0.

Notes contained in the indicators table:
- 1/ Oil trade balance less profit of foreign oil companies.
- 2/ Trade-weighted average of official and parallel market rates before 2007. For 2008 data are for July.
- 3/ For 2008 data are for the first three quarters.

### Statement by A. Shakour Shaalan, Executive Director for Syrian Arab Republic (summary)
- Growth record and plans:
  - Non-oil growth averaged 7 percent from 2004-2008.
  - Authorities’ 5-year development plan (2006-2010) targets medium-term growth of 7 percent from 2010.
  - Plan emphasizes maintaining macroeconomic stability, deregulation, global integration to attract private investment, and structural reforms for governance and equitable growth.
- Near-term outlook:
  - Economy relatively sheltered from global financial turmoil due to strict bank regulations on foreign exposures.
  - Growth expected to moderate somewhat near-term due to global and regional slowdown affecting non-oil exports and remittances.
  - Scope exists to expand FDI and tourism receipts.
  - Declining oil import prices will assist external position.
- Oil sector outlook:
  - Oil production contributed over 70 percent of exports and about 50 percent of fiscal revenue at its peak in 2001-2004.
  - Current production has fallen short of domestic needs; Syria became a net oil importer in 2007.
  - Without further discoveries, production levels would gradually decline and reserves would be depleted by 2030.
  - Exploration activity has recently picked up with ongoing bidding on additional blocks.

*IMF staff report and Public Information Notice materials as provided in the source content.*

### 4. Fiscal outcomes have out-performed earlier expectations with the overall fiscal deficit

### 4. Fiscal outcomes have out-performed earlier expectations with the overall fiscal deficit

### Fiscal outcomes and composition
- Overall fiscal deficit in 2006 and 2007: 1.2 and 3.3 percent of GDP, respectively.
- Balance excluding oil revenue: improved by 7 percentage points of GDP between 2004 and 2007.
- Favorable outcome achieved through underspending of both current and capital outlays despite budgetary pressures from the large number of Iraqi refugees.
- Non-oil revenue collections strengthened primarily through increased indirect taxes and public enterprise surpluses, which helped offset the impact of tariff liberalization.
- Preliminary indications: overall fiscal out-turn will remain stable in 2008 and current expenditures will decline further as a share of GDP.
- Significant fuel price adjustments in May 2008 helped curtail fuel subsidies and reduced fuel imports.
- Public sector wage response: necessitated a 25 percent public sector wage increases to compensate for rising fuel prices and help retain its skilled civil service; the public wage bill has been kept under control and is declining as a share of GDP.
- Public debt: fell further to 22 percent of GDP by end-2008.

### Fiscal policy stance and 2009 measures
- Fiscal policy remains constrained in 2009 to consolidate recent gains.
- The new budget is expected to deliver an additional 1 percentage point reduction in the non-oil fiscal balance by constraining current and capital outlays.
- Authorities are considering targeted cash transfers and further fuel price adjustments, if needed, consistent with their plan to eliminate subsidies by 2010.
- The authorities view the VAT as a key source of revenue to offset dwindling oil revenues and are keen to ensure that the necessary preconditions are in place for its successful launch, including improved billing practices.
- Reform of customs administration is proceeding under an EU project.
- The Fund’s METAC is helping to modernize budget processes including through the introduction of a medium-term expenditure framework.
- Implementation of an integrated information technology system is an important step toward improved expenditure management through a single treasury account.

### Monetary and exchange rate policies
- Monetary policy has been cautious and the Central Bank of Syria (CBS) has actively pursued institutional and monetary system reforms.
- Important progress in two key reform priorities: developing market-based monetary management instruments and strengthening banking sector regulation and supervision.
- Treasury bills were issued in two successful pilot auctions in July 2008 and regular Treasury bill auctions are set to be launched in 2009.
- The CBS is considering issuance of its own certificates of deposits to mop up excess liquidity should Treasury bill auctions be delayed.
- Discussions have commenced on the transfer of state foreign exchange assets held by the Commercial Bank of Syria to the CBS and this process is due to be completed in 2009.
- A liquidity framework is being developed and the central bank is undertaking reforms to modernize its operations, expand its research capacity, and strengthen financial sector risk management.
- The peg to the SDR has served as a credible monetary anchor according to the authorities; strong export growth and buoyant international reserves attest to the maintenance of competitiveness.
- Liberalization of foreign exchange trading has solidified market confidence, brought about exchange rate stability, and helped curb inflationary pressures.

### The banking sector
- The banking system is well capitalized and well provisioned and banking supervision is being strengthened to improve resilience to shocks.
- Private banks have been licensed since 2004 and their share of total banking assets is nearly 20 percent.
- Authorities welcomed the assessment and recommendations provided by the FSAP team and have moved swiftly to adopt many of its recommendations.
- State banks are improving their reporting and preparing restructuring plans that outline their reform priorities.
- Off-site and on-site supervision have been strengthened.
- Entry of private and foreign banks has increased incentives to improve state banks’ cost control and profitability.

### Institutional engagement and cooperation
- The Syrian authorities value the analysis and advice of the Fund and appreciate the constructive spirit of the discussions.

*Source: _cr0955 - 4. Fiscal outcomes have out-performed earlier expectations with the overall fiscal deficit*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0955.pdf_