## _cr1086

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---

### Executive Summary — background, recent developments, and outlook
- Impact of the global financial crisis on Syria: relatively moderate and mostly through linkages to trading partners in the region and Europe.
- Growth and labor market:
  - Non-oil growth estimated to have declined by 1.5 percentage points in 2009 to 4.5 percent.
  - GDP growth estimated to have decelerated in 2009 by 1 percentage point to 4 percent.
  - Unemployment estimated to have increased to almost 11 percent.
- Prices and reserves:
  - Inflation declined sharply to about 2.5 percent.
  - Gross reserves remained comfortable, at about US$17 billion.
- Fiscal and external positions:
  - Recorded fiscal deficit estimated to have widened in 2009 by about 2.5 percentage points to 5.5 percent of GDP.
  - External current account deficit widened to about 4.5 percent of GDP.
- Monetary and credit:
  - Broad money estimated to have grown by about 10 percent in 2009 with the Syrian pound pegged to a basket (within a band).
  - Credit to the private sector growth at about 25 percent in 2009; credit to public enterprises decelerated sharply due to reduction in energy subsidies.
- Near-term outlook:
  - Growth projected at about 5 percent in 2010, supported by recovery in trading partners, rising exports, remittances, FDI, and agriculture recovery.
  - Overall fiscal deficit expected to narrow by about 1 percentage point of GDP in 2010.
  - External current account deficit envisaged to narrow slightly in 2010.
- Medium-term outlook:
  - Growth expected to strengthen to about 5.5 percent by 2014 despite envisaged decline in oil output.
  - Authorities’ medium-term fiscal strategy aims to contain the overall deficit below 5 percent of GDP.
  - Fiscal deficit projected to narrow to 3.4 percent of GDP and to moderately increase to 3.8 percent of GDP by 2014 due to steady decline in oil revenue.
  - External current account deficit likely to stabilize at 3.7 percent of GDP.
- Risks:
  - A delay in global recovery or faltering reform implementation could worsen the outlook and impede growth.

### Policy actions taken in 2008–09 (selected)
- CBS monetary and banking measures:
  - Reduced reserve requirements by up to 5 percent for banks that increase lending to investment projects.
  - Reduced indicative deposit interest rates from 7-9 percent to 6-8 percent.
  - Required selected banks to cancel penalty on overdue debts and extend maturities.
  - Increased the credit exposure limit for development projects from 25 percent to 35 percent for a single project (with additional conditions).
  - Established a Lender of Last Resort facility.
- Banking sector capital requirement increases:
  - Minimum capital requirement increased from $30 million to $200 million for conventional banks.
  - Minimum capital requirement increased from $100 to $300 million for Islamic banks (with 3 years grace period).
- Other measures:
  - Ceiling on foreign ownership of banks increased from 49 percent to 60 percent.
  - Measures to mitigate drought and higher diesel prices on agriculture: tax breaks, rescheduling of loans, cancellation of penalty on arrears, increasing procurement prices of key crops.
  - Establishment of the Agricultural Support Fund (ASF) in 2008; ASF allocated SP10 billion in the 2009 budget.
- Structural reforms advanced: exchange rate effectively unified; restrictions on access to foreign exchange for current transactions mostly eliminated; private banks leading financial sector growth; Damascus stock exchange reopened; taxes streamlined; trade regime liberalized; investment procedure simplification; accounting standard modernization; tax system streamlining.

### Fiscal policy and public finance — assessment, 2009 outcomes, and 2010 budget
- 2009 fiscal stance:
  - Budgetary expenditure estimated to have grown by about 5 percent of GDP in 2009, reflecting increases in public investments and the wage bill (partly to compensate for raising fuel prices).
  - Non-oil revenue increased due to stronger tax collection from improved administration and incentives to settle arrears.
- 2010 budget features:
  - Nominally provides for a 12.5 percent expenditure growth over the 2009 preliminary outcome.
  - Includes a small increase in current expenditure (mostly due to a moderate increase in wages).
  - Provides for a 30 percent increase in capital outlays compared to the 2009 preliminary outcome (and 19 percent compared to the 2009 revised budget).
  - Cash transfers replacing diesel coupons envisaged to increase by about 0.5 percent of GDP.
  - Authorities intend to restrain current expenditures, rationalize capital outlays, and allow greater private-sector role in some investment programs (including PPPs with safeguards).
- Subsidy reform:
  - Prices of key petroleum products were increased in 2008, saving about 7 percent of GDP in implicit subsidies.
  - Compensatory measures to mitigate higher prices amounted to about 4.5 percent of GDP.
  - Implicit subsidies remained at about 8.3 percent of GDP as international prices increased.
  - Universal diesel coupons were replaced by targeted cash transfers in 2009; approximately half of Syrian households likely to benefit.
  - Cumulative compensatory measure estimated at about 6 percent of GDP.
  - Agricultural subsidies: ASF introduced to manage and streamline input subsidies; ASF started targeted cash transfers to farmers.
- Tax reform and administration:
  - MoF plans to introduce the VAT in 2011; achievements include drafting the VAT law and a tax procedures code, establishing the large taxpayer office and the General Commission for Taxes and Fees (GCTF), and modernizing customs.
  - Delay in launching the VAT attributed to necessary preparations of tax administration and public readiness.
- Public expenditure management:
  - Current and capital budgets integrated and prepared and implemented by MoF.
  - Program- and performance-based budgeting adopted for agriculture and education in the 2010 budget.
  - Authorities plan to bring remaining quasi-fiscal operations on budget and improve timeliness of expenditure reporting by regional entities.

### Debt sustainability and risks
- Public debt levels and projections:
  - Public debt remains low since the 2005 rescheduling of the debt to Russia.
  - Public debt expected to increase moderately to about 25 percent of GDP by 2014 under the authorities’ ongoing reforms despite substantial decline in oil revenue.
  - Holding key debt-dynamics variables at their 10-year historical averages produces an improvement in the debt-to-GDP ratio by about 10 percent by 2014.
  - Holding the primary deficit constant at about 5 percent of GDP (the preliminary outcome of 2009) would lead to an increase in the debt ratio to about 30 percent by 2014.
- Sensitivity analysis:
  - A one-half standard deviation shock in the primary balance from the baseline assumption would result in a debt ratio by 2014 about 4 percentage points higher than in the baseline.
  - A similar shock to GDP growth leads to a debt ratio about 6.5 percentage points higher by 2014 than in the baseline.
  - A 10 percent of GDP increase in other debt-creating shocks (e.g., larger contingent liabilities related to public enterprises) would lead to a debt ratio in 2014 about 7.5 percentage points of GDP higher than in the baseline.
- Downside risk if reforms falter:
  - A substantial delay in VAT implementation, re-emergence of large implicit fuel subsidies, and waning efforts to control wages and rationalize capital spending could lead to public debt ratios rising to about 50 percent of GDP.

### Monetary policy, banking sector, and financial-sector reform
- Monetary framework and independence:
  - Scope for monetary policy independence will remain limited over the medium-term given the exchange rate arrangement.
  - Authorities plan to gradually replace administrative tools with market-based tools; if issuance of treasury bills is delayed, CBS would consider issuing its own certificates of deposits.
  - Transfer of international reserves from the Commercial Bank of Syria (CBoS) to CBS has been completed, in line with FSAP recommendation.
- Banking sector indicators and vulnerabilities:
  - Capital adequacy ratio for the consolidated banking sector reported at about 20 percent.
  - Banks continued to be liquid and moderately profitable; average NPL ratio is low.
  - NPL of public banks reported as 6 percent but likely significantly understated due to outdated accounting practices and implicit government guarantees.
  - Roll-over of bad loans is extensive, hindering meaningful calculation of NPLs; a recent CBS regulation limiting roll-overs should help clarify banks’ true positions.
- Staff concerns and recommendations:
  - Staff noted differentiated reserve requirements based on lending volumes for investment can encourage bank financing of less profitable projects and recommended phasing them out.
  - Staff recommended phasing out public banks’ preferential lending schemes so banks allocate credit based on internal lending criteria.
  - Staff highlighted that the increase in the credit exposure limit for development projects could increase banks’ vulnerabilities and recommended reversing it.
  - Continue implementation of 2008 FSAP recommendations and reform public banks.
  - Develop indirect monetary policy instruments such as treasury bills to modernize the monetary policy framework.

### Exchange rate assessment and external position
- Recent movements and assessment:
  - Syrian pound appreciated by about 7 percent against the dollar in 2008 in nominal terms; combined with high domestic inflation in 2008 this contributed to a real effective appreciation of about 14 percent.
  - About half of that real appreciation was reversed during 2009 with the substantial depreciation of the dollar against the Euro and the decline in Syria’s domestic inflation.
  - Econometric estimates (with data shortcomings) suggest the real exchange rate of the pound may be moderately overvalued relative to its medium-term equilibrium.
  - Staff does not recommend a change in the current nominal exchange rate level in the present context and data constraints.
- Box IV econometric results (end-2008):
  - Macroeconomic balance approach: overvaluation of about 10-15 percent.
  - Equilibrium real exchange rate (ERER) methodology: overvaluation of about 15-25 percent.
  - External sustainability approach: overvaluation of about 10-15 percent, depending on assumptions.
- Exchange rate regime:
  - De jure: peg to a band around the SDR (reference currency switched from the U.S. dollar to the SDR in August 2007).
  - De facto: peg to a basket.
  - Staff and Directors recommended adjusting the de facto basket in line with the de jure regime and gradually increase exchange rate flexibility over the medium-term to enhance monetary policy independence.

### Energy subsidy reform and fiscal implications
- Selected reported price adjustments (examples preserved as in source):
  - Gas Oil (Diesel): 7.3 to 25 SP/liter → 25 to 20 SP/liter
  - Fuel Oil: 6 to 9 SP/liter...
  - Kerosene: 22.7 to 40 SP/liter...
  - Gasoline: 36 to 40 SP/liter...
- Selected compensatory measures (as reported):
  - Public wage increase: 25%...
  - Diesel coupons: 1000 liters per household at 9 SP/liter
  - Cash Transfers: 10,000 SP for eligible households
- Energy subsidy magnitudes (as % of GDP, values preserved as presented):
  - Total subsidy: 12.9 4.9
  - Price subsidy (extrabudgetary): 8.3-1.3
  - Budgetary compensatory measures: 4.5 6.2
- The December 2009 replacement of diesel coupons with cash transfers is likely to enhance targeting and consolidate efficiency and fiscal gains.
- Staff encourages authorities to prevent re-emergence of large inefficient price subsidies of the past.

### Structural reforms, data, technical assistance, and public financial management
- Structural reforms to accelerate growth, diversify the economy, and create employment to continue; progress includes reduced import tariffs, shortened import negative list, fuel and agricultural subsidy reforms, and a one-stop window for private investment approvals.
- Tax changes: effective June 2009, minimum thresholds for exemption from wage taxes were raised; top income tax rate for individuals increased to 22 percent (from 20 percent).
- Authorities intend to accept the obligations of Article VIII of the IMF’s Articles of Agreement; staff recommends removing remaining restrictions in preparation for acceptance.
- Statistical issues and staff assessment:
  - Data provision suffers serious shortcomings that significantly hamper surveillance.
  - Major deficiencies across Real Sector Statistics, GFS, Monetary and Financial Statistics, and External Sector Statistics; specific weaknesses include long lags, coverage gaps, and methodological inconsistencies.
  - STA and METAC technical assistance and resident advisors active; progress noted but further work required to improve timeliness, coverage, and consistency.
- Technical assistance provided and ongoing (selected list preserved as in source): METAC — Reform of Internal Audit — Ongoing; METAC — Balance of Payments — Ongoing; METAC — Banking Supervision — Ongoing; METAC — Budget Integration — February 2009; MCM — Debt Market Development — April 2009; FAD — Tax administration — July 2008; STA — Multi-Sector Statistics — December 2007; MFD and other missions and advisors ongoing or in prior years.

### Staff and Directors’ recommendations (selected, preserved)
- Fiscal:
  - Gradually resume fiscal consolidation; revisit the large increase in public investment budgeted for 2010.
  - Maintain current expenditure restraint.
  - Build on progress made in reforming subsidies; prevent re-emergence of large inefficient price subsidies.
  - Complete remaining preparations for the introduction of the VAT in 2011 and improve public financial management.
  - Shift financing of the budget deficit from bank borrowing to issuing treasury bills with market-determined interest rates.
  - Ensure public investment projects yield high economic and social returns.
- Monetary and financial sector:
  - Continue implementation of the 2008 FSAP recommendations, and reform public banks.
  - Reverse the increase in the regulatory ceiling on credit exposure, and phase out the differentiated reserves requirement.
  - Develop indirect monetary policy instruments such as treasury bills to modernize the monetary policy framework; otherwise CBS may need to issue its own certificates of deposit.
  - Enhance CBS operational independence and adopt the amended central bank law as soon as possible.
  - Strengthen supervisory and regulatory independence with respect to public banks and improve data collection on public banks.
- Exchange rate and external:
  - Allow exchange rate fluctuations within the de jure band around the SDR and gradually increase flexibility over the medium-term.
  - Adjust de facto basket to reflect Syria’s direction of trade.
  - Remove remaining Article VIII restrictions in preparation for acceptance.
- Structural and administrative:
  - Accelerate structural reforms, including modernizing regulations, continuing to streamline the extensive subsidies system, and further liberalizing trade.
  - Improve data quality and provision to facilitate better analysis and policy formulation.

*Source: IMF staff report and Public Information Notice (PIN No. 10/42) — Executive Summary and informational annexes as presented in the document.*

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

### Executive Summary

### Background and recent economic developments
- Impact of the global financial crisis on Syria was relatively moderate and mostly through linkages to trading partners in the region and Europe.
- Non-oil growth is estimated to have declined by 1.5 percentage points in 2009 to 4.5 percent.
- GDP growth is estimated to have decelerated in 2009 by 1 percentage point to 4 percent.
- Unemployment is estimated to have increased to almost 11 percent.
- Inflation declined sharply to about 2.5 percent.
- Fiscal and external positions:
  - The recorded fiscal deficit is estimated to have widened in 2009 by about 2.5 percentage points to 5.5 percent of GDP.
  - The external current account deficit widened to about 4.5 percent of GDP.
  - Gross reserves remained comfortable, at about US$17 billion.
- Monetary and credit developments:
  - With the Syrian pound pegged to a basket (within a band), broad money is estimated to have grown by about 10 percent in 2009.
  - Credit to the private sector remained strong, with growth at about 25 percent.
  - Credit to public enterprises decelerated sharply due to reduction in energy subsidies.
- Policy actions in 2008–09:
  - CBS measures to ease monetary stance and support lending: reducing reserve requirements by up to 5 percent for banks that increase lending to investment projects; reducing indicative deposit interest rates from 7-9 percent to 6-8 percent; requiring selected banks to cancel penalty on overdue debts and extend maturities; increasing the credit exposure limit for development projects from 25 percent to 35 percent for a single project (with additional conditions); establishment of a Lender of Last Resort facility.
  - Banking sector capital requirement increases: minimum capital requirement increased from $30 million to $200 million for conventional banks, and from $100 to $300 million for Islamic banks (with 3 years grace period).
  - Ceiling on foreign ownership of banks increased from 49 percent to 60 percent.
  - Measures to mitigate drought and higher diesel prices on agriculture: tax breaks, rescheduling of loans, cancellation of penalty on arrears, increasing procurement prices of key crops; establishment of the Agricultural Support Fund (ASF) in 2008; ASF allocated SP10 billion in the 2009 budget.
- Structural reforms advanced: exchange rate effectively unified; restrictions on access to foreign exchange for current transactions mostly eliminated; private banks leading financial sector growth; Damascus stock exchange reopened; taxes streamlined; trade regime liberalized; investment procedure simplification, accounting standard modernization, and tax system streamlining.

### Authorities’ views (as reported)
- Measures taken in response to the global crisis and to support lending to investment projects are temporary and will be phased out over time.
- Quasi-fiscal operations conducted by public enterprises and state-owned banks will continue to be streamlined.
- Plans to modernize the monetary policy framework will be advanced, including developing indirect monetary policy instruments such as treasury bills.
- Implementation of financial sector and other structural reforms will continue to promote the private sector, diversify the economy, and accelerate growth and employment creation.

### Outlook and risks
- Near-term projections:
  - Growth is projected at about 5 percent in 2010, supported by recovery in trading partners, rising exports, remittances, FDI, and agriculture recovery.
  - The overall fiscal deficit is expected to narrow by about 1 percentage point of GDP in 2010 due to current expenditure restraint and a rise in oil revenues.
  - The external current account deficit is envisaged to narrow slightly in 2010.
- Medium-term projections:
  - Growth is expected to strengthen to about 5.5 percent by 2014 despite envisaged decline in oil output.
  - The authorities’ medium-term fiscal strategy aims to contain the overall deficit below 5 percent of GDP.
  - Fiscal deficit projected to narrow to 3.4 percent of GDP and to moderately increase to 3.8 percent of GDP by 2014 due to steady decline in oil revenue.
  - External current account deficit likely to stabilize at 3.7 percent of GDP.
- Risks:
  - A delay in global recovery or faltering reform implementation could worsen the outlook and impede growth.

### Fiscal policy and public finance
- 2009 fiscal stance:
  - Budgetary expenditure is estimated to have grown by about 5 percent of GDP in 2009, reflecting increases in public investments and the wage bill (partly to compensate for raising fuel prices).
  - Non-oil revenue increased due to stronger tax collection from improved administration and incentives to settle arrears.
- 2010 budget:
  - Implies a moderate tightening of the fiscal stance, assuming similar implementation ratios as in the past.
  - Nominally provides for a 12.5 percent expenditure growth over the 2009 preliminary outcome.
  - Includes a small increase in current expenditure (mostly due to a moderate increase in wages).
  - Provides for a 30 percent increase in capital outlays compared to the 2009 preliminary outcome (and 19 percent compared to the 2009 revised budget).
  - Cash transfers replacing diesel coupons envisaged to increase by about 0.5 percent of GDP.
  - Authorities intend to restrain current expenditures, rationalize capital outlays, and allow greater private-sector role in some investment programs (including PPPs with safeguards).
- Subsidy reform:
  - Prices of key petroleum products were increased in 2008, saving about 7 percent of GDP in implicit subsidies.
  - Compensatory measures to mitigate higher prices amounted to about 4.5 percent of GDP.
  - Implicit subsidies remained at about 8.3 percent of GDP as international prices increased.
  - Universal diesel coupons were replaced by targeted cash transfers in 2009; approximately half of Syrian households likely to benefit.
  - Cumulative compensatory measure is estimated at about 6 percent of GDP.
  - Agricultural subsidies: introduction of ASF to manage and streamline input subsidies; ASF started targeted cash transfers to farmers.
- Tax reform and administration:
  - MoF plans to introduce the VAT in 2011; achievements include drafting the VAT law and a tax procedures code, establishing the large taxpayer office and the General Commission for Taxes and Fees (GCTF), and modernizing customs.
  - Delay in launching the VAT was attributed to necessary preparations of tax administration and public readiness.
- Public expenditure management:
  - Current and capital budgets have been integrated and are prepared and implemented by MoF.
  - Program- and performance-based budgeting adopted for agriculture and education in the 2010 budget.
  - Authorities plan to bring remaining quasi-fiscal operations on budget and improve timeliness of expenditure reporting by regional entities.

### Debt sustainability
- Public debt remains low since the 2005 rescheduling of the debt to Russia.
- Baseline and scenario projections:
  - Based on authorities’ ongoing reforms, public debt is expected to increase moderately to about 25 percent of GDP by 2014 despite substantial decline in oil revenue.
  - Holding key debt-dynamics variables at their 10-year historical averages produces an improvement in the debt-to-GDP ratio by about 10 percent by 2014.
  - Holding the primary deficit constant at about 5 percent of GDP (the preliminary outcome of 2009) would lead to an increase in the debt ratio to about 30 percent by 2014.
- Sensitivity analysis:
  - A one-half standard deviation shock in the primary balance from the baseline assumption would result in a debt ratio by 2014 about 4 percentage points higher than in the baseline.
  - A similar shock to GDP growth leads to a debt ratio about 6.5 percentage points higher by 2014 than in the baseline.
  - A 10 percent of GDP increase in other debt-creating shocks (e.g., larger contingent liabilities related to public enterprises) would lead to a debt ratio in 2014 about 7.5 percentage points of GDP higher than in the baseline.
- Downside risk if reforms falter:
  - A substantial delay in VAT implementation, re-emergence of large implicit fuel subsidies, and waning efforts to control wages and rationalize capital spending could lead to public debt ratios rising to about 50 percent of GDP.

### Monetary policy and financial sector reform
- Monetary framework and independence:
  - Scope for monetary policy independence will remain limited over the medium-term given the exchange rate arrangement.
  - Authorities plan to gradually replace administrative tools with market-based tools; if issuance of treasury bills is delayed, CBS would consider issuing its own certificates of deposits.
  - Transfer of international reserves from the Commercial Bank of Syria (CBoS) to CBS has been completed, in line with FSAP recommendation.
- Measures taken during crisis and staff concerns:
  - Authorities view measures supporting lending to investment projects as temporary to be phased out over time.
  - Staff noted that differentiated reserve requirements based on lending volumes for investment can encourage bank financing of less profitable projects and recommended phasing them out.
  - Staff recommended phasing out public banks’ preferential lending schemes so banks allocate credit based on internal lending criteria.
  - Staff highlighted that the increase in the credit exposure limit for development projects could increase banks’ vulnerabilities.
- Regulatory actions and reform priorities:
  - Continue implementation of 2008 FSAP recommendations and reform public banks.
  - Reverse the increase in the regulatory ceiling on credit exposure, and phase out the differentiated reserves requirement.
  - Develop indirect monetary policy instruments such as treasury bills to modernize the monetary policy framework.

### Structural reforms and other issues
- Continue to accelerate structural reforms to modernize regulations, streamline subsidies, and further liberalize trade.
- Authorities have introduced reference prices and customs duties that vary by country of origin to protect against unfair trade practices.
- Recent tax changes: effective June 2009, minimum thresholds for exemption from wage taxes were raised; top income tax rate for individuals increased to 22 percent (from 20 percent).
- Other measures: MoF introduced tax incentives to encourage contributions to strategic objectives (locating in remote areas, increasing hiring, IPOs).

### Staff recommendations (summary)
- Gradually resume fiscal consolidation:
  - Revisit the large increase in public investment budgeted for 2010.
  - Maintain current expenditure restraint.
  - Build on progress made in reforming subsidies.
- Complete remaining preparations for the introduction of the VAT in 2011 and improve public financial management.
- Continue implementation of the 2008 FSAP recommendations, and reform public banks.
- Reverse the increase in the regulatory ceiling on credit exposure, and phase out the differentiated reserves requirement.
- Allow exchange rate fluctuations within the de jure band around the SDR and gradually increase flexibility over the medium-term.
- Accelerate structural reforms, including modernizing regulations, continuing to streamline the extensive subsidies system, and further liberalizing trade.

*Source: Executive Summary (IMF staff report).*

### 17.      The CBS views further strengthening of bank supervision as a priority. In

### The CBS views further strengthening of bank supervision as a priority.

### Bank supervision and financial-sector reforms
- The CBS views further strengthening of bank supervision as a priority.
- Public banks now report on a regular basis their key financial sector indicators to the CBS.
- Data for some public banks may not reflect their true condition due to outdated accounting practices.
- The CBS has made progress in implementing the 2008 FSAP recommendations; realization of a number of these recommendations requires amending the central bank law.
- Efforts are underway to prepare banks for the implementation of Basle II, including by requiring them to strengthen their internal risk assessment procedures.
- Authorities do not see a problem with the strong growth of private credit in view of:
  - the strengthening of the supervisory framework,
  - low level of financial intermediation, and
  - the fact that many of the new banks are subsidiaries of well established foreign banks with good risk assessment capabilities.

### Banking sector indicators and vulnerabilities
- The impact of the global crisis on the financial sector has been limited due to the low degree of its global exposure and CBS’s prudential requirements.
- The capital adequacy ratio for the consolidated banking sector is reported at about 20 percent.
- Banks continued to be liquid and moderately profitable.
- The average non-performing loans (NPL) ratio is low.
- NPL of public banks is reported as 6 percent but is likely to be significantly understated because many loans in arrears are not classified as bad loans given implicit government guarantees.
- Roll-over of bad loans is extensive, hindering a meaningful calculation of NPLs; a recent CBS regulation limiting roll-overs should help clarify banks’ true positions.
- Recent decisions to reschedule loans will be limited to sectors strongly impacted by the global crisis and the drought.

### Exchange rate assessment and external position
- The Syrian pound appreciated by about 7 percent against the dollar in 2008 in nominal terms.
- That, along with high domestic inflation in 2008, contributed to a real effective appreciation of about 14 percent.
- About half of that real appreciation was reversed during 2009 with the substantial depreciation of the dollar against the Euro and the decline in Syria’s domestic inflation.
- Econometric estimates, which suffer from serious data shortcomings, suggest the real exchange rate of the pound may be moderately overvalued relative to its medium-term equilibrium level.
- Staff does not recommend a change in the current nominal exchange rate level in the present context and in view of the data shortcomings.
- Box IV econometric results (end-2008):
  - Macroeconomic balance approach: overvaluation of about 10-15 percent.
  - Equilibrium real exchange rate (ERER) methodology: overvaluation of about 15-25 percent.
  - External sustainability approach: overvaluation of about 10-15 percent, depending on assumptions.

### Energy subsidy reform and fiscal implications
- Price adjustments (selected, as reported):
  - Gas Oil (Diesel): 7.3 to 25 SP/liter → 25 to 20 SP/liter
  - Fuel Oil: 6 to 9 SP/liter...
  - Kerosene: 22.7 to 40 SP/liter...
  - Gasoline: 36 to 40 SP/liter...
- Compensatory measures (selected, as reported):
  - Public wage increase: 25%...
  - Diesel coupons: 1000 liters per household at 9 SP/liter
  - Cash Transfers: 10,000 SP for eligible households
- Energy Subsidies, as % of GDP:
  - Total subsidy: 12.9 4.9
  - Price subsidy (extrabudgetary): 8.3-1.3
  - Budgetary compensatory measures: 4.5 6.2
- Sources for energy subsidy figures: Oil Marketing Office, Ministry of Oil, Mahroukat and Fund staff estimates
- The December 2009 replacement of diesel coupons with cash transfers is likely to enhance targeting and consolidate efficiency and fiscal gains.
- Staff encourages authorities to prevent re-emergence of large inefficient price subsidies of the past.

### Structural reforms, fiscal policy, and public financial management
- Authorities intend to continue structural reforms to accelerate growth, diversify the economy, and create employment.
- Progress already made includes: reducing import tariffs, shortening the import negative list, reforming fuel and agricultural subsidies, and establishing a one-stop window for approving private investment.
- To liberalize current transactions, each citizen is now allowed to purchase up to $10,000 per month from a local bank and transfer them abroad in payment for current transactions or credit card bills.
- Staff appraisal and recommendations (selected):
  - The widening in the fiscal deficit in 2009 was appropriate to mitigate the global recession; part of the widening reflects enhanced fiscal transparency by bringing extra-budgetary petroleum subsidies on budget.
  - A gradual resumption of fiscal consolidation is necessary to preserve fiscal sustainability.
  - Revisit the large increase in public investment budgeted for 2010 given absorptive capacity; this would help reduce the overall fiscal deficit to about 4.5 percent of GDP.
  - Ensure increases in public wages are linked to performance and civil service reform.
  - Continue progress on VAT preparation, reorganize tax administration, shift more responsibilities to the GCTF, and streamline excise taxes in line with past technical assistance.
  - Enhance budget classification to reflect standardized economic classifications and support casting budget formulation and execution in a medium-term framework; empower Fiscal Forecasting and Planning Units at the MoF.
  - Expand use of program- and performance-based budgeting and bring remaining quasi-fiscal operations on budget.
  - Shift financing of the budget deficit from bank borrowing to issuing treasury bills with market-determined interest rates; ensure public investment projects yield high economic and social returns.
  - Enhance CBS operational independence to strengthen monetary policy formulation and implementation.
  - Utilize treasury bills to withdraw excess liquidity; otherwise the CBS may need to issue its own certificates of deposit.
  - Consider securitizing government debt to the CBS.
  - Phase out crisis-response measures that increase risks for banks and supervisory burdens (e.g., differentiated reserve requirements or increased credit exposure limits for development projects).
  - Continue implementing 2008 FSAP recommendations, strengthen regulatory and supervisory framework, and improve collection of data on public banks.
  - Adopt the amended central bank law as soon as possible.
  - Priority on public banks’ reform; strengthen CBS supervisory and regulatory independence with respect to these banks and continue closer collaboration between the MoF and the CBS regarding supervision.
  - The Syrian pound’s de jure peg to a band around the SDR can provide a strong monetary anchor while allowing some flexibility; adjust the de facto basket in line with the de jure regime to reflect Syria’s direction of trade.
  - A gradual move toward greater exchange rate flexibility over the medium-term would increase monetary policy independence and maintain external stability.
  - Reverse the recent introduction of customs duties that vary by country of origin; address suspected unfair trade practices via enhanced customs capacity, computerization, and cross-border cooperation.
  - Authorities intend to accept the obligations of Article VIII of the IMF’s Articles of Agreement; staff recommends removing any remaining restrictions in preparation for acceptance.
  - Staff stands ready to conduct a comprehensive review of the exchange system upon the authorities’ request.
  - Staff urges authorities to improve data quality and provision to facilitate better analysis and policy formulation.

*Source: Fund staff report.*

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

### _cr1086 - 35. It is proposed that the next Article IV consultation take place on the standard

### Consultation timing and procedural recommendation
- It is proposed that the next Article IV consultation take place on the standard 12-month cycle.

### Macroeconomic outlook and projections (selected indicators)
- Real GDP growth (annual): 2005: 4.5; 2006: 5.1; 2007: 4.3; 2008: 5.2; 2009: 4.0; 2010 (Proj.): 5.0.
- Oil GDP growth (annual): 2005: -8.6; 2006: -7.1; 2007: -4.8; 2008: 0.0; 2009: 0.2; 2010 (Proj.): 0.2.
- Non-oil GDP growth (annual): 2005: 7.5; 2006: 6.9; 2007: 5.8; 2008: 6.0; 2009: 4.5; 2010 (Proj.): 5.5.
- Nominal GDP (LS billions): 2005: 1,491; 2006: 1,709; 2007: 2,025; 2008: 2,535; 2009: 2,437; 2010 (Proj.): 2,758.
- Nominal GDP ($ billions): 2005: 28.6; 2006: 33.5; 2007: 40.6; 2008: 54.5; 2009: 52.5; 2010 (Proj.): 59.4.
- Crude oil production ('000 barrels/day): 2005: 431; 2006: 400; 2007: 381; 2008: 381; 2009: 382; 2010 (Proj.): 383.
- Syrian oil export price ($ per barrel): 2005: 48.1; 2006: 57.6; 2007: 65.3; 2008: 84.2; 2009: 52.4; 2010 (Proj.): 64.3.
- CPI period average: 2005: 7.2; 2006: 10.4; 2007: 4.7; 2008: 15.2; 2009: 2.5; 2010 (Proj.): 5.0.
- Total population (millions): 2005: 19.3; 2006: 20.4; 2007: 20.8; 2008: 21.3; 2009: 21.8; 2010 (Proj.): 22.3.
- GDP deflator (annual change): 2005: 12.9; 2006: 9.1; 2007: 13.7; 2008: 19.0; 2009: -7.5; 2010 (Proj.): 7.8.

### Fiscal position and public finances (selected aggregates and ratios)
- Revenue (percent of GDP): 2005: 24.0; 2006: 25.5; 2007: 22.7; 2008: 19.4; 2009: 21.9; 2010 (Proj.): 21.5.
  - Oil revenue (percent of GDP): 2005: 7.1; 2006: 7.3; 2007: 4.9; 2008: 3.6; 2009: 5.2; 2010 (Proj.): 5.4.
  - Non-oil revenue (percent of GDP): 2005: 16.9; 2006: 18.2; 2007: 17.8; 2008: 14.2; 2009: 17.3; 2010 (Proj.): 16.1.
- Expenditure (percent of GDP): 2005: 28.5; 2006: 26.6; 2007: 26.6; 2008: 22.1; 2009: 27.3; 2010 (Proj.): 25.9.
  - Current expenditure (percent of GDP): 2005: 18.1; 2006: 16.3; 2007: 17.0; 2008: 15.3; 2009: 17.1; 2010 (Proj.): 16.4.
  - Development expenditure (percent of GDP): 2005: 10.4; 2006: 10.3; 2007: 9.6; 2008: 6.8; 2009: 10.3; 2010 (Proj.): 9.6.
- Overall balance (percent of GDP): 2005: -4.5; 2006: -1.1; 2007: -4.0; 2008: -2.8; 2009: -5.5; 2010 (Proj.): -4.4.
- Selected fiscal levels (in LS billions, consolidated central government and PSF):
  - Revenue (LS billions): 2005: 358.0; 2006: 435.3; 2007: 459.1; 2008 (Rev.): 408.1; 2008 (Bud.): 491.2; 2009 (Prel.): 459.3; 2009 (Budget): 533.0; 2010 (Proj.): 577.9; 2010 (Budget): 592.4.
  - Expenditure (LS billions): 2005: 424.5; 2006: 454.9; 2007: 539.3; 2008 (Rev.): 602.1; 2008 (Bud.): 561.3; 2009 (Prel.): 681.4; 2009 (Budget): 666.4; 2010 (Proj.): 749.9; 2010 (Budget): 714.6.
  - Overall balance (LS billions): 2005: -66.4; 2006: -19.6; 2007: -80.3; 2008 (Rev.): -194.0; 2008 (Bud.): -70.1; 2009 (Prel.): -222.1; 2009 (Budget): -133.3; 2010 (Proj.): -172.0; 2010 (Budget): -122.2.
- Gross public debt (percent of GDP): 2005: 35.1; 2006: 34.5; 2007: 28.3; 2008: 21.8; 2009: 21.0; 2010 (Proj.): 22.4.
  - Domestic debt (percent of GDP): 2005: 11.7; 2006: 15.3; 2007: 13.8; 2008: 11.3; 2009: 10.6; 2010 (Proj.): 13.3.
  - External debt (percent of GDP): 2005: 23.4; 2006: 19.2; 2007: 14.5; 2008: 10.5; 2009: 10.4; 2010 (Proj.): 9.1.

### Monetary, banking, and financial sector indicators
- Broad money (LS billions, end period): 2005: 1,201; 2006: 1,311; 2007: 1,473; 2008: 1,656; 2009: 1,824; 2010 (Proj.): 2,044.
- Broad money (12-month change, percent): 2005: 11.8; 2006: 9.2; 2007: 12.4; 2008: 12.5; 2009: 10.2; 2010 (Proj.): 12.1.
- Net foreign assets (change in percent of initial stock of money): 2005: 0.1; 2006: -2.1; 2007: -3.4; 2008: -7.9; 2009: 2.6; 2010 (Proj.): 1.3.
- Claims on private sector (change in percent of initial stock of money): 2005: 7.0; 2006: 2.7; 2007: 3.8; 2008: 5.7; 2009: 5.9; 2010 (Proj.): 7.2.
- Credit to private sector (12-month change, percent): 2005: 50.6; 2006: 14.5; 2007: 19.7; 2008: 27.7; 2009: 25.0; 2010 (Proj.): 27.0.
- Official net foreign assets (in months of imports of GNFS): 2005: 16.0; 2006: 13.6; 2007: 11.5; 2008: 9.4; 2009: 10.7; 2010 (Proj.): 9.4.
- Gross official reserves (US$ millions): 2005: 17,361; 2006: 16,478; 2007: 17,021; 2008: 17,077; 2009: 17,100; 2010 (Proj.): 16,552.
- Real effective exchange rate (in percent, + appreciation): 2005: -1.6; 2006: 8.5; 2007: -2.9; 2008: 13.9; 2009: -7.0; (REER for 2009 is for January-November).
- Nominal exchange rate LS/$ (trade-weighted average of official and parallel market rates before 2007): 2005: 52.2; 2006: 51.0; 2007: 49.9; 2008: 46.5; 2009: 46.7.

### External sector, balance of payments, and external financing
- Current account balance (US$ millions): 2005: -661; 2006: -614; 2007: -885; 2008: -1,940; 2009: -2,365; 2010 (Proj.): -2,319.
  - Current account balance (percent of GDP): 2005: -2.3; 2006: -1.8; 2007: -2.2; 2008: -3.6; 2009: -4.5; 2010 (Proj.): -3.9.
- Oil balance (1/ Oil trade balance less profit of foreign oil companies, US$ millions): 2005: 1,270 (table shows goods balance as -1,270 and oil components listed separately); oil balance (in percent of GDP): 2005: 2.5; 2006: 0.0; 2007: -2.4; 2008: -3.0; 2009: -1.8; 2010 (Proj.): -2.1.
- Non-oil exports of goods and services (US$ billions, change in percent): 2005: 7.6 (19.8 percent change); 2006: 9.1 (18.8); 2007: 11.2 (23.5); 2008: 13.7 (23.0); 2009: 13.2 (-4.1); 2010 (Proj.): 14.4 (9.4).
- Non-oil imports of goods and services (US$ billions, change in percent): 2005: -10.5 (13.6 percent change); 2006: -11.7 (11.0); 2007: -13.4 (15.1); 2008: -16.2 (20.5); 2009: -15.8 (-2.2); 2010 (Proj.): -17.0 (7.5).
- Overall balance (US$ millions): 2005: -459; 2006: -1,198; 2007: 595; 2008: 56; 2009: -14; 2010 (Proj.): -548.
- Overall oil balance (percent of GDP) in Table 4: 2005: 2.5; 2006: 0.0; 2007: -2.4; 2008: -3.0; 2009: -1.8; 2010 (Proj.): -2.1.
- Gross external financing need (in billions of US dollars, Table 7b projections): 2005: 2.3; 2006: 1.9; 2007: 2.1; 2008: 2.8; 2009: 4.1; 2010 (Proj.): 4.5.

### Debt sustainability and stress tests (public and external)
- Public sector debt-to-GDP (percent): 2004: 109.8; 2005: 35.1; 2006: 34.5; 2007: 28.3; 2008: 21.8; 2009: 21.0; 2010 (Proj.): 22.4; 2011 (Proj.): 20.8; 2012 (Proj.): 21.7; 2013 (Proj.): 22.9; 2014 (Proj.): 24.3.
- Debt-stabilizing primary balance (percent of GDP) (Table 7a): 2004: -1.3 (presented in context of framework).
- Identified debt-creating flows (percent of GDP, Table 7a): historical and projected series include values such as 13.9, -10.3, -3.8, -1.8, -3.7, 6.3, 2.0, 1.2, 1.5, 1.7, 1.7.
- Automatic debt dynamics contribution to change in public debt (percent of GDP): examples include -17.2, -13.6, -3.9, -5.0, -5.9, 1.4, -2.0, -1.8, -1.3, -1.1, -1.2 across 2004–2014 in Table 7a.
- External debt (percent of GDP) and dynamics (Table 7b): external debt (percent of GDP): 2004: 73.3; 2005: 23.4; 2006: 19.2; 2007: 14.5; 2008: 10.5; 2009: 10.4; 2010 (Proj.): 9.1; projected decline thereafter to 6.3 by 2014.
- External debt sustainability stress tests include scenarios A1, A2 and bound tests B1–B6 with outcomes summarized in Table 7a/7b (key variables: real GDP growth, real interest rate, primary balance), including a specific shock: B5. One time 30 percent real depreciation in 2010.

### Financial soundness indicators (banking sector, selected)
- Regulatory capital to risk-weighted assets (Consolidated, various years): values presented include 16.4; 21.0; 22.0; 16.6; 28.8; 20.8; 23.1; 15.3; 18.5.
- Non-performing loans to total loans (various): 4.7; 5.0; 1.0; 5.3; 5.9; 1.0; 5.1; 5.9; 1.0; 0.0; 5.1; 5.9; 1.4; 2.8.
- Return on average assets (ROAA): 2.0; 2.3; 0.3; 2.4; 2.8; 0.5; 1.8; 2.1; 0.7; 0.1; 1.3; 1.6; 0.5; -0.1.
- Liquid assets to total assets (selected values): 59.6; 57.7; 73.4; 44.1; 38.9; 70.1; 35.9; 33.6; 45.0; 38.7; 35.9; 33.3; 42.9; 48.7.
- FX-liabilities to total assets (selected values): 37.7; 35.8; 50.8; 43.1; 42.4; 46.5; 22.7; 18.1; 40.2; 33.1; 19.9; 14.8; 36.1; 31.7.
- Note: Financial Soundness Indicators should be interpreted with caution due to persisting deficiencies in banks' implementation of International Financial Reporting Standards, their audit practices, and reporting standards.

### Exchange rate regime and external policy measures (policy issues)
- 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 and Article VIII restrictions maintained (as of December 31, 2009):
  - Restrictions on payments and transfers for current international transactions, including administrative allocation of foreign exchange.
  - Measures subject to Fund approval under Article VIII: (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 net debt under inoperative bilateral payments arrangements with the Islamic Republic of Iran, and Sri Lanka.

*Source: Staff Report for the 2009 Article IV Consultation—Informational Annex (Prepared by Middle East and Central Asia Department, February 12, 2010).*

### 36.      Fund takes this decision in concluding the 2009 Article XIV consultation with the

### Fund takes this decision in concluding the 2009 Article XIV consultation with the Syrian Arab Republic.

### Article XIV and Article VIII restrictions, and Fund recommendation
- The Syrian Arab Republic continues to maintain restrictions on the making of payments and transfers for current international transactions, including administrative allocation of foreign exchange, under the transitional arrangements under Article XIV section 2, as described in EBD/09/91, Rev. 1.
- In addition, the Syrian Arab Republic maintains three exchange restrictions and one multiple currency practice subject to approval under Article VIII, Sections 2(a) and 3, as described in EBD/09/91, Rev. 1.
- The Fund encourages the Syrian Arab Republic to eliminate the measures maintained under Article XIV as soon as its balance of payments position permits.
- The Fund urges the Syrian Arab Republic to eliminate the exchange restrictions and multiple currency practice that are subject to approval under Article VIII as soon as possible.
- (EBD/09/91, Rev. 1, 12/23/09) (EBD/09/91, 12/22/09)

### Macroeconomic outcomes and short summary from the Public Information Notice (PIN No. 10/42)
- Date of PIN: March 25, 2010.
- IMF Executive Board concluded the Article IV consultation with the Syrian Arab Republic on a lapse of time basis on February 26, 2010.
- Economic activity and labor market:
  - GDP growth is estimated to have decelerated in 2009 by 1 percentage point to 4 percent.
  - Unemployment is estimated to have increased to almost 11 percent.
- Prices:
  - Inflation declined sharply to about 2.5 percent.
- Fiscal:
  - The Fiscal deficit increased by about 2.5 percentage points to 5.5 percent in 2009.
  - Total expenditure grew by about 5 percent of GDP, reflecting increases in public investments, the wage bill, and transfers to compensate for raising fuel prices and removal of petroleum subsidies.
  - Non-oil revenue increased, partly due to strong tax collection from improved administration and incentives to settle arrears.
- External and crisis impact:
  - The impact of the global financial crisis on Syria was relatively moderate, mostly through linkages to trading partners in the GCC and Europe.
  - Lower growth in manufacturing, construction, and services was partially offset by a moderate recovery in agriculture and a small increase in oil production.

### Technical assistance provided and ongoing (Department — Topic — Date as listed)
- METAC — Reform of Internal Audit — Ongoing
- METAC — Balance of Payments — Ongoing
- METAC — Banking Supervision — Ongoing
- METAC — Budget Integration — February 2009
- MCM — Debt Market Development — April 2009
- 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
- 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

### Relations with the World Bank Group (End-January 2010)
- Syria joined the World Bank in 1947.
- Between 1963 and 1974, IDA approved four credits for Syria totaling US$48.6 million.
- Following graduation from IDA in 1974, IBRD approved 15 loans during 1974-86.
- In 1986 Syria ceased debt service payments to the Bank, prompting 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) covering 2005-07 provided the framework for advisory and analytical (AAA) services.
- World Bank current assistance comprises technical assistance and advisory services on economic growth and transition, private sector development, human development, social protection, and environmental sustainability.
- IFC activity since 1999: first investment was a $1 million equity stake; total held portfolio is $20.2 million. IFC conducted technical assistance including financial sector studies.

### Statistical issues and staff assessment (Annex III)
- Overall assessment:
  - Data provision has serious shortcomings that significantly hamper surveillance.
  - Weak statistical infrastructure and difficulties recording flows to/from Iraq constrain staff assessment.
  - Syria began participating in the GDDS in December 2007; plans for improving the statistical system are posted on the Fund’s Dissemination Standards Bulletin Board.
- Real Sector Statistics:
  - Annual national accounts by expenditure are reported for IFS publication with about 2-years lag.
  - Significant weaknesses remain in source data and statistical techniques for national accounts.
  - A STA-resident statistics advisor has been in place since July 2008 to implement December 2007 recommendations.
  - METAC provided technical assistance for national accounts consistent with the System of National Accounts, 1993 (1993 SNA).
  - Economic surveys covering private sector enterprises for years 2004–2006 exist, but results are yet to be fully processed and validated.
- Government Finance Statistics (GFS):
  - GFS suffer major deficiencies in definitions, coverage, classification, methodology, accuracy, reliability, and timeliness, creating severe inconsistencies with monetary and balance of payments statistics.
  - 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 within the Ministry of Finance is problematic.
  - Largest discrepancies: financing requirements of the budget (MOF) vs. government financing reported by CBS, due to lack of common coverage, misclassification of public enterprises’ investment expenditure, timing and valuation issues.
  - Other discrepancies: unorthodox CBS treatment of some government transactions (parallel rise of government deposits and claims; government withdrawals counted as credit and never netted out; profits transferred to government treated as permanent claim).
  - June 2004 multisector mission developed a preliminary bridge table mapping budget source codes to GFSM 2001, provided an institutional table for sectorization, and 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.
- Monetary and Financial Statistics:
  - Major deficiencies hamper meaningful analysis of monetary developments.
  - Monthly monetary statistics are reported for IFS publication with about 10-month lags (GDDS recommends 3-month lags).
  - Progress: inclusion in monetary survey of private banks, the Savings Bank, and banks/branches in Free Zones.
  - Deficiencies in source data arise from: (i) use of different exchange rates at the CBS and other banks for valuing foreign-currency positions; (ii) financial positions not valued at market prices or equivalents; (iii) accounting procedures for public sector accounts distort gross positions; (iv) disparities in institutional coverage of public sector between monetary statistics and GFS.
  - November–December 2008 technical assistance mission worked on developing reporting based on Standardized Report Forms (SRFs).
- External Sector Statistics (Balance of Payments and Trade):
  - Balance of payments statistics compiled by CBS on a provisional basis; trade data compiled monthly by Customs and reported quarterly by CBStat in local currency with a six-month lag.
  - BOP presented in BPM5 format, but compilation method not entirely consistent with BPM5.
  - February 2006 STA assessment formed the basis for a METAC technical assistance program; December 2007 multisector mission and METAC follow-ups in January and July 2008.
  - September 2008 STA inspection discussed reporting and publication of international liquidity for IFS.
  - CBS progress: improved source statistics via surveys and ITRS, adopted appropriate classifications, improved consistency; new organizational structure includes a BOP division planned for five staff (currently two).
  - October 2008 STA BOP mission assisted in compiling January–July 2008 BOP in BPM5 format and advised on international reserves, trade data, and treatment of Iraqi immigrants where possible.
  - Further efforts needed to improve accuracy of BOP and IIP, specifically:
    - (i) continue data collection initiatives (ITRS and surveys) and ensure coverage of free zones;
    - (ii) improve the undercoverage of imports;
    - (iii) examine the scope of transfers, including treatment of inflows related to Iraqi immigrants;
    - (iv) review the coverage of reserves; and
    - (iv) improve the coverage of financial account data of the private sector (bank and nonbank).
  - Customs Department has adopted ASYCUDA; a Statistical Committee on Foreign Trade Statistics has been formed; significant weaknesses remain in source data and techniques for foreign trade statistics.

### Table of Common Indicators Required for Surveillance (As of December 31, 2009) — selected entries
- Exchange Rates — Date of latest observation: Dec. 30, 2009 — Date received: Dec. 31, 2009 — Frequency of Data: D — Frequency of Reporting: D — Frequency of Publication: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Reserve/Base Money — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Broad Money — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Central Bank Balance Sheet — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Consolidated Balance Sheet of the Banking System — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Interest Rates — Date of latest observation: Sep. 2009 — Date received: Dec. 2009 — Frequency of Data: M — Frequency of Reporting: Q — Frequency of Publication: M
- Consumer Price Index — Date of latest observation: Oct. 2009 — Date received: Nov. 2009 — 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: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- Revenue, Expenditure, Balance and Composition of Financing – Central Government — Date of latest observation: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- Stocks of Central Government and Central Government-Guaranteed Debt — Date of latest observation: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- External Current Account Balance — Date of latest observation: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- Exports and Imports of Goods and Services — Date of latest observation: Jun. 2009 — Date received: Dec. 2009 — Frequency of Data: Q — Frequency of Reporting: Q — Frequency of Publication: Q
- GDP/GNP — Date of latest observation: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- Gross External Debt — Date of latest observation: 2008 — Date received: Dec. 2009 — Frequency of Data: A — Frequency of Reporting: A — Frequency of Publication: A
- International Investment Position — NA across Date of latest observation, Date received, Frequency of Data, Frequency of Reporting, Frequency of Publication

*Source: IMF staff report and Public Information Notice (PIN No. 10/42) as provided in the document.*

### conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views

### conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views

### Economic performance in 2009
- External current account deficit widened to about 4.5 percent, as the decline in exports exceeded that of imports.  
- Tourism receipts were buoyant.  
- Both FDI and remittances dropped only slightly.  
- Gross reserves remained comfortable, at about US$17 billion.  
- Broad money is estimated to have grown by about 10 percent in 2009 with the Syrian pound pegged to a basket (within a band).  
- Credit developments:  
  - Credit to public enterprises decelerated sharply due to the reduction in energy subsidies, which were financed by borrowing.  
  - Growth of credit to the private sector remained at about 25 percent, driven by the expansion of private banks.  
- Non-oil growth decelerated; agriculture showed a moderate recovery.  
- Inflation declined sharply, reflecting trends in global prices of basic commodities.  
- Fiscal deficit widened in 2009 partly because substantial extra-budgetary spending related to petroleum subsidies was brought on budget.

### Outlook for 2010 and beyond
- Recovery in Syria’s trading partners is expected to contribute to a gradual increase in exports, remittances, and FDI.  
- Agriculture is likely to continue to recover from the severe drought of the past two years.  
- Fiscal and current account are expected to stabilize as a result of fiscal reforms, including:  
  - Introduction of value added tax (VAT) in 2011.  
  - Further deepening of subsidies reform.  
  - Expenditure restraint.  
- Risks: A delay in global recovery or faltering reform implementation could worsen the outlook and impede Syria’s economic growth.

### Fiscal policy assessment and recommendations
- Directors considered the widening in the fiscal deficit in 2009 appropriate to mitigate the impact of the global recession.  
- Need for a gradual resumption of fiscal consolidation to preserve fiscal sustainability.  
- Recommended actions:  
  - Revisit the large increase in public investment budgeted for 2010, especially after its large increase in 2009, to align with absorptive capacity and help reduce the overall fiscal deficit to about 4.5 percent of GDP.  
  - Ensure increases in public wages are linked to performance and to civil service reform.  
  - Prevent re-emergence of large inefficient price subsidies.  
  - Phase out petroleum subsidy inefficiencies—replacement in December 2009 of diesel coupons with cash transfers likely to enhance targeting and consolidate efficiency and fiscal gains.  
  - Shift financing of the budget deficit from bank borrowing to issuing treasury bills with market-determined interest rates.  
  - Ensure public investment projects yield high economic and social returns to justify financing costs.  
  - Bring remaining quasi-fiscal operations on budget.

### Tax policy and public financial management
- Progress on preparing for VAT welcomed; further efforts needed.  
- Emphasis on reorganizing tax administration and shifting more responsibilities to the General Commission for Taxes and Fees (GCTF).  
- Streamlining of the tax system welcomed; Directors advised against a further increase in personal income tax rates.  
- Encouraged streamlining excise taxes in line with past technical assistance recommendations.  
- Public financial management recommendations:  
  - Further enhance budget classification to reflect standardized economic classifications.  
  - Cast budget formulation and execution in a medium-term framework by empowering the Fiscal Forecasting and Planning Units at the Ministry of Finance (MoF).  
  - Facilitate more timely flow of data and information between these units and MoF departments.  
  - Expand use of program- and performance-based budgeting.

### Monetary policy, central bank, and financial sector reform
- Progress in modernizing the Central Bank of Syria (CBS) and the monetary policy framework welcomed.  
- Enhancing CBS operational independence important to strengthen monetary policy formulation and implementation.  
- Recommendation to utilize treasury bills as an instrument of monetary policy to withdraw excess liquidity; otherwise, CBS would have to issue its own certificates of deposit.  
- Considerations for securitizing the stock of government debt to the CBS were noted.  
- Directors encouraged phasing out crisis-era measures and achieving objectives of differentiated reserve requirements or increased credit exposure limits for development projects through other means that entail lower bank risks and less supervisory burden.  
- Financial sector supervision:  
  - Welcome progress implementing 2008 FSAP recommendations, strengthening regulatory and supervisory framework, and improving data collection on public banks.  
  - Continue to strengthen supervision to maintain financial sector health, especially given rapid growth of private banks’ credit.  
  - Adopt the amended central bank law as soon as possible.  
  - Priority given to public banks’ reform and closer MoF–CBS collaboration on supervision.  
  - Strengthening CBS supervisory and regulatory independence over public banks to ensure compliance with prudential regulations.

### Exchange rate and external sector recommendations
- Syrian pound’s de jure peg to a band around the SDR can provide a strong monetary anchor while allowing some flexibility vis-à-vis major currencies.  
- In practice, the pound appears de facto pegged to a basket in which the dollar has a larger weight than in the SDR basket. Directors concurred that adjusting the de facto basket in line with the de jure regime would be more consistent with Syria’s direction of trade.  
- Directors considered a gradual move toward greater flexibility over the medium-term as the monetary policy framework develops to increase monetary policy independence and maintain external stability.  
- Preliminary econometric estimates suggest the pound may be moderately overvalued in real effective terms, though subject to uncertainties given serious data shortcomings; no change in the current nominal exchange rate level was recommended in the present context.  
- Directors recommended reversing the recent introduction of customs duties that vary by country of origin, and addressing suspected unfair trade practices through measures such as enhancing customs’ capacity to examine invoices through computerization and cross-border cooperation.  
- Directors welcomed the authorities’ intention to accept the obligations of Article VIII of the IMF’s Articles of Agreement and recommended removing any remaining restrictions in preparation for acceptance. Staff readiness to conduct a comprehensive review of the exchange system upon authorities’ request was noted.  
- Directors urged authorities to improve data quality and provision to facilitate better analysis and policy formulation.

### Selected economic indicators, 2005–09 (key figures preserved as in source)
- Real GDP growth: 2005: 4.5; 2006: 5.1; 2007: 4.3; 2008: 5.2; 2009 (Est./Prel.): 4.0  
- Oil real GDP: 2005: -8.6; 2006: -7.1; 2007: -4.8; 2008: 0.0; 2009: 0.2  
- Non-oil real GDP: 2005: 7.5; 2006: 6.9; 2007: 5.8; 2008: 6.0; 2009: 4.5  
- Nominal GDP (LS billions): 2005: 1,491; 2006: 1,709; 2007: 2,025; 2008: 2,535; 2009: 2,437  
- Nominal GDP ($ billions): 2005: 28.6; 2006: 33.5; 2007: 40.6; 2008: 54.5; 2009: 52.5  
- Crude oil production ('000 barrels/day): 2005: 431; 2006: 400; 2007: 381; 2008: 381; 2009: 382  
- GDP deflator: 2005: 12.9; 2006: 9.1; 2007: 13.7; 2008: 19.0; 2009: -7.5  
- Syrian oil export price ($ per barrel): 2005: 48.1; 2006: 57.6; 2007: 65.3; 2008: 84.2; 2009: 52.4  
- CPI period average: 2005: 7.2; 2006: 10.4; 2007: 4.7; 2008: 15.2; 2009: 2.5  
- Total population (millions): 2005: 19.3; 2006: 20.4; 2007: 20.8; 2008: 21.3; 2009: 21.8

Government finances (in percent of GDP)
- Revenue: 2005: 24.0; 2006: 25.5; 2007: 22.7; 2008: 19.4; 2009: 21.9  
- Oil revenue: 2005: 7.1; 2006: 7.3; 2007: 4.9; 2008: 5.2; 2009: 4.6  
- Non-oil revenue: 2005: 16.9; 2006: 18.2; 2007: 17.8; 2008: 14.2; 2009: 17.3  
- Expenditure: 2005: 28.5; 2006: 26.6; 2007: 26.6; 2008: 22.1; 2009: 27.3  
- Current expenditure: 2005: 18.1; 2006: 16.3; 2007: 17.0; 2008: 15.3; 2009: 16.5  
- Development expenditure: 2005: 10.4; 2006: 10.4; 2007: 9.6; 2008: 6.8; 2009: 10.3  
- Overall balance: 2005: -4.5; 2006: -1.1; 2007: -4.0; 2008: -2.8; 2009: -5.5

Monetary and credit indicators (changes in percent of initial stock of money)
- Broad money: 2005: 11.8; 2006: 9.2; 2007: 12.4; 2008: 12.5; 2009: 10.2  
- Net foreign assets: 2005: 0.1; 2006: -2.1; 2007: -3.4; 2008: -7.9; 2009: 2.6  
- Net domestic assets: 2005: 11.8; 2006: 10.5; 2007: 14.2; 2008: 20.4; 2009: 7.5  
- Credit to government: 2005: 5.3; 2006: 1.3; 2007: -2.9; 2008: -4.1; 2009: 3.0  
- Credit to public enterprises: 2005: 1.6; 2006: 3.1; 2007: 6.9; 2008: 10.3; 2009: 4.3  
- Credit to private sector (in percent of initial stock): 2005: 7.0; 2006: 2.7; 2007: 3.8; 2008: 5.7; 2009: 5.9  
- Credit to private sector (change in percent): 2005: 50.6; 2006: 14.5; 2007: 19.7; 2008: 27.7; 2009: 25.0

Balance of payments (in billions of U.S. dollars, unless otherwise indicated)
- Current account balance: 2005: -0.7; 2006: -0.6; 2007: -0.9; 2008: -1.9; 2009: -2.4  
- Current account (in percent of GDP): 2005: -2.3; 2006: -1.8; 2007: -2.2; 2008: -3.6; 2009: -4.5  
- Overall oil balance 1/: 2005: 0.7; 2006: 0.0; 2007: -1.0; 2008: -1.7; 2009: -1.0  
- Overall oil balance (in percent of GDP): 2005: 2.5; 2006: 0.0; 2007: -2.4; 2008: -3.0; 2009: -1.8  
- Non-oil exports of goods and services (billions): 2005: 7.6; 2006: 9.1; 2007: 11.2; 2008: 13.7; 2009: 13.2  
  - Non-oil exports (change in percent): 2005: 19.8; 2006: 18.8; 2007: 23.5; 2008: 23.0; 2009: -4.1  
- Non-oil imports of goods and services (billions): 2005: -10.5; 2006: -11.7; 2007: -13.4; 2008: -16.2; 2009: -15.8  
  - Non-oil imports (change in percent): 2005: 13.6; 2006: 11.0; 2007: 15.1; 2008: 20.5; 2009: -2.2  
- Overall balance: 2005: -0.5; 2006: -1.2; 2007: 0.6; 2008: 0.1; 2009: 0.0  
- Official net foreign assets (US$ billions): 2005: 17.4; 2006: 16.5; 2007: 17.0; 2008: 17.1; 2009: 17.1  
  - (in months of imports of GNFS): 2005: 16.0; 2006: 13.6; 2007: 11.5; 2008: 9.4; 2009: 10.7  
- Nominal exchange rate LS/$ 2/: 2005: 52.2; 2006: 51.0; 2007: 49.9; 2008: 46.5; 2009: 46.7  
- Real effective exchange rate (in percent, + appreciation) 2/: 2005: -1.6; 2006: 8.5; 2007: -2.9; 2008: 13.9; 2009: -7.0

1/ Oil trade balance less profit of foreign oil companies.  
2/ Trade-weighted average of official and parallel market rates before 2007. The REER for 2009 is for January-November.

*International Monetary Fund — conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1086.pdf_