Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with the Syrian Arab Republic
IMF News, January 26, 2009
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- Published: January 26, 2009
Background — macroeconomic developments and outlook
- Non-oil real GDP is estimated to have been about 6 percent in 2007 despite unfavorable weather affecting agriculture; virtually all other non-oil sectors continued to grow strongly.
- Oil output remained on a downward trend; overall growth registered only about 4 percent in 2007.
- Preliminary data for 2008 indicate non-oil growth similar to 2007; overall growth is 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.
- Started to decline in the fourth quarter of 2008; projected to average about 15 percent for the year.
- Fiscal developments:
- Overall fiscal deficit increased to about 3.5 percent of GDP in 2007; non-oil deficit improved slightly.
- Oil revenue decreased by about 2 percent of GDP in 2007.
- Non-oil receipts declined partly reflecting reduction in customs tariffs.
- Current and capital outlays were reduced by about 1 percent of GDP in total.
- Fiscal deficit expected to stabilize in 2008, mainly due to reduction in fuel subsidies following May 2008 price increases for gasoline and diesel.
- External sector:
- External current account deficit expected to widen to about 4 percent of GDP in 2008, from 3.3 percent in 2007.
- Net oil balance (after subtracting the share of foreign partners) turned negative due to declining output and rising domestic consumption.
- Non-oil exports, tourism, and remittances grew rapidly due to strong regional demand and relaxation of foreign exchange controls.
- 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 developments:
- Broad money growing in line with nominal GDP, mainly reflecting domestic credit expansion.
- Credit to public enterprises grew about 40 percent in 2007 and by 60 percent in the first half of 2008 (year-on-year).
- Growth of credit to the private sector about 20 percent in 2007 and expected 25 percent in 2008.
- Interest rates remained low and became largely negative in real terms with the rise in inflation in 2008.
- Risks and medium-term outlook:
- Short-term impact of adverse global and regional developments expected to be relatively mild, primarily via weaker FDI, remittances, and demand from the Gulf.
- Medium-term outlook expected to improve with global/regional recovery and continued fiscal and structural reforms.
- Positive outlook contingent on perseverance in advancing fiscal and structural reforms and a gradual global recovery over the next two years.
- Structural progress:
- Progress toward exchange rate unification; growth of a dynamic private banking sector; liberalization of investment regime; continued trade liberalization.
- Reform agenda remains substantial.
Executive Board assessment — findings and policy recommendations
- Directors welcomed Syria's strong macroeconomic performance: rapid non-oil GDP growth, comfortable foreign reserves, low and declining government debt.
- Concerns and limitations:
- Declining oil production and exports; Syria has become a net oil importer.
- Inflation remains high despite recent decline.
- Downside risks from adverse global and regional developments, though many Directors considered risks relatively mild given limited integration into the international financial system.
- Shortcomings in economic and financial statistics hamper Fund surveillance and national policy formulation.
- Fiscal policy recommendations:
- Continue to reduce the non-oil fiscal deficit through mobilization of non-oil revenue, restraint on current expenditure—notably wages and subsidies—and 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 the impact on the poor.
- Strengthen public expenditure management: reform the budget process, improve monitoring of expenditures at the regional level, establish a single treasury account, and reduce extra-budgetary and quasi-fiscal operations through the banking system by bringing them on budget.
- Issue treasury bills in 2009 to help develop the domestic capital market and strengthen monetary policy conduct.
- Monetary and financial sector recommendations:
- Maintain a cautious monetary policy stance.
- 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.
- Strengthen bank supervision; require annual independent audits for all banks and timely information provision to the central bank.
- Give priority to restructuring and commercializing the operations of state-owned banks.
- Enhance the availability of reliable financial sector indicators to facilitate assessment and monitoring.
- Continue work to strengthen the framework for combating money laundering and terrorism financing.
- Exchange rate and external sector recommendations:
- Agreement that the Syrian pound's peg to the SDR remains appropriate as a strong monetary anchor while allowing some flexibility vis-à-vis major currencies.
- Available estimates show moderate REER over-valuation but are judged unreliable; no change in exchange rate level recommended in the present context.
- Prepare the ground for a gradual move toward greater exchange rate flexibility over the medium term.
- Remove existing exchange restrictions and multiple currency practice.
- Structural reform emphasis:
- Vigorous implementation of the substantial structural reform agenda is crucial to accelerate shift to a more market-oriented and non-oil-based economy.
- Continue to liberalize foreign trade and improve the business environment; commendation for reduction in import duties.
- Data and statistics:
- Urged authorities to improve the quality and timeliness of economic data.
Selected economic indicators (2004–08) — key figures
- Real GDP (change in percent): 2004: 6.7, 2005: 4.5, 2006: 5.1, 2007: 4.2, 2008 (Prel./Proj): 5.2
- Oil (change in percent): 2004: -6.1, 2005: -8.6, 2006: -7.1, 2007: -5.0, 2008 (Prel./Proj): -0.1
- Non-oil (change in percent): 2004: 10.2, 2005: 7.5, 2006: 6.9, 2007: 5.8, 2008 (Prel./Proj): 6.0
- Nominal GDP (LS billions): 2004: 1,263, 2005: 1,491, 2006: 1,709, 2007: 2,025, 2008 (Prel./Proj): 2,567
- Of which: Non-oil (LS billions): 2004: 986, 2005: 1,134, 2006: 1,305, 2007: 1,558, 2008 (Prel./Proj): 1,886
- Nominal GDP ($ billions): 2004: 25.0, 2005: 28.6, 2006: 33.5, 2007: 40.6, 2008 (Prel./Proj): 55.2
- Crude oil production (`000 barrels/day): 2004: 462, 2005: 431, 2006: 400, 2007: 380, 2008 (Prel./Proj): (not explicitly listed beyond table header)
- GDP deflator (change in percent): 2004: 10.9, 2005: 12.9, 2006: 9.1, 2007: 13.7, 2008 (Prel./Proj): 20.6
- Oil export price ($ per barrel): 2004: 48.1, 2005: 57.6, 2006: 65.3, 2007: 90.0
- CPI period average (change in percent): 2004: 4.4, 2005: 7.2, 2006: 10.4, 2007: 4.7, 2008 (Prel./Proj): 14.5
- Total population (millions): 2004: 18.8, 2005: 19.3, 2006: 20.4, 2007: 20.8, 2008 (Prel./Proj): 21.3
- Of which: Iraqi Immigrants (millions): 2006: 0.8, 2007: 0.9, 2008 (Prel./Proj): 1.5
- Government finances (in percent of GDP):
- Revenue: 2004: 27.2, 2005: 24.0, 2006: 25.5, 2007: 22.3, 2008 (Prel./Proj): 21.4
- Oil-related revenue: 2004: 11.2, 2005: 7.1, 2006: 7.3, 2007: 4.9
- Non-oil revenue: 2004: 16.1, 2005: 16.9, 2006: 18.2, 2007: 17.3, 2008 (Prel./Proj): 16.7
- Expenditure: 2004: 31.4, 2005: 28.5, 2006: 26.6, 2007: 25.7, 2008 (Prel./Proj): 24.9
- Current expenditure: 2004: 19.0, 2005: 18.1, 2006: 16.3, 2007: 15.4
- Development expenditure: 2004: 12.4, 2005: 10.3, 2006: 9.6, 2007: 9.5
- Overall balance: 2004: -4.2, 2005: -4.5, 2006: -1.2, 2007: -3.4, 2008 (Prel./Proj): -3.5
- Non-oil budget balance: 2004: -15.4, 2005: -11.6, 2006: -8.5, 2007: -8.4, 2008 (Prel./Proj): -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
- Net foreign assets: 2004: 5.4, 2005: 0.7, 2006: -2.3, 2007: -2.0, 2008 (Prel./Proj): 3.7
- Net domestic assets: 2004: 10.8, 2005: 11.7, 2006: 11.9, 2007: 15.3
- Credit to government: 2004: 2.8, 2005: 6.1, 2006: 0.3, 2007: -3.1, 2008 (Prel./Proj): -0.7
- Credit to public enterprises: 2004: 0.5, 2005: 1.7, 2006: 3.4, 2007: 7.6, 2008 (Prel./Proj): 9.2
- Credit to private sector (change in percent): 2004: 35.0, 2005: 45.9, 2006: 17.9, 2007: 20.2, 2008 (Prel./Proj): 25.8
- Credit to private sector (in percent of GDP): 2004: 14.9, 2005: 15.1, 2006: 15.0
- Balance of payments (in billions of U.S. dollars and percent of GDP):
- Current account balance (in percent of GDP): 2004: -1.6, 2005: -2.2, 2006: -2.8, 2007: -3.3, 2008 (Prel./Proj): -4.1
- Overall oil balance 1/: 2004: 1.3, 2005: 0.0, 2006: -1.0, 2007: -2.1
- Non-oil exports of goods and services (change in percent): 99.2, 18.6, 23.5 (years not individually labeled in table)
- Non-oil imports of goods and services (change in percent): -9.3, -10.4, -11.9, -13.8, -15.6
- Official net foreign assets (in months of imports of GNFS): 2004: 17.6, 2005: 16.8, 2006: 17.5, 2007: 17.1
- Weighted average nominal exchange rate LS/$ 2/: 2004: 50.5, 2005: 52.2, 2006: 51.0, 2007: 49.9, 2008 (for July): 46.5
- Real effective exchange rate (in percent, + appreciation) 3/: 2004: 10.7, 2005: 9.0 (for 2008 data are for the first three quarters)
- Notes included in the original indicators:
- 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.
Public Information Notice (PIN) No. 09/07, January 26, 2009.