The International Monetary Fund said in its last report on the Syrian economy that the impact of the global financial crisis on Syria has been relatively moderate and mostly through linkages to trading partners in the region and Europe.
“Overall real GDP growth is estimated to have decelerated in 2009 by 1 percentage point to about 4 percent. This reflected a slight increase in oil production and a decline in non-oil real growth by 1.5 percentage points to about 4.5 percent. Lower growth in manufacturing, construction, and services was partially offset by a moderate recovery in agriculture,” the IMF said.
Unemployment is estimated to have risen to almost 11 percent. Inflation declined sharply to about 2.5 percent, reflecting a reversal in the global prices of food and basic commodities.
The IMF added that the overall fiscal deficit is likely to widen in 2009 by about 2.5 percentage points to almost 5.5 percent of GDP.
The consolidation of public finances in the preceding few years provided room for the authorities to undertake counter-cyclical measures to mitigate the effects of the global economic crisis. Total expenditure is estimated to have grown by about 5 percent of GDP mostly due to increases in public investments, as well as in the wage bill and transfers to partly compensate for the increase in fuel prices.
The projected implementation of public investment is contingent on further rationalization of appropriations in the initial budget and an implementation ratio that is in the same order as in 2008.
Non-oil revenue increased, partly due to strong tax collection, which reflected improved administration and incentives to settle arrears. Furthermore, surpluses of public enterprises to the budget recovered somewhat from their low levels in 2008 which were partly due to the high prices of their imports in that year and to administrative prices.
The IMF said that the external current account deficit is likely to widen to about 4.5 percent of GDP in 2009, as the decline in exports of goods and services exceeded that of imports. Tourism receipts were buoyant, and both foreign direct investments (FDI) and remittances dropped only slightly despite the global economic crisis. Gross reserves remained comfortable at about $17 billion.
The IMF praised efforts of the Syrian central bank to improve efficiency of the banking sector and shore up foreign currency reserves.
“To support lending, especially to investment projects, the central bank took a number of measures. These included: reducing the reserve requirements by up to 5 percent for banks that increase their lending for investment projects requiring selected public banks to write off penalty on overdue debts and extend the repayment time, reducing the indicative deposit interest rates from 7-9 percent to 6-8 percent establishing a Lender of Last Resort facility and increasing the credit-exposure limit for development projects from 25 percent to up to 35 percent for a single project,” The IMF said.
It added that the Finance Ministry introduced tax incentives to encourage companies to contribute to strategic objectives such as locating in remote areas, increase hiring, and placing initial public offers in the stock market.
“The authorities also undertook a series of actions to mitigate the impact of the drought and higher diesel prices on the agriculture sector. These measures included tax breaks for farmers in the regions affected by the draught, rescheduling loans, writing off penalty on arrears, and increasing procurement prices of key crops,” the IMF said.
The IMF also talked about medium and long term outlook of the Syrian economy.
“The ongoing recovery in Syria’s trading partners is expected to contribute to a gradual increase in exports, remittances, and FDI. Also, output in agriculture is likely to continue to recover from the severe drought of the past two years. As a result, non-oil growth is projected at about 5 percent in 2010. Inflation is expected to remain low. Banks’ credit to the private sector is projected to remain buoyant,” the IMF said.
It added that the 2010 budget envisages a moderate tightening of the fiscal stance underpinned by a slight improvement in revenue and current expenditure restraint. In nominal terms, the budget provides for a 13 percent expenditure growth over the 2009 outcome. It includes a small increase in current expenditure and about 19 percent increase in capital outlays, compared to the 2009 budget (and 30 percent compared to the 2009 preliminary outcome).
“The medium-term outlook is projected to improve with the gradual global and regional recovery and progress in domestic economic reforms. However, a delay in global recovery or faltering in reform implementation could worsen the outlook and impede Syria’s economic growth,” the IMF warned.
The Daily Star