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Syria - Economic Snapshot

Syria's economic structure bears much resemblance to the country's political make up as both are highly centralised. Since the rise of the Baath party in 1963, centralisation of the economy has been followed in accordance to the socialist ideologies of the party and its leaders. The main source of income for the Syrian economy is from the export of oil. Tourism is the second biggest income generator. Other exports include gas, textile articles, coffee and tea. Another important source of income for the Syrian economy was cheap oil as well as commission from Saddam's regime for allowing Iraq to use Syria's ports during the UN economic embargo. This source of income ended after the fall of Saddam's regime.

The Syrian economy is very oil centric and thus the country made good progress during the 1990 - 1995 period due to major oil discoveries and economic reforms taken by the Syrian government. However progress slowed as investors started to shun the country due to its US labeled "pariah" state and also due to the lack of continuation of the economic reforms by the Syrian government. More recently the Syrian economy made good progress during 2001 and 2002 when it registered 3. 5% and 4. 5% growth rates consecutively. This was due to increase in oil exports and economic relations with Saddam's Hussein who was ready to pay Syria handsomely for its co-operation in breaking the UN imposed economic embargo. Later on in 2003 the Syrian economy suffered a dip. This was due to the allies invasion of Iraq which lead to a significant drop in the number of tourists and a stop in the flow of cheap Iraqi oil and commissions received from Saddam's regime. However 2004 is expected to generate up to 4. 5% growth rates for the economy due to the high oil prices in the international market.

The main challenges to the Syrian economy are:

•  Sanctions placed by the US against Syria under the Syrian Accountability act, plus the country's status as "Pariah state" have reduced tourism and investment. Recent statements by the Bashar Assad have done little to alleviate this threat to the economy.  

•  Lack of investments - This is due to Syria's highly centralised economy and lack of required economic reforms to enable investments. Notwithstanding negative impact of US sanctions. In numbers, this has translated into a low grade for Syria at the Economic Index of Freedom ( 3. 93). Direct foreign Investments stand at a mere 2. 5% of GDP.

•  High Unemployment rate - Syria suffers from 20% unemployment rate. This problem is compounded by the fact that its labour force is growing at the rapid rate of about 5%   per annum. Current government solution to this problem seems slow and gradual.

•  Depleting oil reserves - According to a number of reports, it is estimated that with current rates of production Syria's oil reserves will be depleted to a level where the country will become a net oil importer by 201 2. Some even say argue that this may occur before the end of the decade. Syria has not designed any intergenerational equilibrium for its oil. It can only hope to equal the dwindling oil revenues with the non-oil sector before oil runs out. Under the current circumstances and the Syrian government's lack of planning and action; success seems like a very tall order.  

•  Water supplies - Syria's water supplies are being used at higher rates than teir replacement. The country's water supplies are also affected by pollution, lack of water management and rising population levels.

•  Public and external Debt - Syria's public debt consists of 89% of its GDP. This means that in order to repay its public debt in one year, Syria will have to dedicate 89% of its gross domestic products for this purpose. Furthermore Syria also has $21.55 billion in external debt which is equivalent to 45% of its income. Such debts and their servicing charges place a constraint on the Syrian economy. They also reduce Syria's ability to acquire new loans from international credit agencies.   

   

THE FUTURE

The focus of concern is Syria's fiscal situation after oil runs out. Syria faces the challenge of coming out of the oil age. The July 2006 IMF report suggests two general avenues, which are interrelated: Firstly, Syria must capitalize optimally on the remaining oil revenues, while finding the next avenue of major income to the economy. In accordance with this, Syria and the IMF have been considering whether the textile industry may be able to offer such a solution. Secondly, it is suggested that Syria finds effective ways to ignite growth from its own fiscal situation – i.e. to improve its labor situation through a series of steps designed to liberalize external trade, improve the business environment and strengthen market mechanisms in the private sector.

To alleviate the economic problems the Syrian government has recently taken a number of important initiatives. Upon realising the difficulties in opening up the country's economy to attract investors, Syria's president has opted for free trade as the way forward. Therefore Syria has finalised its terms for the Association Agreement with the EU, has joined the Greater Arab Free Trade Area (GAFTA) and has recently signed a free trade agreement with Turkey. There are also talks with Iran regarding the creation of a free trade zone.

The impact of these reforms have been felt. The regulatory reforms have been efficient, albeit to a limited degree. While the private banking sector has grown significantly, State owned banks still hold the bulk of the money in Syria. Thus, much remains to be done – in areas such as compliance. The Syrian government needs to increase the efficiency of the regulatory system, in order to tighten the economic environment.

In terms of trade, there remains a need to move forward to ease restrictions and to signal to external investors that Syria is a suitable destination for investment. While there is a steady progress in liberalization, certain barriers remain to normal trading conditions. Non-tariff trade opportunities are key to opening up the economy to importers.

The future of the Syrian government very much depends on its past. If the Syrian government decides to learn from it and thus open up the economy for investment the country's economy will make progress. However in the absence of such needed reforms and with depleting oil resources, the 1980s ghost of economic slowdown will return to haunt it.

By: Meir Javedanfar and Tal Gurevich - www.meepas.com

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