The balance of payments in syria

BOP: is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year.

Syria had serious deficits in its trade balance since 1976, but import restrictions, foreign aid (especially from other Arab governments), and drawdown of foreign exchange holdings enabled the government to cover the losses. Since the late 1980s, the government has been encouraging private sector trade. Private sector exports consequently skyrocketed from $79 million in 1987 to $517 million in 1990, thus reducing the trade deficit. An upturn in world oil prices at the end of the 1990s and into the early 2000s and an improvement in the country’s agricultural exports greatly improved the balance of payments situation.

The US Central Intelligence Agency (CIA) reports that in 2001 the purchasing power parity of Syria’s exports was $5 billion while imports totaled $4 billion resulting in a trade surplus of $1 billion.

The International Monetary Fund (IMF) reports that in 2000 Syria had exports of goods totaling $5.15 billion and imports totaling $3.7 billion. The services credit totaled $1.7 billion and debit $1.67 billion. The following table summarizes Syria’s balance of payments as reported by the IMF for 2000 in millions of US dollars.

Current Account

1,062

Balance on goods

1,423

Balance on services

33

Balance on income

-879

Current transfers

485

Capital Account

63

Financial Account

-392

Direct investment abroad

270

Direct investment in Syria

…

Portfolio investment assets

…

Portfolio investment liabilities

…

Other investment assets

1,049

Other investment liabilities

-1,711

Net Errors and Omissions

-192

Reserves and Related Items

-541

Syrian’s monetary policy could be described in terms of multiple exchange rate regimes, which have been in place since the 1950s. To this end; the monetary authority has recently taken important steps toward an exchange rate unification process2. Such a multiple system restricted the efficiency of monetary policy

providing for the economy by nominal anchor to keep inflationary expectations within limits well-matched,more over to keep the inflation rate low and stable. Therefore the Monetary Authority’s had put in place such a unified exchange market to be achieved as the beginning of 2007. Furthermore the monetary authorities had announced in late 2007 to target the SDR/SYP exchange rate to react with flexible exchange rate system and as an attempt to address the main challenges facing the economy.

Chart (4.1) Syrian exchange rate developments

(In Syrian pounds per US Dollar)

In this respect, Syrian economy faces three main challenges; first related to the transition process towards

market economy which should response more to the market forces and better allocation for the resources,

given the second challenge represents by the sharp decline in the oil production, hence is still consider the corn stone in Syrian’s public budget, which is still relying to the tune of 8 percent of real GDP on oil revenue tofinance public spending (table and chart (4.2)). In contrast there is a sharp decline in oil revenues as a percentage of total revenue, from 47% in 2002 up till 22% in 2007. This resulted from both, the sharp contraction in oil production and rapid growth in the consumption of subsidized petroleum products (reflecting, in part, increased smuggling and the impact of the Iraqi refugees).

2 Syria has had a multiple exchange rate regime since the 1950s. As of end 2006 a fixed exchange rate has

applied to all public sector transactions. A fixed rate with a range of fluctuations applies to the free foreign exchange market and a floating exchange rate was determined on a parallel market.

Since the early 1950s, the value of imports has been close to double the value of exports. The two exhibited similar growth patterns, both growing slowly until the 1970s. Between 1951 and 1970, imports increased an average of 6.2 percent and exports 5.6 percent a year, and the trade balance slowly worsened. In the 1970s, the value of imports and exports increased much more rapidly. For example, the average rate of growth of imports increased 28 percent a year and exports increased 23 percent a year. In the 1980s, the trade imbalance widened further. Syria instituted austerity budgets to reduce imports drastically and to conserve foreign exchange. As a result, by the mid-1980s the trade deficit had declined from LS11.6 billion in 1981 to LS10.3 billion in 1983 and LS8.9 billion in 1984, still large but offering the hope of continued future reductions.

Economic growth:

With an economic growth of 5.1% in 2006, and a projected growth of 7% for 2007, Syria’s most impressive recent development is, undoubtedly, in the economic sector.  The government has drawn an extensive plan to turn Syria’s once centrally-planned economy, to one based on open market principles.  The plan entails bringing down trade and financial barriers to liberalize specific sectors and allow for the entry of foreign and domestic private investment.  In order to ensure an equitable distribution of benefits reaped from such a process, the government is closely monitoring this process.  The plan ultimately aims at providing the economic growth an open market brings, while thwarting the economic disparity that is an inevitable by-product of such a process.

During the last four decades economic growth in Syria has advanced at a rate of 4.6 percent per year on average (between endpoints of the 1963-1999 period). This is a good rate of growth in the long term for many countries. Unfortunately, the growth in population in Syria is also quite high (3.3 percent average over the same period). Growth has accompanied the rapid growth in population, which is a real achievement, but per capita income has remained stagnant in the long-term, alternating ups and downs. The economy has progressed on a cyclical pattern of periods of rapid growth followed by periods of stagnation or decline. The 1990s have been a period of growth, but a decreasing rate, and not strong enough to go beyond the per capita product of 1980, and several factors constrain the continuation of the growth trend in subsequent years. The growth of agricultural production has followed a similar path.

Figure 3.1 Population and GDP in Syria, 1965-2000

http://www.fao.org/docrep/006/y4890e/y4890e06.gif

http://www.fao.org/docrep/006/y4890e/y4890e07.gif

Figure 3.2 Per capita GDP: Annual growth rate, 1990-1999

Fiscal and monetary policy:

. Monetary policy during 2005 was expansionary. Credit to the private sector grew by 45 percent, of which 70 percent was contributed by three state banks, which raised significantly their ceilings on single borrower loans and introduced new products such as overdrafts. The strong bias in this credit expansion toward consumer loans at a time when enterprises and in particular SME continue to be credit constrained has added to the inflationary impact of this credit expansion. Furthermore, the fast-paced credit expansion is likely to have weakened the quality of banks’ loan portfolios-given weak risk management practices-and made banks run into liquidity problems.

Increase in Credit to Private Sector

-Following a remarkable improvement in 2004, the non-oil budget balance improved further in 2005. Preliminary data suggests that the non-oil budget balance narrowed by about 2½ percent of GDP in 2005 on top of the 1¾ percentage points of GDP improvement in 2004. The strengthening of the underlying fiscal position has been, however, mainly driven by a surge in the surplus of public enterprises. Total spending declined only marginally-with a drop in development expenditure offsetting an increase in current expenditure driven by large wage increases. Non-oil tax revenues remained flat at about 10½ percent of GDP compared to their level in 2003, with additional revenues from broadening the base of indirect taxes offsetting a drop in international trade taxes-due notably to significant tariff reduction-and income and profit taxes holding up at about 3½ percent of GDP, despite significant reduction in tax rates.

Fiscal Operations

Conclusion:

Syria s economy stagnated between 1996 and 2004, with an estimated average growth rate of 2.4 percent. Meanwhile, the population is growing at a rate of 2.7 percent, spelling disaster for development. Economic growth reached 3.4 percent in 2003, but that unusually high rate reflected the sale of Iraqi oil through Syria and then the rise of oil prices as a result of the Iraq war. In 2004, economic growth dropped to 1.7 percent, showing the danger of depending on oil rents.[] Oil production reached 591,000 barrels per day (bpd) in 1995 but declined to 450,000 bpd in 2005. According to one estimate, Syria will become a net importer of oil for the first time in 30 years by 2012.[] The good news for the Syrian regime is that the rise in natural gas production is likely to compensate for a substantial part of the decrease in oil production. Gas reserves are estimated at 240 billion cubic meters.[] Much depends on the transit revenues that Syria will receive from the Arab Gas Pipeline linking Egypt with Turkey and eastern Europe.[] Ultimately, rent income from oil or gas will only buy time. Meanwhile, unemployment, poverty, investment and dilapidated public-sector firms require