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In the news: Syrian economy needs faster, deeper reforms to offset oil depletion

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2005
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Syria’s economy experienced a mild recovery in 2004 following a slowdown in 2003 that had been caused by a decline in oil production and the impact of the Iraq conflict on exports and investment, the IMF said in its latest annual economic review. The recovery, which has continued in 2005, has been aided by a strong rebound in exports and a surge in private investment, reflecting ongoing reforms.

Inflation remains subdued for the time being, despite expansionary fiscal policies and an easing of credit conditions. Fiscal policies promise to be somewhat tighter in 2005, as a result of the introduction of a consumption tax, some adjustment in petroleum prices, and a planned curb on inefficient public investment. This, together with moderate credit expansion, will help keep inflation in check.

Encouraged by Syrias strong non-oil growth and the stable macroeconomic environment, the IMF Executive Board commended the authorities for pushing forward the structural reform agenda, including further liberalizing the trade and foreign exchange rate regimes, simplifying the tax system and broadening the tax base, and strengthening budgetary procedures to improve public spending efficiency.

Syria20012002Prel.

2003
Prel.

2004
Proj.

2005
(percent change)
Real GDP3.64.11.33.13.8
CPI annual average5.6-2.35.94.610.0
(percent of GDP)
Overall balance2.4-1.6-2.7-5.3-4.8
Nonoil budget balance-16.1-15.4-17.9-18.0-16.9
Data: Syrian authorities and IMF staff estimates and projections.
Data: Syrian authorities and IMF staff estimates and projections.

However, given that its oil is likely to be exhausted in the late 2020s, Syrias medium-term prospects are worrisome. The Board expressed concern that the pace and scope of reforms may be falling short of the daunting challenges posed by the prospective depletion of oil reserves and the high demographic pressures on the labor market. Syria is at risk of getting locked in a cycle of financial volatility, fiscal deterioration, slow growth, and rising unemployment. To avoid such a cycle, the Board urged the authorities to accelerate structural reforms and draw up a strong and credible fiscal consolidation strategy within a transparent medium-term fiscal framework.

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