EIU report: Syrian economic reform ahead
Syria’s new president Bashar Assad has injected youth and vision to the country’s leadership and brought to office a group of like-minded young technocrats, seeking to develop his vision for the country and modernize the economy, asserts a recent report issued by the Economist Intelligence Unit (EIU). According to the quarterly report, Syria’s real GDP is forecasted to grow at a rate of 1.5 percent in 2000, rising to 2.4 percent in 2001, and 2.6 percent in 2002.
It noted that the young Assad is clearly the architect of the economic reform initiatives launched by the government of Mustafa Miro that came to office last April. Investment laws have been reformed, foreign banks have been allowed in the free zones, and there are draft laws to establish a stock exchange and to authorize foreign banks to operate onshore.
The report expected change to continue in the foreseeable future and to result in more favorable legislation to foreign investors and some limited financial deregulation. The president’s anti-corruption drive will also continue, but reforms would be incremental due to the entrenched vested interests and complex patronage system.
The report noted that the government took advantage of a rise in oil revenues to launch several expansionary fiscal measures, including a 25 percent increase of state-sector salaries and steps aimed at reducing unemployment. Further, high oil prices in the coming year will allow the government to continue its expansionary fiscal policy. Inflation will remain subdued at 0.5 percent this year, but will slightly increase to 1.7 percent in 2001 and 2.1 percent in 2002, fueled by a rise in government spending.
The EIU anticipates private consumption to increase in the near term due high oil revenue, while investment spending will see some modest growth as construction of a number of energy projects gathers pace. However, political uncertainty and the lack of a peace treaty with Israel will still affect local consumption, with lower than expected tourist numbers and the postponement of spending on tourism infrastructure.
On the monetary level, the EIU noted that money supply in Syria is more likely to be affected by interest-rate movements in neighboring Lebanon and government spending patterns, as a lack of confidence in its own banking system renders interest-rate manipulation an ineffective monetary tool.
Additionally, Syria's multi-tier exchange-rate system is likely to be maintained in the short-term, with continuing convergence between the “neighboring countries” and black-market rates leading to parity. The report said Syria will post current-account surpluses of $1.6 billion this year, $1.18 billion in 2001 and $327 million in 2002. — (Lebanon Invest)
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