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Syrian Arab Republic

Author(s):
International Monetary Fund
Published Date:
March 2010
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I. Background and Recent Economic Developments

1. The Syrian authorities have been implementing gradual, but wide-ranging reforms. These reforms are motivated by the challenges posed by the decline in oil production and the strategy initiated in the early 2000s to transition toward a social market economy. The exchange rate has been effectively unified and restrictions on access to foreign exchange for current transactions appear to have been mostly eliminated. Private banks are now leading financial sector growth, and the Damascus stock exchange recently re-opened after being closed for 40 years. Taxes have been streamlined and the trade regime significantly liberalized. There was a limited cabinet reshuffle in January, but no change in economic policy is expected.

2. The impact of the global financial crisis on Syria has been relatively moderate and mostly through linkages to trading partners in the GCC and Europe. GDP growth is estimated to have decelerated in 2009 by 1 percentage point to 4 percent. Lower growth in manufacturing, construction, and services was partially offset by a moderate recovery in agriculture and a small increase in oil production. Unemployment is estimated to have increased to almost 11 percent. Inflation declined sharply to about 2.5 percent, reflecting trends in global prices.

Figure 1.Syria: Effects of the Financial Crisis on Growth

(% change in Real GDP)

Figure 2.Syria: Sectoral Growth Rates, 2005-09

Sources: Syrian authorities and Fund staff estimates.

Figure 3.Syria: CPI, January 2005 - November 2009

(2000=100, Period Average)

Sources: Syrian authorities and Fund staff estimates.

Figure 4.Syria: Foreign Trade, 2008

1/ Includes China, India, Turkey, and other trading partners.

Source: Syrian Ministry of Economy and Trade.

3. Fiscal policy in 2009 aimed at mitigating the impact of the global crisis. Budgetary expenditure is estimated to have grown by about 5 percent of GDP, reflecting increases in public investments, as well as the wage bill part of which was to compensate for raising fuel prices. Non-oil revenue increased, partly due to strong tax collection, which resulted from improved administration and incentives to settle arrears. The recorded deficit is estimated to have widened in 2009 by about 2.5 percentage points to 5.5 percent of GDP.

Figure 5.Syria: Budget Deficit, 2005-10

(in percent of GDP)

Sources: Syrian authorities and Fund staff estimates.

4. The external current account deficit widened to about 4.5 percent, as the decline in exports exceeded that of imports. However, tourism receipts were buoyant, and both FDI and remittances dropped only slightly. Gross reserves remained comfortable, at about US$17 billion.

5. With the Syrian pound pegged to a basket (within a band), broad money is estimated to have grown by about 10 percent in 2009. Credit to public enterprises decelerated sharply due to the reduction in energy subsidies, which were financed by borrowing. Nonetheless, growth of credit to the private sector remained at about 25 percent, driven by the expansion of private banks.

6. The Central Bank of Syria (CBS) took some measures to ease the monetary stance and support lending to investment projects. These included: (i) reducing the reserve requirements by up to 5 percent for banks that increase lending to investment projects; (ii) requiring selected banks to cancel penalty on overdue debts and extend maturities; (iii) reducing the indicative deposit interest rates from 7-9 percent to 6-8 percent; and (iv) increasing the credit exposure limit for development projects from 25 percent to 35 percent for a single project. The CBS introduced additional conditions on the credit associated with the latter measure in order to safeguard its quality. The authorities also established a Lender of Last Resort facility, and increased the minimum capital requirement for banks from $30 million to $200 million for conventional banks, and from $100 to $300 million for Islamic banks (with 3 years grace period). Concomitantly, the ceiling on foreign ownership of banks’ was increased from 49 percent to 60 percent.

7. The authorities also undertook a series of actions to mitigate the impact of the drought and higher diesel prices on agriculture. These included tax breaks for farmers, rescheduling of loans, cancelation of penalty on arrears, and increasing procurement prices of key crops. The government established the Agricultural Support Fund (ASF) in 2008 to replace some input subsidies with cash transfers to farmers. The ASF was allocated SP10 billion in the 2009 budget. In addition, the Ministry of Finance (MoF) 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.

8. Some progress has been made in advancing structural reforms, including simplifying investment procedures, modernizing accounting standards, and streamlining the tax system. Effective June 2009, the authorities raised the minimum thresholds for exemption from wage taxes. As an offsetting measure, the top income tax rate for individuals was increased to 22 percent (from 20 percent). However, the authorities recently introduced reference prices and customs duties that vary by country of origin to protect against unfair trade practices.

II. Policy Discussions

A. Outlook and Risks

9. The outlook for 2010 points to an overall strengthening in economic performance. The ongoing recovery in Syria’s trading partners is expected to contribute to a gradual increase in exports, remittances, and FDI in 2010. Agriculture is likely to continue to recover from the severe drought of the past two years. Therefore, growth is projected at about 5 percent. The overall fiscal deficit is expected to narrow by about 1 percentage point of GDP, on account of current expenditure restraint and a rise in oil revenues. The external current account deficit is envisaged to narrow slightly, partly due to the moderation in the domestic public consumption.

10. The medium-term outlook is projected to continue to improve with the gradual global recovery and progress in domestic economic reforms. Growth is expected to strengthen to about 5.5 percent by 2014, despite the envisaged decline in oil output, with the ongoing rebound in agriculture and global recovery. The authorities’ medium-term fiscal strategy aims to contain the overall deficit below 5 percent of GDP. The key pillars of this strategy are the introduction of a VAT in 2011, a further deepening of subsidies reform, and expenditure restraint. The fiscal deficit is, therefore, projected to narrow to 3.4 percent of GDP and to moderately increase to 3.8 percent of GDP by 2014 due to the steady decline in oil revenue. The external current account deficit will likely stabilize at 3.7 percent of GDP due to strengthening of non-oil exports and tourism receipts. A delay in global recovery or faltering reform implementation could worsen the outlook and impede Syria’s economic growth.

Figure 6.Syria: Medium Term Outlook, 2005-14

Sources: Syrian authorities and Fund staff estimates and projections.

B. Fiscal Policy

11. The consolidation of public finances over the past few years provided room for the authorities to take counter-cyclical measures to mitigate the effects of the global economic crisis. Assuming somewhat similar implementation ratios as in the past, the 2010 budget implies 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 12.5 percent expenditure growth over the 2009 preliminary outcome. It includes a small increase in current expenditure, mostly due to a moderate increase in wages. It also provides for a 30 percent increase in capital outlays compared to the 2009 preliminary outcome (and 19 percent compared to the 2009 revised budget). Cash transfers replacing the diesel coupons are envisaged to increase by about 0.5 percent of GDP. The authorities are confident that the projected economic recovery in 2010 will allow them to resume fiscal consolidation. They intend to continue to restrain current expenditures and rationalize capital outlays. In recent years, the fiscal deficit has been smaller than what was envisaged in the original state budget. The authorities also aim at continuing to allow the private sector to take the lead in implementing some investment programs, including in the context of public-private partnership (PPP) arrangements with adequate safeguards.

12. The authorities are determined to continue to modernize the subsidies system to further enhance fiscal gains, efficiency, and the targeting of assistance. They replaced the universal diesel coupons with targeted cash transfers to compensate vulnerable households. Furthermore, many agricultural subsidies are now being delivered in the form of targeted cash transfers through the ASF.

Box I.Debt Sustainability Analysis

Public debt remains low since the 2005 rescheduling of the debt to Russia, and fiscal reforms have advanced. However, the authorities need to continue their fiscal effort reform in the period ahead in view of the likely expenditure pressures associated with plans to improve infrastructure and increase access to basic services.

Based on the authorities’ ongoing reforms, public debt should remain at manageable levels. Debt is expected to increase only moderately, to about 25 percent of GDP by 2014, despite the substantial decline in oil revenue. The outlook is also sustainable if the recent yearss’ trend is used to derive assumptions. Holding the key debt-dynamics variables (e.g. the real GDP growth and the primary fiscal balance) constant at their 10-year historical averages produces an improvement in the debt-to-GDP ratio by about 10 percent by 2014. Holding the primary deficit constant at about 5 percent of GDP, the preliminary outcome of 2009, would lead to an increase in the debt ratio to about 30 percent by 2014.

Sensitivity analysis of the baseline scenario indicates that public debt would remain sustainable under various shocks. A one-half standard deviation in the primary balance from the baseline assumption would result in a debt ratio by 2014 about 4 percentage points higher than in the baseline. Applying a similar shock to GDP growth leads to a debt ratio about 6.5 percentage points higher by 2014 than in the baseline. The most significant outcome was generated by a 10 percent of GDP increase in other debt-creating shocks (e.g. larger contingent liabilities related to public enterprises), leading to a debt ratio in 2014 of about 7.5 percentage points of GDP higher than in the baseline.

Syrian Arab Republic: Public debt under various fiscal adjustment scenarios, 2009–15

Sources: Authorities; and Staff estimates and projections.

However, if the reforms underlying the baseline scenario falter, the fiscal outlook would significantly deteriorate. For example, a substantial delay in the implementation of the VAT, a re-emergence of large implicit fuel subsidies, and waning efforts to control wages and rationalize capital spending could lead to growing fiscal deficits and public debt ratios rising to about 50 percent of GDP.

13. The MoF plans to introduce the VAT in 2011. Achievements in this area include the drafting of the VAT law and a tax procedures code, the establishment of the large taxpayer office and the General Commission for Taxes and Fees (GCTF), and substantial modernization of customs. The authorities stressed that the delay experienced in launching the VAT, which was originally planned for 2008, was due to vital preparations of the tax administration and the public to ensure a successful introduction.

14. The authorities are cognizant of the need to further improve public expenditure monitoring and management. The current and capital budgets have been effectively integrated, and are now prepared and implemented by the MoF. For the first time, a program- and performance-based budgeting approach was adopted for the agriculture and education sectors in the 2010 budget. The authorities intend to further streamline the substantial quasi-fiscal operations that are conducted by public enterprises and state-owned banks. They plan to gradually bring on budget the remaining quasi-fiscal operations that are conducted by these entities, and improve the timeliness of expenditure reporting by the regional entities.

C. Monetary Policy and Financial Sector Reform

15. The scope for monetary policy independence will remain limited over the medium-term in view of the exchange rate arrangement. The authorities intend to continue their efforts to enhance the monetary policy framework. As part of their reform agenda, they are planning to gradually replace administrative tools for conducting monetary policy with market-based tools. If issuance of treasury bills is further delayed, the CBS would consider issuing its own certificates of deposits. The authorities indicated that the transfer of international reserves from the Commercial Bank of Syria (CBoS) to CBS has been completed, in line with the FSAP recommendation.

16. In the authorities’ view, some measures taken in response to the global crisis and to support lending to investment projects are temporary and will be phased out over time. Staff noted that differentiated reserve requirements, based on the volume of lending for investment purposes, can encourage bank financing of less profitable projects. Also, it will be important to phase out the public banks’ preferential lending schemes in order for banks to allocate their credit based on their own internal lending criteria. Furthermore, the recent increase in the credit exposure limit for development projects could increase banks’ vulnerabilities.

Box II.Subsidy Reform

The authorities have taken important steps in reforming the energy subsidies. The prices of key petroleum products were increased in 2008, saving about 7 percent of GDP in implicit subsidies. To mitigate the impact of the higher prices, the authorities increased public wages and issued coupons, allowing every household to buy up to 1000 liters of diesel at a lower price. These compensatory measures amounted to about 4.5 percent of GDP. Notwithstanding the significant price increases, implicit subsidies remained at about 8.3 percent of GDP as international prices increased.

Energy Subsidy Reforms20082009
Price Adjustments
Gas Oil (Diesel)7.3 to 25 SP/liter25 to 20 SP/liter
Fuel Oil6 to 9 SP/liter
Kerosene22.7 to 40 SP/liter
Gasoline36 to 40 SP/liter
Compensatory Measures
Public wage increase25%
Diesel coupons1000 liters per household at 9
SP/liter
Cash Transfers10,000 SP for eligible households

The universal diesel coupons were replaced by targeted cash transfers in 2009. The criteria applied in determining eligibility for transfers are based on income, asset ownership, and the utility bill. Approximately half of the Syrian households are likely to benefit from these transfers. Furthermore, unlike the cost of the coupons which was born by the state-owned oil distribution company, the cash transfers will be funded directly from the budget.

The increase in domestic energy prices reduced the cross-border leakage of subsidies, as reflected in the subsequent sharp reduction in diesel and fuel oil consumption. The implicit price subsidy declined sharply with the drop in international oil prices in 2009. Nonetheless, the cumulative compensatory measure is estimated at about 6 percent of GDP, resulting in a still large, but more efficient subsidy to consumers. However, if domestic prices are not adjusted to reflect future changes in international prices, the current price gap will widen again, and so will leakage.

Energy Subsidies, as % of GDP20082009
Total subsidy12.94.9
Price subsidy (extrabudgetary)8.3-1.3
Budgetary compensatory measures4.56.2
Sources: Oil Marketing Office, Ministry of Oil, Mahroukat and Fund staff estimates
Sources: Oil Marketing Office, Ministry of Oil, Mahroukat and Fund staff estimates

The government also took important steps to reform agricultural subsidies through the introduction of ASF to manage and streamline inputs subsidies. To mitigate the effects of the reduction in the implicit diesel subsidy and the liberalization of the fertilizer market in 2009, the ASF started to make targeted cash transfers to farmers.

17. The CBS views further strengthening of bank supervision as a priority. In particular, public banks now report on a regular basis their key financial sector indicators to the CBS. However, data for some of these banks may not reflect their true condition due to outdated accounting practices. The CBS has made progress in implementing the 2008 FSAP recommendations. Nonetheless, realization of a number of these recommendations requires amending the central bank law. Efforts are underway to prepare banks for the implementation of Basle II, including by requiring them to strengthen their internal risk assessment procedures. The authorities do not see a problem with the strong growth of private credit in view of the strengthening of the supervisory framework, low level of financial intermediation, and the fact that many of the new banks are subsidiaries of well established foreign banks with good risk assessment capabilities.

18. The impact of the global crisis on the financial sector has been limited due to the low degree of its global exposure and CBSs’s prudential requirements. The capital adequacy ratio for the consolidated banking sector is reported at about 20 percent. Banks continued to be liquid and moderately profitable. The average non-performing loans (NPL) ratio is low. However, the NPL of public banks (6 percent) is likely to be significantly understated as these banks do not classify many of their loans that are in arrears as bad loans since most of them are implicitly guaranteed by the government. In general, roll-over of bad loans is extensive, hindering a meaningful calculation of NPLs. The recent CBS regulation limiting roll-overs should help clarify the true position of these banks in the period ahead. Also, recent decisions to reschedule loans will be limited to sectors strongly impacted by the global crisis and the drought.

19. The Syrian pound appreciated by about 7 percent against the dollar in 2008 in nominal terms. This contributed, along with the high domestic inflation that year, to a real effective appreciation of about 14 percent. About half of that real appreciation was reversed during 2009 with the substantial depreciation of the dollar against the Euro and the decline in Syria’s domestic inflation. Econometric estimates, which suffer from serious data shortcomings, suggest that the real exchange rate of the pound may be moderately overvalued relative to its medium-term equilibrium level (Box IV). The authorities have stressed that the exchange rate reflects market forces and that it is competitive as evidenced by the rapid growth of exports prior to the global recession of 2009. The staff does not recommend a change in the current nominal exchange rate level in the present context, and in view of the data shortcomings highlighted above.

Box III.Financial Sector Developments

The Syrian authorities have embarked on an ambitious reform agenda to modernize the financial sector and improve intermediation. A number of laws and regulations have been put in place; private banks, insurance companies, and micro credit institutions have been established; and banking supervision has been strengthened. Furthermore, modernization of the CBS has continued, and substantial progress toward current account convertibility and exchange rate unification has been made. Moreover, the authorities fully liberalized bank lending rates and rates on foreign currency deposits and loans.

Syria: Claims on Private Sector, 2005-June 2009

(in percent)

Source: Syrian authorities.

The share of private banks has grown considerably since they were first established in 2004. As of September 2009, there were 12 private banks (including 2 Islamic banks) with assets equivalent to about 24 percent of total banking sector assets. Their total deposits have grown by about 12-16 percent annually since 2006. Overall, banking intermediation has increased substantially, although it still remains low by regional standards.

Sources: IFS; and Fund staff estimates.

Despite the achievements made thus far, considerable challenges remain, including establishing indirect monetary instruments, reducing the role of the government in credit allocation, and removing the large excess liquidity in the banking system. The authorities are considering replacing administrative tools for conducting monetary policy, including controls on banks’ domestic currency deposit rates with issuance of treasury bills. In this context, it is important that interest rates are fully liberalized to allow for full transmission of policy signals. Also, reserve requirements, which introduce distortions and complicate monetary management as the CBS moves forward with its plan to introduce indirect monetary instruments will need to be unified. Preferential lending schemes and directed credit to priority sectors should be phased out. Finally, considerations can also be given to securitizing government debt to CBS in order to remove excess liquidity.

Syria: Bank Reserves, 2005-2009 Q3

(in percent of total reserves)

Source: Central Bank of Syria

Box IV.Exchange Rate Assessment

Econometric estimates suggest that the pound may be moderately overvalued in real effective terms at end-2008. This has been partly corrected during 2009 with the depreciation of the dollar against the euro. However, the estimates, which utilized CGER methodologies 1/, are not reliable due to serious data shortcomings. Syrian balance of payments statistics and national accounts need significant improvement, and the data used by staff are in many cases only estimates.

The macroeconomic balance approach indicates an overvaluation of the pound by about 10-15 percent. Based on a panel regression, the equilibrium current account norm for Syria would be a surplus of about 1 percent of GDP. This compares with a projected deficit of about 3.7 percent of GDP. The set of determinant variables in this approach include the fiscal balance, population growth, NFA, oil balance, and per capita income.

Syria: Current Account Norms vs. Projected Estimates, 2008-2014

(in percent of GDP)

The equilibrium real exchange rate (ERER) methodology points to an overvaluation of the pound by about 15-25 percent at end-2008. This methodology utilizes a vector error correction model to estimate the ERER using as the determining variables oil income, net foreign assets, openness to trade, government expenditure, and relative productivity.

Syria: Real Effective Exchange Rate, Smoothed and Unsmoothed ERER, and Misalignment

(1960-100; 1960-2008)

Source: Fund steff calculations.

The external sustainability approach also indicates an overvaluation of the pound. The results range from 10-15 percent, depending on the assumptions used. The outcome depends on whether the objective is to keep constant the annuity from oil wealth in real terms, in real terms per capita, or as a percent of GDP.

1/www.imf.org/external/np/pp/eng/2006/110806.pdf

D. Structural Reforms and Other Issues

20. The authorities intend to continue to advance structural reforms in order to accelerate growth, diversify the economy, and create employment. Progress has been made in many areas, including reducing import tariffs, shortening the import negative list, reforming fuel and agricultural subsidies, and establishing a one-stop window for approving private investment. Furthermore, to further liberalize current transactions, each citizen is now allowed to purchase up to $10,000 per month from a local bank and to transfer them abroad in payment for current transactions or credit cards bills. The authorities noted that reference prices and customs duties that vary by country of origin were put in place in order to protect against unfair trade practices.

III. Staff Appraisal

21. The impact of the global financial crisis on Syria has been relatively moderate. Preliminary data for 2009 indicate that non-oil growth decelerated as lower growth in most sectors was only partially offset by a moderate recovery in agriculture. Inflation declined sharply, reflecting trends in the global prices of basic commodities. Despite the important progress made in subsidies reforms, the fiscal deficit widened as the consolidation of public finances in the past few years provided room for the authorities to implement counter-cyclical measures to mitigate the effects of the global economic crisis. The current account deficit increased slightly, as the decline in exports exceeded that of imports. Tourism receipts, however, remained buoyant, and both FDI and remittances dropped only slightly despite the global economic crisis.

22. The widening in the fiscal deficit in 2009 was appropriate to mitigate the impact of the global recession. Furthermore, this widening in the fiscal deficit in 2009 partly reflects enhanced fiscal transparency as substantial extra-budgetary spending related to petroleum subsidies was brought on budget. A gradual resumption of fiscal consolidation going forward is necessary in order to preserve fiscal sustainability. In this connection, it would be important to revisit the large increase in public investment budgeted for 2010, especially after its large increase in 2009. This would be more in line with absorptive capacity and would help reduce the overall fiscal deficit to about 4.5 percent of GDP. Furthermore, the staff urges the authorities to ensure that increases in public wages are linked to performance and to civil service reform.

23. The commendable recent reforms of petroleum subsidies have led to considerable efficiency gains and a reduction in waste and leakages as reflected in the decline in domestic consumption. The replacement in December 2009 of the diesel coupons with cash transfers is likely to enhance the targeting of assistance and consolidate efficiency and fiscal gains. The staff encourages the authorities to prevent a re-emergence of the large inefficient price subsidies of the past.

24. The substantial progress in the preparation for the VAT is welcome, but further efforts are needed. In particular, it would be important to make progress in reorganizing tax administration, including by shifting more responsibilities to the GCTF. The staff supports the streamlining of the tax system, and advises against a further increase in the personal income tax rates. The staff encourages the authorities to streamline excise taxes in line with the recommendations of past technical assistance missions.

25. The efforts to improve public financial management are welcome and should continue. The budget classification should be further enhanced to reflect standardized economic classifications. In addition, it is important to support the plan to cast the budget formulation and execution in a medium-term framework by further empowering the newly established Fiscal Forecasting and Planning Units at the MoF and facilitating a more timely flow of data and information between these units and the different departments at the MoF. The staff encourages the authorities to expand the use of the program- and performance-based budgeting approach. It would also be important to bring on budget the remaining quasi-fiscal operations.

26. The staff recommends a shift in the financing of the budget deficit from bank borrowing to issuing treasury bills. The interest rate on these bills should be market-determined. At the same time, it would be important to ensure that public investment projects yield high economic and social return in order to justify the cost of their financing.

27. The staff welcomes the progress made in implementing the reform agenda to modernize the CBS and the monetary policy framework. Enhancing the CBS operational independence will be important to strengthen its ability to formulate and implement monetary policy. The staff also encourages the authorities to utilize treasury bills as an instrument of monetary policy to withdraw excess liquidity. Otherwise, the CBS would have to issue its own certificates of deposit. Considerations should also be given to securitizing the stock of government debt to the CBS.

28. Staff encourages the authorities to phase-out some of the decisions that were taken in response to the global crisis. The legitimate intended objectives of differentiated reserve requirements or increased credit exposure limits for development projects can be achieved through other means that are more effective and entail lower risks for banks and lesser burden for the supervision department.

29. The staff welcomes the good start at implementing the recommendations of the 2008 FSAP report, including by strengthening the regulatory and supervisory framework and improving collection of data on public banks. The authorities are encouraged to continue to strengthen supervision in order to maintain the health of the financial sector, especially in view of the rapid growth of private banks’ credit. The staff also encourages the authorities to adopt the amended central bank law as soon as possible.

30. Priority in the period ahead should be placed on public banks’ reform. The staff welcomes the closer collaboration between the MoF and the CBS regarding supervision of these banks. Strengthening the CBSs’s supervisory and regulatory independence with respect to these banks would ensure their compliance with prudential regulations and help address deficiencies identified in the supervisory process.

31. The Syrian pound’s de jure peg to a band around the SDR can provide a strong monetary anchor, while allowing some flexibility in the pound’s rate vis-à-vis major currencies. In practice, the pound appears to be de facto pegged to a basket in which the dollar has a larger weight than its weight in the SDR basket. Adjusting the de facto basket in line with the de jure regime would be more consistent with Syria’s direction of trade. The dollar has the largest share in the SDR basket, which is also consistent with the key role it has in foreign exchange markets and international trade pricing and payments. A gradual move toward greater flexibility over the medium-term as the monetary policy framework develops would further increase monetary policy independence and maintain external stability. Preliminary econometric estimates suggest that the pound may be moderately overvalued in real effective terms, although they are still subject to uncertainties given the serious data shortcomings. The staff, however, does not recommend a change in the current nominal exchange rate level in the present context.

32. The progress made in transition to a market economy is welcome, but the remaining structural reform agenda is substantial. Emphasis should be placed on further reducing the number of goods subject to administrative pricing, and modernizing of the legal and regulatory framework in order to encourage private investment and enhance competitiveness. The staff recommends that the authorities reverse the recent introduction of customs duties that vary by country of origin, and address suspected unfair trade practices by other measures such as enhancing customs’ capacity to examine invoices through computerization and cross border cooperation.

33. The staff welcomes the authorities’ intention to accept the obligations of Article VIII of the IMFs’s Articles of Agreement. The staff recommends that the authorities remove any remaining restrictions in preparation for the acceptance of the obligations of Article VIII. The staff stands ready to conduct a comprehensive review of the exchange system upon the authorities’ request.

34. Staff urges the authorities to improve data quality and provision to facilitate better analysis of developments and guide policy formulation.

35. It is proposed that the next Article IV consultation take place on the standard 12-month cycle.

Table 1.Syrian Arab Republic: Selected Economic Indicators, 2005–10
Est.Prel.Proj.
200520062007200820092010
(Change in percent, unless otherwise indicated)
National income and prices
Real GDP4.55.14.35.24.05.0
Oil-8.6-7.1-4.80.00.20.2
Non-oil7.56.95.86.04.55.5
Nominal GDP (LS billions)1,4911,7092,0252,5352,4372,758
Of which: Non-oil1,1341,3051,5581,8962,0372,261
Nominal GDP ($ billions)28.633.540.654.552.559.4
Crude oil production (s’000 barrels/day)431400381381382383
GDP deflator12.99.113.719.0-7.57.8
Syrian oil export price ($ per barrel)48.157.665.384.252.464.3
CPI period average7.210.44.715.22.55.0
Total population (millions)19.320.420.821.321.822.3
(In percent of GDP, unless otherwise indicated)
Government finances
Revenue24.025.522.719.421.921.5
Oil revenue7.17.34.95.24.65.4
Non-oil revenue16.918.217.814.217.316.1
Expenditure28.526.626.622.127.325.9
Current expenditure18.116.317.015.317.116.4
Development expenditure10.410.39.66.810.39.6
Overall balance-4.5-1.1-4.0-2.8-5.5-4.4
(Change in percent of initial stock of money)
Broad money11.89.212.412.510.212.1
Net foreign assets0.1-2.1-3.4-7.92.61.3
Net domestic assets11.810.514.220.47.510.8
Credit to government5.31.3-2.9-4.13.05.1
Credit to public enterprises1.63.16.910.34.34.5
Credit to private sector7.02.73.85.75.97.2
Credit to private sector (change in percent)50.614.519.727.725.027.0
(In billions of U.S. dollars, unless otherwise indicated)
Balance of payments
Current account balance-0.7-0.6-0.9-1.9-2.4-2.3
(in percent of GDP)-2.3-1.8-2.2-3.6-4.5-3.9
Overall oil balance 1/0.70.0-1.0-1.7-1.0-1.2
(in percent of GDP)2.50.0-2.4-3.0-1.8-2.1
Non-oil exports of goods and services7.69.111.213.713.214.4
(change in percent)19.818.823.523.0-4.19.4
Non-oil imports of goods and services-10.5-11.7-13.4-16.2-15.8-17.0
(change in percent)13.611.015.120.5-2.27.5
Overall balance-0.5-1.20.60.10.0-0.5
Official net foreign assets17.416.517.017.117.116.6
(in months of imports of GNFS)16.013.611.59.410.79.4
Nominal exchange rate LS/$ 2/52.251.049.946.546.7
Real effective exchange rate (in percent, + appreciation) 2/-1.68.5-2.913.9-7.0
Sources: Syrian authorities; and Fund staff estimates and projections.

Oil trade balance less profit of foreign oil companies.

Trade-weighted average of official and parallel market rates before 2007. The REER for 2009 is for January-November.

Sources: Syrian authorities; and Fund staff estimates and projections.

Oil trade balance less profit of foreign oil companies.

Trade-weighted average of official and parallel market rates before 2007. The REER for 2009 is for January-November.

Table 2:Syrian Arab Republic: Summary of Fiscal Operations, 2005–10 1/(In billions of Syrian pounds)
Rev. Bud.Prel.BudgetProj.BudgetProj.
200520062007200820082009200920102010
Revenue358.0435.3459.1408.1491.2459.3533.0577.9592.4
Oil106.2124.799.690.3131.485.7111.2148.8148.8
Non-oil250.1310.2358.9317.5359.5373.3421.5428.8443.2
Tax160.3198.6221.4214.1258.0243.4296.2299.4319.2
Income and profit59.365.069.881.288.6102.7105.2131.1116.8
International trade30.732.933.425.933.128.137.731.440.7
Other indirect taxes70.3100.7118.2107.21136.31136153.2136.9161.6
Non-tax89.9111.6137.5103.4101.5129.9125.3129.4124.0
Of which: Public enterprise surpluses75.9103.1124.691.288.5117.8109.3115.0108.2
Other15.88.913.412.513.312.416.314.816.2
Of which: PSF revenue1.80.40.50.30.30.30.30.40.4
Expenditure424.5454.9539.3602.1561.3681.4666.4749.9714.6
Current expenditure270.1278.4344.5420.7388.3406.4415.8422.9451.0
Wages and salaries78.394.699.3115.4119.7147.6147.6157.1157.1
Goods and services21.522.524.330.627.530.526.533.229.9
Subsidies33.638.243.366.366.359.159.988.266.0
Of which: PSF expenditure29.633.539.433.533.535.335.338.438.4
Transfers40.535.837.758.944.668.981.436.996.7
Pensions & social assistance16.319.021.323.823.832.032.00.034.1
Transfers to Public Enterprises24.316.816.535.220.936.936.936.937.6
Cash fuel subsidies12.525.0
Others
Defense78.769.4123.9133.0115.184.086.389.589.9
Interest payments17.417.916.016.514.1116.214.118.011.4
Development expenditure154.4176.5194.8181.4173.1275.0250.6327.0263.6
Overall balance-66.4-19.6-80.3-194.0-70.1-222.1-133.3-172.0-122.2
Identified Financing68.249.835.3194.078.0122.1190.6172.0122.2
External3.2-12.6-10.329.1-6.612.312.317.518.3
Domestic financing57.070.445.6155.284.6198.7178.3145.997.8
Unidentified Financing-1.8-30.345.0-7.9-57.30.0
(In percent of GDP)
Revenue24.025.522.716.119.418.821.921.021.5
Oil7.17.34.93.65.23.54.65.45.4
Non-oil16.818.217.712.514.215.317.315.516.1
Tax10.711.610.98.410.210.012.210.911.6
Non-tax6.06.56.84.14.05.35.14.74.5
Expenditure28.526.626.623.822.128.027.327.225.9
Current expenditure18.116.317.016.615.316.717.115.316.4
Wages and salaries5.35.54.94.64.76.16.15.75.7
Goods and services1.41.31.21.21.11.31.11.21.1
Subsidies2.32.22.12.62.62.42.53.22.4
Transfers2.72.11.92.31.82.83.31.33.5
Defense5.34.16.15.24.53.43.53.23.3
Interest payments1.21.00.80.70.60.70.60.70.4
Development expenditure10.410.39.67.26.811.310.311.99.6
Overall balance-4.5-1.1-4.0-7.7-2.8-9.1-5.5-6.2-4.4
Sources: Ministry of Finance; and staff estimates and projections.

Central government budget and Price Stabilization Fund (PSF).

Sources: Ministry of Finance; and staff estimates and projections.

Central government budget and Price Stabilization Fund (PSF).

Table 3.Syrian Arab Republic: Monetary Survey, 2005–10
Est.Prel.Proj.Proj.
200520062007200820092010
(In billions of Syrian pounds, end of period)
Foreign assets (net)748733708591635658
Central bank135148190214215198
Commercial banks613584518377420460
Domestic assets4525787651,0651,1891,386
Domestic credit5506357409171,1361,443
Claims on public sector327381434525647823
Central government (net)1281441064595188
Public enterprises199237328480552635
Claims on private sector223255305389487618
Other items (net)-97-572514954-56
Broad money1,2011,3111,4731,6561,8242,044
Money6986877328279191,031
Currency outside banks385399422469506557
Demand deposits313288309358412474
Quasi-money5036237418299061,013
(12-month change, in percent)
Broad money11.89.212.412.510.212.1
Money14.2-1.56.413.111.012.2
Quasi-money8.723.918.911.99.311.9
Net claims on government81.312.3-26.1-57.5110.697.1
Claims on public enterprises9.218.938.546.515.015.0
Claims on private sector50.614.519.727.725.027.0
(Change in percent of the initial stock of broad money)
Net foreign assets 1/0.1-2.1-3.4-7.92.61.3
Domestic assets11.810.514.220.47.510.8
Central government (net)5.31.3-2.9-4.13.05.1
Public enterprises (net)1.63.16.910.34.34.5
Private sector7.02.73.85.75.97.2
Other items (net)-2.13.36.38.4-5.7-6.0
Sources: Central Bank of Syria; and Fund staff estimates and projections.

For 2008 includes valuation effects.

Sources: Central Bank of Syria; and Fund staff estimates and projections.

For 2008 includes valuation effects.

Table 4.Syrian Arab Republic: Balance of Payments, 2005–14(In millions of U.S. dollars; unless otherwise indicated)
Prel.Proj
2005200620072008200920102011201220132014
Current account balance-661-614-885-1,940-2,365-2,319-2,327-2,580-2,944-3,211
(In percent of GDP)-2.3-1.8-2.2-3.6-4.5-3.9-3.5-3.6-3.7-3.7
Goods-1,270-1,693-2,825-2,541-2,529-2,870-3,923-3,262-3,746-4,276
Exports, f.o.b.9,03510,22411,71315,23812,70114,18315,76617,63219,72922,167
Oil4,2864,0624,3555,5303,834,0223,9773,9493,8353,701
Nonoil4,7496,1627,3589,7089,70810,16211,78913,68415,89518,466
Imports, f.o.b.-10,305-11,917-14,538-17,779-15,230-17,053-18,689-20,895-23,476-26,443
Oil-2,473-2,884-4,250-5,654-3,250-4,102-4,581-5,479-6,569-7,838
No noil-7,832-9,033-10,288-12,125-11,980-12,951-14,108-15,416-16,907-18,605
Services184241664-40110186267434494616
Receipts2,8742,8913,8234,0403,9774,2684,5954,9465,3275,742
Travel and tourism1,9442,0252,8833,1503,2133,4703,7484,0474,3714,721
Freight and insurance181184118192167184213248288334
Government services350275300270231238245252258266
Other services398407452428366377389399410421
Payments-2,690-2,650-3,159-4,080-3,867-4,082-4,328-4,512-4,833-5,126
Income-863-935-689-1,149-1,267-1,084-1,172-1,212-1,084-1,130
Credit395428594540290334347361375390
Debit-1,258-1,363-1,283-1,689-1,557-1,419-1,519-1,573-1,419-1,520
Oil companies’ profits-1,088-1,165-1,085-1,527-1,213-1,153-1,246-1,292-1,289-1,217
Transfers1,2881,7721,9651,7901,3221,4491,5011,4611,5131,579
Credit1,3021,8472,0401,9751,6051,6411,7031,6731,7351,812
Workers’ remittances7637701,0001,2501,2001,2361,2981,4281,5701,727
Debit-14-75-75-185-283-212-202-212-223-234
Capital and financial account balance669-5861,0198681,3181,7711,9032,5943,2523,856
Capital account181811873737373737373
Direct investment7768751,1431,6271,5141,8502,0232,6593,2583,521
Long-term government debt64-252-206-171-262-152-190-135-77-33
Short-term loans (net)100132152180179199217240266295
Other-189-1,227-36-661-70-3-3-1-1
Errors and omissions-46734611,1281,03300000
Overall balance-459-1,19859556414-548-42414308645
(in percent of GDP)-1.6-3.61.50.10.0-0.9-0.60.00.40.7
Financing4591,198-595-56-23548424-14-308-645
Memorandum items:
Gross official reserves 1/17,36116,47817,02117,07717,10016,55216,12816,14216,45017,095
(In months of imports of GNFS)16.013.611.59.410.79.48.47.67.06.5
Oil balance (in percent of GDP) 2/2.50.0-2.4-3.0-1.8-2.1-2.8-3.9-5.0-6.1
Sources: Central Bank of Syria; and staff estimates and projections.

Include the NFA of the Commercial Bank of Syria.

Oil trade balance less profits of foreign companies.

Sources: Central Bank of Syria; and staff estimates and projections.

Include the NFA of the Commercial Bank of Syria.

Oil trade balance less profits of foreign companies.

Table 5.Syrian Arab Republic: Medium-Term Macroeconomic Framework, 2005–14
Est.Prel.Proj.
2005200620072008200920102011201220132014
(Change in percent, unless otherwise indicated)
National income and prices
Real GDP4.55.14.35.24.05.05.55.65.65.6
Oil-8.6-7.1-4.80.00.20.20.0-0.8-1.8-2.4
Non-oil7.56.95.86.04.55.56.06.36.56.5
Nominal GDP (LS billions)1,4911,7092,0252,5352,4372,7583,0623,3723,7044,074
Of which: Non-oil1,1341,3051,5581,8962,0372,2612,5172,8063,1363,505
Nominal GDP ($ billions)28.633.540.654.552.559.466.072.779.887.8
Crude oil production (s’000 barrels/day)431400381381382383383380373364
Syrian oil export price ($ per barrel)48.157.665.384.252.464.369.471.773.274.9
CPI period average7.210.44.715.25.055.05.05.05.05.0
Government finances 1/(In percent of GDP, unless otherwise indicated)
Revenue24.025.522.719.421.921.521.621.621.621.5
Oil revenue7.17.34.95.24.65.44.14.14.03.8
Non-oil revenue16.918.217.814.217.316.9117.417.517.617.7
Expenditure28.526.626.622.127.325.925.025.125.325.3
Current expenditure18.116.317.015.317.116.415.515.515.715.7
Development expenditure10.410.39.66.810.39.69.69.69.59.5
Overall balance-4.5-1.1-4.0-2.8-5.5-4.4-3.4-3.5-3.7-3.8
Non-oil budget balance-11.6-8.4-8.9-7.9-10.0-9.8-7.6-7.6-7.7-7.6
Gross public debt 2/35.134.528.321.821.022.420.821.722.924.3
Domestic11.715.313.811.310.613.312.714.416.118.1
External 2/23.419.214.510.510.49.18.17.46.86.3
Saving/investment balance
Consumption82.181.482.984.780.681.180.479.679.279.1
Public12.811.613.071011.410.710.710.710.710.7
Private69.469.869.46973.769.370.469.768.968.568.4
Gross capital formation21.723.022.420.124.023.523.624.324.925.1
Public9.39.38.76.29.38.68.68.68.68.6
Private12.313.613.813.914.714.815.015.716.316.4
Gross savings19.421.120.316.519.519.620.120.821.221.4
Saving/investment gap-2.3-1.8-2.2-3.6-4.5-3.9-3.5-3.6-3.7-3.7
Sources: Syrian authorities; and Fund staff estimates and projections.

Including the Price Stabilization Fund and a broad coverage of public enterprises.

The sharp decline in 2005 is due to the rescheduling of the old soviet debt that took place in early 2005.

Sources: Syrian authorities; and Fund staff estimates and projections.

Including the Price Stabilization Fund and a broad coverage of public enterprises.

The sharp decline in 2005 is due to the rescheduling of the old soviet debt that took place in early 2005.

Table 6.Syrian Arab Republic: Financial Soundness Indicators of the Banking Sector, 2006-Sept. 2009 1/
200620072008Sept. 2009
ConsolidatedPublicPrivateConsolidatedPublicPrivateConsolidatedPublicPrivateIslamicConsolidatedPublicPrivateIslamic
Capital Adequacy
Regulatory capital to risk-weighted assets16.421.022.00.228.820.823.115.318.5
Regulatory tier I capital to risk-weighted assets16.421.022.016.628.820.823.115.318.5
Capital to assets7.07.06.96.56.56.46.56.26.616.36.56.1711.3
Asset Composition and Quality
Sectoral distribution of loans to total loans
Agriculture16.718.00.115.717.40.13.74.30.30.15.97.10.20.1
Mining, Manufacturing, and Utilities8.16.824.98.04.016.37.94.824.825.67.24.418.134.4
Building and Construction14.415.42.413.915.64.314.516.62.74.516.919.93.10.4
Wholesale and Retail Trade41.341.3440.141.747.744.361.064.940.436.5535734.735.2
Other Activities19.518.532.420.715.335.114.210.832.233.317.712.344.229.9
Non-performing loans to total loans4.75.01.05.35.91.05.15.91.00.05.15.91.42.8
Specific provisions to gross non performing loans61.061.341.723.722.092.018.117.060.417.916.645.214.8
Non performing loans net of provisions to Tier I capital6.36.81.514.416.10.325.633.21.70.02531.43.610.6
Specific provisions to gross loans2.93.10.41.31.30.90.91.00.60.00.91.00.60.4
Profitability
Return on average assets (ROAA)2.02.30.32.42.80.51.82.10.70.11.31.60.5-0.1
Return on average equity (ROAE)19.621.23.923.926.17.719.122.09.70.814.717.86.4-0.9
Net interest margin to gross income41.840.185.977.377.278.262.760.280.652.284.188.672.256.2
Non-interest income to gross income22.722.722.722.722.821.837.339.819.447.815.911.427.843.8
Trading and foreign exchange income to gross income-3.9-4.6-1.024.39.410.05.127.8
Non-interest expenses to gross income36.435.363.718.313.956.248.346.855.090.727.412.767.3107.0
Non-interest expenses to average assets1.81.90.90.60.51.811.81.91.41.20.50.21.31.4
Liquidity
Liquid assets to total assets59.657.773.444.138.970.135.933.645.038.735.933.342.948.7
Liquid assets to short term liabilities102.2103.795.059.654.182.656.256.056.064.45452.554.883.1
FX- loans to total loans1.50.810.22.51.59.73.01.113.69.72.70.910.810.1
FX- deposits to total deposits19.311.854.020.412.049.420.410.843.364.516.46.440.126.7
FX- liabilities to total assets37.735.850.843.142.446.522.718.140.233.119.914.836.131.7
FX- liabilities to total liabilities42.140.154.947.947.450.025.020.043.639.121.816.339.435.4
Deposits to assets57.253.780.857.052.977.561.756.881.662.064.358.682.775.8
Loans to deposits61.069.223.562.070.333.672.684.940.049.56881.338.939.5
FX- loans to FX-deposits4.64.84.47.68.86.610.68.412.67.411.111.610.514.9
Sensitivity to Market Risk
Net open FX position (overall) as percent of Tier I capital225.0241.364.8138.1145.080.758.060.250.952.372.277.652.171.5
Source: Central Bank of Syria.

Financial Soundess Indicators need to be interpreted with caution due to persisting deficiencies in banks’ implementation of International Financial Reporting Standards, their audit practices, and reporting standards.

Source: Central Bank of Syria.

Financial Soundess Indicators need to be interpreted with caution due to persisting deficiencies in banks’ implementation of International Financial Reporting Standards, their audit practices, and reporting standards.

Table 7a.Syrian Arab Republic: Public Sector Debt Sustainability Framework, 2004-2014(In percent of GDP, unless otherwise indicated)
ActualProjections
20042005200620072008200920102011201220132014
Debt-stabilizing
I. Baseline Projectionsprimary
balance 10/
Public sector debt 1/109.835.134.528.321.821.022.420.821.722.924.3-1.3
o/w foreign-currency denominated73.323.419.214.510.510.49.18.17.46.86.3
Change in public sector debt-17.1-74.7-0.6-6.2-6.5-0.81.4-1.60.91.11.5
Identified debt-creating flows (4+7+12)-13.9-10.3-3.8-1.8-3.76.32.01.21.51.71.7
Primary deficit3.33.30.13.022.24.94.03.02.92.92.9
Revenue and grants27.224.025.522.719.421.921.521.621.621.621.5
Primary (noninterest) expenditure30.627.325.625.821.626.825.524.624.524.524.4
Automatic debt dynamics 2/-17.2-13.6-3.9-5.0-5.91.4-2.0-1.8-1.3-1.1-1.2
Contribution from interest rate/growth differential 3/-18.8-15.6-3.4-4.6-11.4-2.0-1.8-1.3-1.1-1.2
Of which contribution from real interest rate-11.6-11.4-1.9-3.4-3.92.4-1.1-0.7-0.30.0-0.1
Of which contribution from real GDP growth-7.2-4.2-1.6-1.2-1.2-0.9-0.9-1.1-1.1-1.1-1.2
Contribution from exchange rate depreciation 4/1.62.0-0.5-0.3-0.80.00.00.00.00.00.0
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes (2-3)-3.264.43.2-4.4-2.8-7.1-0.6-2.8-0.6-0.6-0.2
Public sector debt-to-revenue ratio 1/403.4146.2135.6124.9112.596.1104.496.3100.3105.8113.1
Gross financing need 5/7.28.04.87.35.38.57.66.67.07.67.8
in billions of U.S. dollars1.82.31.63.02.910-Year10-Year4.54.54.45.16.16.8
HistoricalStandardProjected
Key Macroeconomic and Fiscal AssumptionsAverageDeviationAverage
Real GDP growth (in percent)6.74.55.14.35.23.23.34.05.05.55.65.65.65.5
Average nominal interest rate on public debt (in percent) 6/0.81.33.42.72.61.31.12.52.22.23.04.14.03.1
Average real interest rate (nominal rate minus change in GDP deflated-10.1-11.7-5.6-10.9-16.4-7.75.710.1-5.6-3.0-1.30.0-0.1-2.0
Nominal appreciation (increase in US dollar value of local currency-2.3-3.12.32.17.30.53.10.30.00.00.00.00.00.0
Inflation rate (GDP deflator, in percent)10.912.99.113.719.09.16.2-7.57.85.24.34.04.15.1
Growth of real primary spending (deflated by GDP deflator, in percent1.4-6.6-1.65.4-12.30.77.729.10.01.65.45.45.53.6
Primary deficit3.33.30.13.22.21.41.94.94.03.02.92.92.93.1
Debt-stabilizing
II. Stress Tests for Public Debt Ratioprimary
A. Alternative Scenariosbalance 10/
A1. Key variables are at their historical averages in 2009-2014 7/21.019.716.215.314.414.1-1.5
A2. No policy change (constant primary balance) in 2009-201421.023.323.526.329.232.3-1.8
B. Bound Tests
B1. Real interest rate is at baseline plus one standard deviations21.023.021.923.325.027.0-0.8
B2. Real GDP growth is at baseline minus one-half standard deviation21.023.122.524.827.731.4-1.2
B3. Primary balance is at baseline minus one-half standard deviation21.023.422.624.426.328.6-1.6
B4. Combination of B1-B3 using one-quarter standard deviation shocks21.023.322.524.226.228.5-1.0
B5. One time 30 percent real depreciation in 2010 9/21.028.226.126.727.628.8-1.6
B6. 10 percent of GDP increase in other debt-creating flows in 201021.032.430.030.331.032.0-1.7

Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.

Derived as [(r- p(1+g)- g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p= growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

The implied change in other key variables under this scenario is discussed in the text.

Real depreciation is defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.

Derived as [(r- p(1+g)- g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p= growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

The implied change in other key variables under this scenario is discussed in the text.

Real depreciation is defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Table 7.b.Syrian Arab Republic: External Debt Sustainability Framework, 2004-2014(In percent of GDP, unless otherwise indicated)
ActualProjections
2004200520062007200820092010201201220132014
Debt-stabilizing
I. Baseline Projectionsnon-interest
current account 6/
1External debt73.323.419.214.510.510.49.18.17.46.86.3-4.3
Change in external debt-8.0-49.9-4.2-4.7-4.0-0.1-1.3-0-0.7-0.6-0.50.0
Identified external debt-creating flows (4+8+9)-10.5-9.6-4.2-1.0-3.14.0-0.4-0.4-0.9-1.1-1.00.0
Current account deficit, excluding interest payments-0.61.51.21.73.14.03.53.13.23.33.34.3
5Deficit in balance of goods and services2.63.84.35.34.74.64.54.03.94.113.1
6Exports39.141.739.130.9335.431.831.030.931.131.431.8
7Imports41.745.543.543.640.136.435.634.935.035.544.9
8Net non-debt creating capital inflows (negative)-1.1-2.7-2.6-2.8-3.0-2.9-3.1-3.1-3.7-4.1-4.0-4.0
9Automatic debt dynamics 1/-8.8-8.4-2.8-2.8-3.20.9-0.8-0.5-0.4-0.3-0.3-0.2
10Contribution from nominal interest rate2.20.80.70.50.50.50.40.40.40.40.30.3
11Contribution from real GDP growth-4.7-2.9-1.0-0.7-0.6-0.4-0.5-0.4-0.4-0.4-0.3-0.3
12Contribution from price and exchange rate changes 2/-6.3-6.3-2.4-2.7-3.20.8-0.8-0.5-0.3-0.3-0.3-0.2
13Residual, incl. change in gross foreign assets (2-3)2.5-40.30.0-0.7-0.9-2.1-0.9-0.50.10.50.50.0
External debt-to-exports ratio (in percent)187.556.149.037.929.732.729.326.323.721.619.7
Gross external financing need (in billions of US dollars) 3/2.31.92.12.84.14.54.64.85.35.96.4
in percent of GDP9.26.86.16.87.510-Year10-Year8.67.87.37.27.37.3
HistoricalStandardFor debtProjected
Key Macroeconomic AssumptionsAverageDeviationstabilizationAverage
Real GDP growth (in percent)6.74.55.14.35.23.23.34.05.05.55.65.65.65.65.5
Exchange rate appreciation (US dollar value of local currency, cha-2.3-3.12.32.17.30.53.10.30.00.00.00.00.00.00.0
GDP deflator in US dollars (change in percent)8.49.411.616.127.79.78.7-7.37.85.24.34.04.14.15.1
Nominal external interest rate (in percent)3.11.234.43.34.42.91.24.64.95.15.25.45.65.65.2
Growth of exports (US dollar terms, in percent)33.721.910.118.524.115.612.6-13.510.610.310.911.011.410.8
Growth of imports (US dollar terms, in percent)24.024.712.121.523.516.68.4-12.610.78.910.411.439.216.1
Current account balance, excluding interest payments0.6-1.5-1.2-1.7-3.12.15.6-4.0-3.5-3.1-3.2-3.3-3.3-3.3
Net non-debt creating capital inflows1.12.72.62.83.01.71.02.93.13.13.74.14.03.6
Debt-stabilizing
II. Stress Tests for External Debt Rationon-interest
A. Alternative Scenarioscurrent account 6/
A1. Key variables are at their historical averages in 2009-2014 4/10.44.70.0-3.7-6.8-9.6-0.8
B. Bound Tests
B1. Nominal interest rate is at baseline plus one-half standard deviation10.49.18.27.56.96.5-4.2
B2. Real GDP growth is at baseline minus one-half standard deviations10.49.28.27.46.76.0-4.5
B3. Non-interest current account is at baseline minus one-half standard deviations10.411.913.615.417.319.2-4.8
B4. Combination of B1-B3 using 1/4 standard deviation shocks10.410.611.011.512.212.8-4.6
B5. One time 30 percent real depreciation in 201010.412.28.95.93.20.7-6.5

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

T he contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

The implied change in other key variables under this scenario is discussed in the text.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

T he contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

The implied change in other key variables under this scenario is discussed in the text.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

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