Syria faces two interrelated medium-term challenges posed by the prospective decline in its oil reserves. The recently approved five-year plan (FYP) laid down a comprehensive strategy to address these challenges. Syria’s public finances are headed for challenging times in the coming 10–15 years. Large fiscal deficits have marked the economic history of many developed and developing countries alike during the 1970s and 1980s, with damaging consequences to their economies. Although financial markets can help keep the deficit bias in check, market discipline has proved mostly inadequate.

Abstract

Syria faces two interrelated medium-term challenges posed by the prospective decline in its oil reserves. The recently approved five-year plan (FYP) laid down a comprehensive strategy to address these challenges. Syria’s public finances are headed for challenging times in the coming 10–15 years. Large fiscal deficits have marked the economic history of many developed and developing countries alike during the 1970s and 1980s, with damaging consequences to their economies. Although financial markets can help keep the deficit bias in check, market discipline has proved mostly inadequate.

III. Financial Reform in Syria: Too slow, Too Little, or Just about Right?18

A. Introduction

50. As part of a broader program of structural reforms and transition to a market economy, Syria embarked on a program of financial sector liberalization and reform in the early 2000s. In a context of a stable but stagnant economy, the main objective of the financial liberalization program was to promote growth by enhancing the efficiency of the financial system. The liberalization process aimed at allowing the market to play a greater role in the allocation of financial resources by opening the financial services industry to private banks and other financial intermediaries. But from the start, the government felt that it should keep a large role in the economy, including in the financial sector, and hence government ownership of financial institutions was not brought into question.

51. The program focused on opening the sector to private initiative and on building regulatory and supervisory capacity. In so doing, the strategy’s objective was to introduce greater competition and hence increase efficiency in the allocation of financial savings, while building the necessary regulatory and supervisory framework for eventual broader deregulation. As a first step, private banks were allowed to operate in the so-called “free zones,” before a new banking law (Law 28) was enacted in April 2001, allowing the establishment of private banks. After some delays, a milestone was reached when the Bank of Syria and Overseas opened for business in January 2004, becoming the first private bank in Syria since banks were nationalized in 1963. Following the liberalization model pursued in banking, insurance companies were allowed to operate in the free zones before a law was adopted in late 2005 opening the insurance industry to the private sector.19 To meet the need for Islamic financial services, a law allowing Islamic banking was passed in May 2005.20 Lastly, a Capital Market Law was enacted in late 2005, and a Capital Market Authority was established in early 2006 to set up the regulatory framework for the securities markets. In parallel, the domestic capacity for bank regulation and bank supervision was gradually built-up, and many new banking regulations were issued.

52. The purpose of this chapter is to evaluate the experience to date and draw lessons for moving the process forward. The remainder of this chapter is organized as follows: Section B reviews briefly the initial conditions. Section C takes up the evaluation of the experience per se, and Section D draws tentative recommendations/considerations that could guide the process forward.

B. Initial Conditions

53. In the early 2000s, Syria’s financial sector was very small; competition was limited and there was virtually no banking regulation and supervision.21 Six state-owned banks (SBs) provided no more than 25 percent of GDP credit to the economy, of which close to 2/3 was issued to the government and to the quasi-governmental agricultural procurement agencies. Other than loans for real estate projects, the volume of medium- and long-term financing available to the private sector was meager, as was external trade financing, which was almost exclusively provided by banks abroad, foregoing substantial domestic value added in financial services.22 Most transactions were conducted in cash, with the clearing system processing only about 5,000 checks per day and the cash-to-deposit ratio as high as 60 percent. In line with the nature of the banking system, there was virtually no bank regulation and supervision.

54. This state of underdevelopment was the fruit of 40 years of financial repression under the former socialist regime. Following the nationalization of the financial system in 1963, and as in other socialist economies, the financial sector was turned into an implementation instrument for the national plan by directing credit to priority sectors (such as agriculture) through SBs. The lion share of economic activity was in the hands of public enterprises (PEs), whose financing needs were met directly from the budget.

55. Notwithstanding the limited intermediation role played by the banking sector, monetization reached relatively high levels. The stock of broad liquidity increased from 25 percent of GDP in 1963 to some 80 percent in recent years.23 Perhaps one of the main reasons was the absence of a deliberate attempt to keep interest rates below market clearing levels, and henceforth largely negative in real terms, as has been the case in many countries where financial repression led to low monetization.24 Instead, interest rate policy in Syria seems to have been fairly ad hoc. Nominal rates were kept constant for over 22 years, despite a large swing in inflation from high levels, following the 1986 currency crisis and until the mid-1990s, to low-to-negative levels in the late 1990s–early 2000s. As a result, real interest rates shifted from highly negative to highly positive levels, averaging 7½ percent in 1997-2002. In 2003, these rates were finally recognized to be unwarranted by macroeconomic conditions and were reduced.25

uA03fig01

Broad Money and Private Sector Credit

(In percent of GDP)

Citation: IMF Staff Country Reports 2006, 295; 10.5089/9781451836301.002.A003

Source: Syrian authorities.
uA03fig02

Real Interest Rate

(In percent)

Citation: IMF Staff Country Reports 2006, 295; 10.5089/9781451836301.002.A003

56. Hence financial liberalization benefited from fairly benign initial macroeconomic conditions. Unlike in many other transition economies and developing countries where financial liberalization started from a situation of highly distorted interest rates, low levels of monetization, and was often triggered by financial crises, financial liberalization in Syria was launched in a stable macroeconomic environment, backed by positive real interest rates and ample liquidity.26

C. Evaluating the Experience with Financial Reform To Date

57. Some progress has been made but much remains to be done. Financial intermediation has increased but remains shallow; the range of financial services and instruments is still limited, private sector banks have made inroads but the system remains dominated by inefficient SBs and the pricing of liquidity and of financial risks is still subject to administrative controls. In all, the economy is still an essentially cash economy, while a considerable supervisory gap still needs to be filled.

Financial deepening

58. Credit has expanded but remains low by regional standards, although not by comparison with transition countries. As a result of the entrance of private banks and of the fast-paced expansion of credit by state banks over the past three years, credit to the private sector doubled to 15 percent of GDP by end-2005, while overall domestic credit at end-2005 increased to 40 percent of GDP. Nonetheless, and despite a comparatively high stock of monetary liabilities, lending to the private sector is by far the lowest among a selected group of countries in the region, while the currency-to-deposits ratio, which has not declined much since the early 2000s, is the highest. This performance, however, is in line with the experience in other transition economies.27 Other segments of the financial sector are virtually non-existent, except for one state-owned insurance company, which provides a very limited range of products and whose gross annual insurance premium is less than 1 percent of GDP (significantly below the 9 percent international average). While the size and depth of capital markets in the region increased significantly in the last few years, Syria is still in the early stages of establishing one. Except for the agency for combating unemployment, which has a very small microfinance loan portfolio, there are no other non-bank financial institutions.

uA03fig03
1/ For Syria data is for end-2005. For other countries data is for the year 2000, roughly 10 years after the start of transition and financial reform in these countries.

Financial Deepening Indicators in Selected MENA Region Countries, 2005

(In percent of GDP, unless otherwise specified)

article image
Sources: Central banks; and Fund staff estimates.

2004.

2/ Government and public enterprises.

The relatively high ratio is due to the use of the Jordanian dinar in the West Bank.

Market structure

59. Private banks have made inroads. Six private banks are now fully operational and have already gained about 10 percent market share. All are subsidiaries of foreign banks,28 although foreign investors do not have a majority share, since Law 28 sets a 49 percent limit on their participation in banks’ capital.29 Following measures to reduce the taxation of financial services, their profitability is reported to be good, and two have already decided to expand their capital base. Manifold oversubscription to the IPOs of these banks’ shares on the local market shows great interest from domestic investors.

60. Still, SBs continue to dominate the system and suffer from weak governance and low efficiency. SB boards have limited powers to decide on the strategy and policy objectives of the bank and little independence vis-à-vis the bank’s management.30 Low efficiency is due to a host of factors including low staff qualifications owing to noncompetitive wages and weak training policies and human resources management, and poor managerial information systems and IT infrastructure. Moreover, banks have weak risk management systems and practices and most of their lending is collateral-based. Moreover the activities of the Commercial Bank of Syria (CboS), which has a lion’s share of the market, have been impaired by the recent U. S. administration’s decision to sever its link with the U. S. financial system over concerns about “its involvement in money laundering and terrorism financing.”

uA03fig04

Distribution of assets, credit, and deposits among the CboS, other state banks, and private banks (2005)

Citation: IMF Staff Country Reports 2006, 295; 10.5089/9781451836301.002.A003

Source: Central Bank of Syria

These weaknesses are reflected in low profitability, undercapitalization, low asset quality, and recurrent liquidity problems:

  • Subsidized lending, low asset quality, and poor diversification of income 31 contribute to the low level of profitability. Based on available data, staff estimates that return on assets (ROA) is about 0.4 percent and return on equity (ROE) is about 2.5 percent. In 2004 and in the MENA region, the average ROA was 1.5 percent, while the ROE ranged from 10 percent in Egypt to 21 percent in Bahrain.

  • Although there is much uncertainty about the quality of SBs’ assets because of inappropriate accounting, loan classification and provisioning rules, collateral appraisal, and the continuous rescheduling of non-performing loans, published data show high nonperforming loan (NPL) ratios and low capital-to-asset ratios in some of these banks. On average, NPLs are equivalent to 16½ percent of total assets, while the average capital-to-asset ratio at 4.8 percent is the lowest in the region. Applying international standards for loan classification and provisioning, and taking into account loans to the quasi-governmental agricultural procurement agencies (equivalent to 10 percent of GDP and 78 percent of loans to public enterprises)—which reflect losses from past quasi-fiscal activities—is likely to increase the NPL ratio and the undercapitalization problem significantly.

Financial Soundness Indicators for state-owned banks 1/

(In percent, 2004*, 2005**)

article image
Sources: Central Bank of Syria, State-owned banks and EIB.

NPL = Non-performing loans/Total loans (based on banks’ calculation and not consistent with international standards).

Interest rate liberalization

61. Interest rate controls still have a major bearing on financial intermediation and competition. Controls on deposits rates were maintained, albeit with some added flexibility, while lending rates for private banks were free from the outset. Some limited flexibility on deposits rates, which apply uniformly to SBs and to private banks, was introduced in January 2004 by allowing a 1 percent margin around the regulated rates.32 A one percent downward margin on SBs’ lending rates was also introduced in January 2004, although it has not been used by any of them as the regulated rates are already below market.33 No controls on private banks’ lending rates were ever introduced. Interbank lending subject to central bank approval was also introduced in 2004, although banks reportedly made very little use of it.

Bank regulation and supervision

62. The newly established banking regulatory framework meets most present needs.34 New regulations have been adopted, including: (i) minimum requirements for credit and interest rate risk management (December 2004); (ii) loan classification and provisioning (December 2004); (iii) minimum requirements for effective internal control and the role and responsibilities of management and board of directors in risk management (March 2005); (iv) minimum standards for operational risk management strategy and policy (February 2005); (v) implementing international accounting standards for banks (August 2004 and February 2005); (vi)minimum capital adequacy ratio (when?); and, most recently, (vii) limits on banks’ open foreign exchange positions.

63. However, progress in setting up a comprehensive supervision system has been fairly limited. To be sure, 45 additional staff were hired and there has been a lot of investment in the training of new bank supervisors, including with the assistance of international financial institutions, and a Banking and Training and Rehabilitation centre has recently opened to provide more training in the future. But, an independent banking supervision department, with well-established business processes and internal procedures, a clear organizational structure, a clear mandate, and a minimum number of staff who are well versed in the theory and practice of off-site and on-site bank supervision seem to be a long way away.35

64. Moreover, a much eroded compliance culture in the SBs has yet to be cultivated anew. Forty years of quasi-absence of bank supervision have eroded compliance culture in SBs. The problem is compounded by the absence of clear responsibilities and objectives for each agency involved in the supervision of SBs, which weakens the central bank’s authority to address noncompliance.36

The payments system

65. Very limited progress was achieved in modernizing the payments system. No noticeable reforms have been implemented, either for large value payments, retail payments, or securities settlements. There is no Real Time Gross Settlement (RTGS) system or an electronic or automated clearing check system in Syria. Major payment transactions are still done manually and large payments are transmitted via checks and paper-based payment orders without adequate risk management procedures. More generally, the current payment system does not observe many of the Core Principles for Systemically Important Payment Systems.37

D. Issues to Consider for Furthering Financial Sector Development

66. Based on the above evaluation, we can draw the following conclusion as to the main problems and sources of tension that have emerged on the road to financial liberalization:

  • First, there is a growing resistance to allowing greater competition because of the justifiably perceived risks that, under increased competition, the inefficiencies of SBs might snowball into serious contingent liabilities for the state. Yet, competition is needed to promote efficiency gains in financial intermediation.

  • Second, the main reason for the limited progress made in raising the efficiency of SBs and their ability to become more active players in the financial system is that they continue to be seen as instruments of public policy (provision of subsidized loans and job creation).

  • Third, in the absence of progress in the development of indirect instruments of monetary control, controls on banks’ deposit rates remain the sole instrument for setting a benchmark interest rate, at the cost of constraining effective competition.

  • Last, but not least, the heavy legacy in terms of skills deficit in both risk management and prudential supervision of 40 years of socialist banking 38 is proving to be (i) a serious handicap for improving the performance in SBs, and (ii) a source of risk if the progress in building up the regulatory and supervisory capacity does not keep pace with financial liberalization.

67. The remainder of this section takes up these topics, highlighting some issues to consider for furthering financial sector development with regard to SBs restructuring/privatization, interest rate liberalization, and supporting measures/capacity building.

State banks restructuring/privatization

68. This is perhaps the single most important area where the financial liberalization strategy needs to be revisited. Throughout the past two decades of financial liberalization across the world, privatization of SBs has come to be seen as part and parcel of financial liberalization, as more and more governments came to realize that state ownership of financial institutions entailed a confusion of goals, higher operating costs, and a deterioration of credit assessment and credit controls. By separating public policy functions from financial functions and leaving the former to the government and the latter to the private sector, privatization proved to have better served the social goals governments tried to pursue through ownership of banks.39 The latest example in point is the case of Pakistan where the government’s equity share in the banking system was brought down from 80 percent to less than 20 percent in less than five years.

69. Without discharging SBs from all social obligations, strengthening their governance structure, and turning them into autonomous, profit-oriented entities, it will be hard to improve their level of efficiency.40 If they do no lose market share, their low efficiency will weigh down the system’s overall level of efficiency. In particular, they will hinder the development of deep and liquid money markets, a precondition for strengthening the monetary framework. If they do lose market share while having to incur the same personnel and other costs, the claim they will put on budgetary resources will keep growing.

70. Opening the capital base of SBs to strategic private investors is one of the most effective means to raise efficiency and address the skills deficit. The latter is so huge that only a massive infusion of outside expertise could help solve it in a reasonable timeframe. Short of that, the process is likely to be long, protracted, and ultimately costly.

71. If these principals are accepted, then it should also be understood that the playing field should be fully leveled for all banks, whether the government has a remaining share or not. In particular, all banks should have the right to provide international trade financing.

72. The interlinkages between PEs reform, SB restructuring, and severing the link between the budget and PEs need to be examined carefully. One saving grace for the health of SBs in the past was the fact that PEs had limited access to direct borrowing from SBs.41 Almost all PE financing needs were met through on-lending by the budget. As the government is considering severing its links with PEs, their access to the “appropriate” type of outside financing will be critical to the success of their own restructuring strategy. On the one hand, substituting easy money from the budget with easy money from a SB will not be a solution as it will reduce incentives for the PEs to improve their efficiency and risks saddling the SB with bad loans. On the other hand, during their restructuring process, PEs may need some type of financing that a purely private bank may not be willing to grant. Therefore, the right balance needs to be struck between ensuring that PEs are progressively exposed to the market discipline of having to secure financing from profit-oriented banks, and that in the course of their restructuring they are not cut-off from all sources of financing. A public bank may have a useful role to play during the transition period.42

Interest rate liberalization

73. Interest rate liberalization is also part and parcel of financial liberalization and the risk that it will lead to increased financial volatility appear limited in the case of Syria. Indeed the main channel through which financial liberalization promotes greater efficiency is by having credit rationed through prices rather than administratively. And it is precisely the competition among banks in attracting deposits by offering better deposit rates and in lending by offering the best risk-adjusted lending rates, which is the source of the efficiency gains. Interest rate liberalization has entailed increased financial volatility in other countries.43 This risk is likely to be small in the case of Syria because of the relative stability of macroeconomic conditions and the fact that real interest-rates are already in the positive range.44

74. Regarding the liberalization of deposit rates, and in the absence of market-based monetary control, maintaining ceilings/floors is a second best solution. Given Syria’s limited experience with market-based financial systems, controls on deposit rates would provide an anchor to the interest rate structure until monetary policy is developed and is able to provide an alternative. The risk in liberalizing deposits rates too soon and seeing banks engage in high-risk lending should not be underestimated.45 Such risk might be already building up in the system in as much as there are no ceilings on interest rates on dollar deposits.

75. Beyond the benefit of anchoring the interest rate structure, market-based methods of monetary control are needed to support financial development because they facilitate liquidity and risk management and provide a benchmark risk-free interest rate and a yield curve to allow the proper pricing of financial risk. The absence of money markets and deposit and rediscount facility at the central bank is making it difficult for banks to manage Syrian pound liquidity and creating an incentive for the private banking sector to be dollarized.46

76. Regarding lending rates, the decision not to impose ceilings on private banks’ lending rates is apt. In the absence of a possibility to compete on deposit rates, deregulated lending rates opens at least one important field in which competition among banks could bring some efficiency gains. However, the effectiveness of such competition is severely limited by the fact that SBs are mainly dedicated to providing subsidized credit and are not competing much with private banks on regular credit activities.

77. Interest rate subsidies need to be re-assessed. While it is not clear how subsidized credits are being rationed, risks are that this gives rise to rents being captured by powerful interests. This problem could be particularly severe in real estate, given the boom in the real estate market. The merits of providing subsidized credits has to be re-examined, its scope limited, and when possible it needs to be replaced by direct means of providing assistance to the most needy. If a case can be made for maintaining the policy for some limited type of loans, the policy could be improved by allowing private banks to participate in this scheme. This could be done by turning the implicit subsidy into an explicit one that could be designed to be a function of the spread between the actual rate paid to banks and a notional subsidy rate. Competition among banks will drive down the spread, improve efficiency, and lower the cost to the budget.

Supporting measures/capacity building

78. Strengthening banking regulation and supervision should keep pace with financial liberalization. For the moment, the fact that all the newly established private banks are subsidiaries of foreign banks and are supervised by the supervision bodies of the countries of their head-offices, lessens the risks from weak bank supervision at home. However, as SBs are restructured/privatized, and as purely domestic banks may enter the market, risk-taking in the banking sector will increase if the capacity of bank supervisors to assess risk, identify unsafe and unsound practices, and bring about timely corrective actions, is not build-up. Building bank supervision capacity includes building capacity to conduct effective onsite and offsite banking supervision, developing internal procedures, and completing the regulatory framework, including strengthening the AML/CFT framework. This can not be done without addressing the problem of low pay at the central bank. Dealing with this problem would require de-linking the pay scale of the central bank staff from that of the rest of the civil service, as has been done in many countries, having the ability to hire outside experts to deal with special situations, and providing regular training programs for staff

79. Carefully screening the entry of new banks will also be critical to protect the soundness of the banking system. The liberalization of the financial sector should be based on a licensing policy that takes into account the growth plans of existing banks, the absorption capacity of the market, and the need to preserve the attractiveness of the market for potential strategic investors in state-owned banks. In addition, factors such as the strategy or philosophy of new banks, line-of-business, funding sources, scope of activities, relation with parent company, country risk of the parent company, geographical concentration of ownership, and level of banking supervision in the home country 47 should be examined during the licensing review. Developing licensing manual based on the licensing policy would ensure prudent and transparent licensing process.

80. The payment and settlement system needs to be modernized and its efficiency enhanced. This is essential to increase the effectiveness of interbank funds transfers, minimizing payment risk and facilitating fund management through transferring funds in a faster, safer and more reliable way.

81. Institutional capacity needs to be build up at the CBS to enable it to play a key role in promoting an enabling environment for further financial sector development. This includes establishing a public credit registry or private credit bureaus,48 pushing for an improvement in accounting standards of banks, which would have an indirect positive impact on accounting standards for enterprises, and making available timely data about economic, monetary and financial developments.

References

  • Bank for International Settlements, 2000, Core Principles for Systemically Important Payment Systems (Basle).

  • Caprio, Gerard, James A. Hanson, and Patrick Honohan, 2001, “Introduction and Overview: The case for Liberalization and Some Drawbacks,” in Financial Liberalization: How far? How fast?, ed. by Gerard Caprio, Patrick Honohan, and Joseph Stiglitz (Washington: The World Bank).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Creane, Susan, Rishi Goyal, Mushfiq Mobarak, and Randa Sab, 2004, “Financial Development in the Middle East and North Africa,” IMF Working Paper 04/201 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Coricelli, Fabrizio, 2001, “The Financial Sector in Transition: Tales of Success and Failure,” in Financial Liberalization: How far? How fast?, ed. by Gerard Caprio, Patrick Honohan, and Joseph Stiglitz (Washington: The World Bank).

    • Search Google Scholar
    • Export Citation
  • European Investment Bank, 2006, Feasibility study to develop new options for private sector investment financing in the Syrian Arab Republic (Luxembourg).

    • Search Google Scholar
    • Export Citation
  • Honohan, Patrick, 1999, Financial Liberalization: How far? How Fast?” World Bank draft concept paper (Washington: The World Bank).

  • Honohan, Patrick, 2001, “How Interest Rates Changed under Liberalization,” in Financial Liberalization: How far? How fast?, ed. by Gerard Caprio, Patrick Honohan, and Joseph Stiglitz (Washington: The World Bank).

    • Search Google Scholar
    • Export Citation
18

Prepared by Rakia Moalla-Fetini

19

Nine insurance companies have been licensed so far, one of them started operation in July 1, 2006 and many of them are expected to start operations before the end of the year.

20

Licenses for three Islamic banks have been issued, and the first bank is expected to start operations later this year.

21

Based on a comprehensive index for financial sector development compiled for MENA countries, Creane, et al, (2004) ranked Syria 18 out of the 19 counties studied.

22

Value added in banking and insurance made up less than 3½ percent of GDP.

23

Following the 1986 currency crisis, the value of the stock of monetary assets was eroded by the bout of high inflation that ensued. Starting in 1998, robust monetization resumed.

24

Patrick Honohan (1999).

25

With high monetary liabilities and low lending, net external assets were built up to a level equivalent to about 50 percent of total assets.

26

The fact that a large share of M2 was held in the form of currency rather than deposits does not diminish the large potential for financial intermediation from a large stock of monetary assets, as the counterpart to currency in circulation could be converted into credit to the economy through central bank refinancing to banks.

27

Fabrizio Coricelli (2001).

28

Including Banque du Liban et d’Outre Mer, Lebanon’s Banque Européene pour le Moyen-Orient and Banque Audi, Saudi Arabia’s Banque Saudi Fransi, and Jordan’s Housing Bank for Trade & Finance.

29

An amendment of the law that would scrap the limit on foreign ownership is being discussed in government.

30

Except for a narrowly defined ordinary course of business, all other decisions such as nomination of heads of division or department, creation of any additional jobs, staff trainings, opening of a branch, or introduction of a new product require state approval, which depending on its respective nature must be sought from the Finance Minister, the Office of the Prime Minister, the State Planning Authority, the Central Authority for Financial Control or other agencies.

31

Because of bank specialization and low services’ income.

32

The way this regulation is designed (initially a 1 percent upward margin on top of the set rate, later turned into +/−0.5 percent margin around the set rates) makes it look like both a floor and a ceiling. This probably reflects two different objectives pursued by this policy: guaranteeing savers a minimum return on their savings and preventing banks from bidding too aggressively for deposits.

33

The margin was turned into an upward margin in early 2005.

34

The Fund has provided extensive technical assistance in this area.

35

The banking supervision department head position is still vacant. There are about 60 staff members in the department for on-site and off-site supervision. Most of them were appointed recently and only half of them are pursuing training programs. The turnover rate is reported to be high because of low pay and low morale.

36

In addition to the central bank, two other institutions have overlapping responsibilities in supervising state-owned banks: the Central Authority for Financial Control and the Central Commission for Inspection & Control.

37

A joint IMF-AMF mission on payments and security settlements initiative visited Syria recently. Progress in acquiring an RTGS system is expected in the coming few months.

38

This problem is shared by many other developing countries and transition economies.

39

Caprio, Hanson, and Honohan

40

A pre-requisite for SB restructuring is to have an independent and thorough audit of their accounts.

41

The stock of outstanding loans to PEs, excluding the loans to the quasi-governmental agricultural procurement agencies stood at 3¼ of GDP at end-2005.

42

It goes without saying that PEs should be allowed to bank with any institution at all times.

43

Patrick Honohan (2001).

44

Liberalization in other countries, which started from significantly negative real interest rates, had led to increased financial volatility, as interest rate re-alignment made the budget loose an important source of implicit taxation, creating an incentive for monetary financing of the budget deficit.

45

So far, the ceilings have not been binding, as banks have been able to mobilize more deposits than they have been able to lend domestically.

46

Already now, the ratio of FX deposits to total deposits in private banks is equal to 53 percent compared with 9 percent for SOBs.

47

This includes the possibility of sharing supervisory information with the home country supervisory authority.

48

This would entail drafting the law, licensing the bureaus, and supervising the sector.

Syrian Arab Republic: Selected Issues
Author: International Monetary Fund