Even though Syria has suffered from a recession since 1998 due to declining oil revenue, a steady drop in exports and a severe drought which has damaged agriculture production and exports, the official Syrian budget for 1999 recorded a 7.58% increase in total government expenditure and revenues – which are balanced – from S£237.30bn ($5.17bn) in 1998 to S£255.30bn ($5.56bn). In addition, the government has already approved the draft budget for 2000, although official figures have not been released, and Syrian officials are labeling it as a reform budget.

The increase in revenue and expenditure comes as a surprise, given that negative economic conditions were expected to affect both aversely. Giovanni di Girolamo, an official at the EU representative office in Damascus, told MEES that "from the logical point of view, taking into account that the two major components of gross domestic product (GDP), oil and agriculture, were going down in 1998 and the first half of 1999, one should suppose that revenue should go down and so expenditure should go down." And according to the 1999 Syrian Country Report by the Economist Intelligence Unit (EIU), government spending was expected to contract for the year as "other sources of revenue will have been stunted by the effect of recession as tax revenue and income from customs duties are likely to have fallen again this year… It is safe to assume that government spending for the most of last year and the beginning of this year will have been relatively tight, given the dramatic plunge in oil revenue."

Officially, however, 1999 revenue from state activities and from exceptional financing (including foreign and domestic loans) increased by 6.87% and 9.1% respectively, while income from taxes and duties climbed to S£82.69bn ($1.8bn) in 1999 from S£75.52bn ($1.65bn) in 1998. On the other hand, state revenue from services and property decreased by 3.2%, while miscellaneous revenues, which include revenue from concessional loans, fell by 6.94% (see table overleaf).

Government expenditures on social services, national security, and justice rose, although official government expenditure on national debt remained undisclosed for the second consecutive year. Expenditure on education in 1999 increased by 16.1% to S£4.35bn ($94.77mn) from S£3.75bn ($81.7bn) the previous year, while the government increased spending on national security by 3.66% to S£47.59bn ($1.04bn) from S£45.91bn ($1.0bn), representing approximately 33% of total government services. "The government has a certain amount of resources from oil, taxation and so on, and these resources have to finance subsidies in the agricultural market, the welfare state, schools, and the salaries of civil servants," Mr di Girolamo said. "Now a smaller proportional fraction of government revenue goes to actual investment, and the more that the population grows, the larger the part of these resources that will go to current expenditure." According to Global Development Finance of the World Bank, principle payments on debt reached $96mn for 1998, servicing total debt of $22.44bn with long-term and short-term debt estimated at $16.33bn and $6.1bn respectively.

Overall, cutting spending on investment has had a negative effect on the national economy, and, according to the Syrian daily Tishrin on 13 April, "the decline in government investment contributed to the widening of the recession." For the fiscal year, the Syrian Government cut investment in the area of manufacturing industries and trade sectors by 1.85% and 9.7%, respectively. The US Department of Energy’s Energy Information Agency (EIA) pointed out that Syria’s economy continues to be strained by a decrease in public and private investment projects and lower oil export earnings (MEES, 13 December 1999). The government has also reduced expenditures in the agricultural sector at a time when agricultural production has dropped significantly due to a drought that has affected most of the country. According to the official budget figures, the government curbed spending on agriculture, forest, and fisheries by 1.91% from S£25.06bn ($546mn) to S£24.58bn ($535.5mn). This may be a small drop in expenditure, but according to the EIU, there may be additional financial pressures on urban infrastructure and government social services in 2000, given that the full effect of the drought is only now becoming apparent.

As a result of the decline in the price of oil and two negative years of agricultural production, Syrian exports dropped by 20% in 1999 compared to 29% in 1998. (Oil prices collapsed in 1998 and through the first quarter of 1999, then began to recover gradually in second quarter 1999). According to Tishrin , "imports dropped by a similar ratio, although slightly lower last year. This year saw a fall in imports compared with last year, which signifies a considerable drop in local consumption, reflecting a clearer picture of recession." However, oil prices, and therefore revenue, are now starting to recover, which has led to improved GDP estimates and an increase in exports. "I project a 2.0% growth rate in 2000 with oil revenues picking up," Nazim 'Abd Allah, the chief of economic issues and policy section for the UN’s Economic and Social Commission Western Asia (ESCWA), told MEES. "Oil and agriculture are the twin engines of economic growth. About 25% of GDP comes from agriculture."

Syrian Budgets: 1994-1999

(S£Mn)

* The sum of the aggregates may be different than the total because of rounding.

Mr 'Abd Allah’s 2% estimated GDP growth rate for 2000 is a significant improvement from ESCWA’s previous estimates of 1.0% for 1998 and 0.5% for 1999, and the improvement reflects the Syrian Government’s increase in expenditures in the budget draft for 2000, which places the total budget at S£275.5bn ($5.99bn), an increase of S£20bn ($436mn), or 7.9%, from 1999. "Taking into account that the economy is in a sort of stagnation, and at the same time that they have the revenue to increase the budget, it could be logical to increase expenditure in 2000," Mr di Girolamo said. The new budget, according to Tishrin on 11 April, includes measures to increase public savings, to control monetary expansion activity, to cut back on imports and consumption and to pursue a financial policy that works gradually to reduce the deficit by developing domestic resources and controlling and reducing general expenditure in such a way that helps narrow the gap between expenditures and revenues. Syrian officials are presenting the budget as a reform budget designed to restructure and liberalize the state-dominated economy.

Even with the official 1999 budget released and approval for the 2000 budget announced, the analysis of the government’s fiscal policy is made difficult by the dearth of meaningful data. According to the EIU, "the government publishes virtually nothing in the way of outturn data, while the budget itself is largely unhelpful because of the variety of exchange rates used and high levels of off-budget expenditure." In addition, Mr 'Abd Allah cautions, there is concern that with oil prices picking up and revenues increasing "serious actions to pursue rigid and strong concrete economic reform maybe delayed."

© Copyright MEES 2004.