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Syria Government Approves $7.1Bn 2002 Balanced Budget, With 14.3% Capex Increase
MEES
14 January 2002 Volume 45, Issue 2 - BUDGET
 

The Syrian Government on 29 November approved a S£356bn ($7.1bn) predictably balanced budget for 2002, projecting a 10.7% increase in both expenditure and revenue compared to the 2001 balanced budget of S£322bn ($6.4bn). While the rise in spending is less than the 16.9% increase for the 2001 budget it is higher than the 2000 budget’s 7.9% increase in expenditure and 7.87% increase in revenue. For 2002 revenues the government predicts a 17% increase in taxes and duties to S£135.8bn ($2.7bn) from the 2001 forecast of S£115.9bn ($2.3bn), with a 37% increase to S£52.4bn ($1.1bn) coming from “exceptional financing,” (including foreign and domestic loans). Services on property are also expected to climb. The national budget was published in the Official Gazette on 26 December, 2001 (see Table).

The budget reveals a reassuring 14.3% rise in capital expenditures to S£184bn ($3.7bn) – the Syrian Government earlier announced that reform in the industrial sector will cost $5.6bn over 10 years (MEES, 22 January 2001). The increase was greater than the 7% increase in current expenditures which rose to S£172.4bn ($3.5bn) from the 2001 level of S£161bn ($3.2bn) but both significantly outpace inflation which is estimated to average around 1-3%. Prime Minister Mustafa Miro said that the budget was aimed at increasing the share of local revenues in the GDP from 25% to 26.44%, raising overall public expenditure and increasing spending on investment projects to accelerate economic activity and boost GDP.

The 2002 budget includes an across-the-board increase in overall government spending from 2001 levels, with a 9% climb to S£186.8bn ($3.74bn) for government services (including justice, national security, foreign affairs and information, higher education, culture, social affairs and economy and finance). For the government services sector, large percentage increases were seen in education, higher education, and foreign affairs and information, although these sectors represent small portions of spending relative to justice, national security and economy/finance, which saw increases of 7% to S£44.3bn ($0.89bn), 12% to S£55.3bn ($1.1bn) and 8.4% t S£41.2bn ($0.82bn) respectively. In fact at S£55.3bn ($1.1bn), national security, an undisclosed portion of which includes defense spending, continues to represent the largest expenditure in the 2002 budget, as it has done in previous years.

However, Syrian arms imports have apparently been declining with $989mn spent in 1999 and $760mn spent in 2000, according to the International Institute for Strategic Studies (IISS). Budgeted amounts for 2000 and 2001 were $729mn and $838mn respectively. Some suggest that declines in defense spending have come as Syria has decided to focus on pursuing economic liberalization rather than increasing its stocks of military hardware, but analysts at the Center of Strategic and International Studies in Washington say the main reason is the increasing pressure of the country’s debt burden to Russia. According to the state-run SANA news agency, the 2002 budget allocates S£40.5bn ($0.81bn) to service Syria’s debt, much of which consists of credits from the former Soviet Bloc states that Syria is negotiating to settle. As of the mid-1990s Syria owed some $7bn to Russia for past arms purchases, although there is evidence of continuing cooperation between the two countries on military matters and in July and September 1999 the two held high-level discussions on military cooperation, although the outcome of the talks was unclear (MEES, 12 November 2001).

In addition to excluding specific numbers on defense spending, the budget also fails to break down revenues from oil exports. MEES understands that Syrian crude production is 530,000 b/d with around 230,000 b/d used domestically. However, since November 2000, Syria has been importing Basra Light crude from Iraq. Initially these imports were at 100,000 b/d, but have gradually increased to the present level of 180,000 b/d and are expected to climb to 250,000 b/d this year. Iraqi crude is processed domestically and Syrian production is mostly used for export. Syrian sources said that for the 2002 budget the government assumed a price of $20/B for heavy crude and $24/B for light crude, which is unchanged from 2001 budget levels. In 2001, prices were higher, averaging around $27/B leading to a surplus. If prices remain low this year (Brent was trading at around $20/B on 10 January) last year’s surplus could be used to balance out any deficit, notes Samir Seifan, a local economist and consultant.

While the rise in capital expenditure is welcomed further measures are needed to encourage development of a private sector in Syria. “The 2002 budget is expansionary because investment is increasing, but this is needed because the rate of economic growth is not very high,” says Nabil Sukkar at the Syrian Consulting Bureau for Development & Investment. He notes that after the 14 December cabinet changes, many people are adopting a wait-and-see approach towards promises made to improve economic performance and implement reform. Analysts suggest that the cabinet changes, including key finance, economy and oil portfolios, are encouraging because they have brought in a reform-minded group and seen the removal of ministers of economy and finance who had held the same posts for 15 years, reflecting President Asad’s determination to decentralize the Syrian economy (MEES, 17 December 2001). The changes were the first since Mr Asad succeeded his father in July 2000 (MEES, 26 June 2000).

Currently, most Syrian money is invested offshore and little foreign capital flows into the country, which makes it very difficult for Syria to generate meaningful GDP growth. In 2001, Syria’s GDP climbed by around 3% on the previous year, but the country’s population, currently at 17mn, is growing by 2.5% per year and needs a minimum of 5% in GDP growth, says Mr Seifan. Unemployment is officially at 9% per year, but non-official assessments put it closer to 20%. In late 2001, the government said it would provide money, in part as loans, to the unemployed for small business ventures, aiming to create around 400,000 jobs over the next few years at a cost of S£50bn ($1bn). The government’s investment plans will be financed through revenue and if this falls short, will be made up from reserves.

Syria changed its laws in April last year (MEES, 9 April 2001) to open up the state-controlled banking sector, and while a number of banks from Lebanon and Europe as well as domestic entrepreneurs, have expressed interest, they have yet to set up operations. Before they move in, they need the underlying legal framework to be finalized. This was approved by parliament on 13 December and is expected to be signed by the president over the next month, thus paving the way for the first private and foreign participation in 50 years.

Syria must also take steps to liberalize its currency which is officially traded at $1=S£46 for some purposes, while state banks also offer another official rate of $1=S£51, which almost matches the black market rate. While it would be a mistake to suddenly free-float the currency, steps should be taken in this direction over the next few years, says Mr Seifan. In recent years, currency management has meant that the black market exchange rate has varied little against the dollar and inflation has remained low and stable. Syria exports oil and agricultural products and vigorously controls its imports in order to balance its current account. While this has led to stability, the economy also needs to see gradual reform, notes Mr Seifan, adding that any changes should fit the needs of the country and not simply be a rush to adopt all Western practices. Local press reports noted that Syria said in December that the rate of the Syrian pound to the euro would be fixed in the same way as the pound is fixed versus the dollar and calculated on the basis of the daily rates in the Beirut and Dubai forex markets.

Despite fledgling attempts at liberalization, Syria remains somewhat isolated from the international economic community; with Algeria’s recent signing of an EU pact, Syria is now the last of the 12 Mediterranean partners without an association agreement. However, it has signed free trade agreements with other Arab countries, such as Jordan (MEES, 15 October 2001) and Iraq (MEES, 20 August 2001).

While Syria is expected to sign an EU pact by the middle of this year, the head of the EU delegation in Syria, Marc Pierini said in November 2001 that the lack of substantive economic reforms have delayed the agreement (although Mr Miro did meet with Mr Pierini in Damascus, on 10 January, to discuss the issue, according to press reports). Also muddying the waters are European claims that Syria is flooding the market with cotton yarn exports, which are thought to total 10% of all EU imports. Syria rejects allegations of subsidies and claims to be selling cotton yarn at market prices. Syria is the world’s third largest cotton yarn supplier behind India and Turkey and is expected to produce around 1mn tons in the 2001-02 season. Also, the EU prefers its trading partners to have a healthy private sector, but Mr Miro has said recently that he sees no particular reason for privatizing public assets. 

A move by Syria to join the WTO was blocked by the US and Israel in December, because of allegations that the state sponsors terrorism and has been named publicly by the US Under-Secretary of State for Arms Control and International Security, John Bolton, as one of six states with an offensive biological weapons program.

Syrian Budgets: 1998-2002

(SR £Mn)

2002

Expenditure

Total

Capital 

Current

2001

2000

1999

1998

Government Services Including:

186,757.49

38,685.56

148,071.930

171,325.45

150,060.22

144,088.00

127,432.00

   Justice

44,340.19

-

-

41,268.21

33,125.30

31,503.39

30,816.32

   National Security

55,331.51

-

-

49,373.26

 48,373.27

47,593.81

45,912.14

   Foreign Affairs and Information

6,884.54

-

-

5,671.22

 -

 -

 -

   Higher Education

11,244.65

-

-

9,229.73

 -

 -

 -

   Education

14,774.29

-

-

13,177.25

 -

 -

 -

   Culture

1,223.18

-

-

1,122.50

 -

 -

 -

   Social Affairs

4,824.70

-

-

4,023.23

 -

 -

 -

   Economy and Finance

41,245.31

-

-

38,007.80

 -

 -

 -

Agricultural, Forest and Fisheries

29,375.15

26,851.16

2,523.990

27,486.67

26,122.89

24,580.50

  25,059.04

Extractive Industries

14,605.63

14,520

85.630

11,448.78

10,276.50

   8,635.00

 8,964.89

Manufacturing Industries

22,838.55

22,445.5

393.050

17,932.09

16,059.70

16,734.85

17,049.10

Electricity, Water & Gas

32,420.94

32,389.285

31.655

30,667.45

25,685.00

23,538.70

25,168.22

Construction

1,239.61

1,056

183.610

1,097.51

1,079.11

1,117.60

1,225.25

Trade

2,943.32

2,492.295

451.025

2,751.83

2,848.16

3,369.70

3,732.29

Transport, Communications and Storage

39,696.50

39,048.39

648.110

35,548.50

21,970.37

20,288.75

17,679.80

Banking, Insurance & Real Estate

3,385.00

3,385.00

0

2,887.80

1,590.00

1,147.00

1,388.60

Unallocated Expenditure

23,126.81

3,126.81

20,000.00

20,849.93

19,708.00

11,800.00

9,600.00

Total

356,389.00

184,000.000

172,389.000

322,000.00

275,400.00

255,300.00

237,300.00

Increase over Previous Year (%)

10.68

14.3

7.0

16.90

7.90

7.60

12.40

Revenues

Taxes & Duties

135,844.00

115,932.00

85,913.00

82,686.00

75,516.00

Services % Property

29,547.00

26,885.00

25,397.00

19,409.00

20,054.00

Miscellaneous Revenues

68,595.00

68,625.00

67,504.00

65,500.00

70,385.00

Surplus on State Actvities

 70,028.46

69,316.66

59,684.53

50,314.30

47,081.01

Exceptional Financing

52,374.54

38,241.34

36,901.47

37,390.74

34,263.99

Total

356,389.00

322,000.00

275,400.00

255,300.00

247,300.00

Increase over Previous Year (%)

     10.68

16.90

7.87

7.58

17.1


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