“What do we know about the Syrian Economy?” by Ehsani

This exchange between Idaf and Ehsani buried in the the comment section of the last article is worth a post of its own. (Ehsani is kept on retainer by Syria Comment to act as in house economist!)

Idaf asked Ehsani, "What’s your take on this article?" (I summarize only the highlights of the article)

Syrian Economy Draws More Foreign Investment
By Hassen al-Shami

In the last seven years, Syria has adopted more open economic policies by implementing reform and restructuring programs appropriate to the country’s economic, social, and social situation. Syria has not adopted ready-made reform programs suggested by the IMF and the World Bank, despite the fact that it has taken advantage of the IMF and the World Bank in the developing countries.

Perhaps what singles out the Syrian experience in reform is that it has borne fruit in a record time – seven years – while experts of similar programs in developing countries estimate the period needed should be between 10 and 15 years. On the other hand, some observers of the economic situation in Syria think that the outcome of the reforms could have been realised in an even shorter time; what caused the delay was the foreign pressure exercised on the nation as a result of its constant Arab nationalist positions.

  • trade between Syria and the Gulf States over the last two years has increased by 30-40%, according to Abdullah al-Dardari, the Syrian Vice Prime Minister.
  • The Government has announced that these reforms have contributed to the growth of the country’s economy by 5.2% in 2006 against 4.5% in 2005. Syria has allowed the establishment of private banks and insurance companies, and lifted the restrictions on imports, but the public sector is still predominant.
  • Al-Dardari … stressed the Government’s intention to reform the Public Treasury and deal with the problem of government subsidy to goods, which constitutes a large proportion of the budget. According to him, the Government still has to deal with the problem of the public sector reform and subsidies in the two years of 2007 and 2008.

  • He pointed out that the deregulation of trade in early 2005 was accompanied by the increase of non-oil exports from 213 to 327 billion Syrian Pounds. Such a rise has contributed to the decrease of the budget deficit from 78 to 24 billion Syrian Pounds in 2006, despite the decline of the oil imports value.

  • The trade balance deficit went down from 211 billion Syrian Pounds in 2005 to 189 billion Syrian Pounds in 2006.

  • The Syrian GNDP is estimated at US $38 billion, and according to economic experts it could attain US $50 billion…. This means that our GNDP will attain US $47 billion by 2020, which requires a 7-percent annual growth rate.”

  • To conclude, we may say that the reform programs adopted by the Syrian Government have achieved a comprehensive economic boom just a few years after their implementation.

EHSANI2 responds

Dear Idaf,

Mr. Shami first attempts to convince his readers that Syria’s reform and structuring program has been faster than usual. He then tries to remind us that “Syria has not adopted ready-made reform programs suggested by the IMF and the World Bank, despite the fact that it has taken advantage of the IMF and the World Bank in the developing countries.”

The latter part of the above sentence is too poorly worded for me to make any sense of it. Who is taking advantage of whom?

Clearly, Mr. Dardari is the author’s main source for the story, so let us move to that part:

Mr. Dardari’s first claim is that the growth rate of the “country’s economy” is 5.25% in 2006 against 5.50% in 2005.

The next time someone tells you that the GDP of a country has increased by X%, please remember to ask: Is it in real terms or in nominal terms

Since prices fluctuate (generally they rise), one cannot know for certain whether more or less goods are being produced and sold just by looking at the revenue earned (or income generated). What economists usually do is deflate (correct for inflation) current or nominal income/spending. In effect, they isolate the effect of price fluctuation from measures of income and spending. This allows practitioners to distinguish between real growth in income as opposed to growth arising from price inflation.

In the case of Syria, prices are supposedly rising by close to 9% per annum. This means that to get a “real” growth rate of 5.25%, current or nominal growth must rise by 14.25%. To the best of my knowledge, Mr. Dardari has never specified whether the growth rates he announces are nominal or real (inflation adjusted). Were his 5.25% to be real, I think that it would be very useful for him to supply us with the deflator or price measure that he is using to adjust his numbers.

My next problem with the article concerns the discussion on net trade:

Mr.Dardari supposedly pointed out that the deregulation of trade in early 2005 was accompanied by the increase of non-oil exports from 213 to 327 billion Syrian Pounds. Such a rise has contributed to the decrease of the budget deficit from 78 to 24 billion Syrian Pounds in 2006, despite the decline of the oil imports value.

Surely, the writer must mean the trade deficit and not the budget deficit. Syria’s external trade reporting has always been fraught with difficulties. This is because the country had used multiple exchange rates in its reporting system. Recently, this arcane system has been simplified as the multiple exchange rates gave way to a more uniform rate. Having said this, I am still uncertain whether both exports and imports are subjected to an identical exchange rate.

My final observation on the article concerns the following paragraph:

“The Syrian GNDP is estimated at US $38 billion, and according to economic experts it could attain US $50 billion. Mr Dardari commented by saying, “If the Syrian economy wants to have a regional role after the change of the surrounding circumstances, the Syrian GNDP will have to be equal to that of Jordan and Lebanon together, and this means that our GNDP will attain US $47 billion by 2020, which requires a 7-percent annual growth rate.”

The author clearly gets the “GNDP” notation wrong. There is no such thing as “GNDP” It is either GDP or GNP. My hunch is that he meant to write GNP. Mr. Dardari cleverly avoids the clarification.

GDP v.s. GNP

Gross Domestic Product (GDP) measures what is produced inside the country in a year. Gross National Produce (GNP), on the other hand, measures what is produced by the citizens of a country, derived from the resources they own.

The GDP of Syria, for example, includes not only the value of goods and services produced by Syrians but also the contribution by foreign workers and foreign investors in the country.

The GNP of Syria, in contrast, measures the production by Syrians and Syrians only. These Syrians might be working overseas. These Syrians might own properties overseas and are making a decent living from the rent collected. They might also set up businesses abroad and earning considerable profits.

This is the first time that I have heard the figure of $ 38 Billion as being the size of Syria’s GNP. Various international organizations have pegged the size of the country’s GDP at close to $ 23 Billion. Given the numbers of Syrian citizens residing and earning income outside the country, it seems that Mr. Dardari has decided to start using GNP rather than GDP when it comes to measuring the size of the economy. For the record, in a country like the U.S. for example, the difference between the two measures is negligible.

The last problem with this error-filled article is an arithmetic one. If the size of the economy today is $38 billion and if this number grows at 7%, then by the year 2020, it will reach $91.6 billion and not $47 billion as the article suggested.

In conclusion, without publishing the data to support their claim, it is very difficult to verify the numbers cited by the country’s economic policy makers. My comment above dealt with some of those potential difficulties. It is my impression that the country’s fiscal predicament is not healthy. It is clear that Dardari thinks that some of the subsidies will have to go. I think that this is inevitable. Politically, however, it is a very difficult thing to implement. The recent jump in foreign direct investment (FDI) in the country has been impressive. The prices of most real estate in the country used to be undervalued when compared to other countries in the region. Clearly, given the recent price increases, this undervaluation has largely disappeared. Moreover, little of this FDI has gone into manufacturing and industrial investments. This has meant that the increased in foreign investments has not been accompanied by a commensurate rise in jobs and incomes. For that to happen, the country must adopt a very strong export strategy that can take advantage of the higher global economic growth, as the country’s present local demand is insufficient. This is what Turkey did under the leadership of the late Turgot Ozal. The recent free trade with Turkey is an excellent first step. Entering the WTO must also be a top priority. Fixing the country’s legal system is one of the prerequisites needed to make this happen of course.

[End]

This article may also be of interest: Property prices in Damascus go through the roof

Comments (4)


1. ausamaa said:

Ehsani,

I am sure you are familiar with the IMF Public Information Notice Dated Aug 7, 2006.

I like the overall tone of this notice and I qoute from the Executive Board Assessment:

” Executive Directors commended the Syrian authorities for implementing reforms aimed at encouraging private entrapreneurship, promoting market mechanisms, opening the economy, and liberalising the Financial system. The ongoing pick up in economic activity is testimony to the impact of these reforms on the investment climate”

In the Executive summary of the report, we find a similar positive tone:

” The Economy proved quite resilient in the face of the unsettling political developments”, later on ” The recovery seems poised to continue in 2006 despite the still volatile regional environment”.

However, the problem in our tackling the Syrian economy is that we DO NOT have adequate information. The economic and financial authorities are not providing the full set of figures needed to make a solid assessment. This is a combination of both; 1) they do not have the full and accurate data and idices themselves, and 2) The obtained and availlable private sector figures can be grossly misleading. This will affect any meaningfull calculation of GNP/GDP, growth, inflation,consumer data, etc..,. (And in this case, I believe the GNP is GROSSLY underestimated, not overestimated!).

In the light of the points you have listed above and in which you have contested the figures of Mr. Dardari, is it not possible to contact either Mr. Dardari or Mr. Al Hassan by email and try to get an answer to the points you have raised? Maybe they can provide Views, Answers and Explanations!

As you are the In-house economist of Syria Comment, you will have a legitimate platform from where you can ask for such explanation, answers or views. Then you can provide us with an opinion of what the situation is.

I think they will be forthcoming in providing such a feedback. If they do not. Continue to ask until they do.

Then we will have a much more solid and richer discussion.

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April 4th, 2007, 7:15 am

 

2. idaf said:

Ehsani,

Thank you for your valuable comments as always.

Ehsani, you mentioned: “In the case of Syria, prices are supposedly rising by close to 9% per annum. This means that to get a “real” growth rate of 5.25%, current or nominal growth must rise by 14.25%. To the best of my knowledge, Mr. Dardari has never specified whether the growth rates he announces are nominal or real (inflation adjusted).” Let’s take the percentage you provided for rising prices of 9% per annum (source please). In addition, according to the link provided by “Syrian” in the last comment section: Syria’s GDP is 25.84 billion (2005 est.) GDP per capita in Syria was 3900 USD in 2006 (2005 est.). The per capita GDP growth in 2006 in Syria was 14.71% and the GDP (PPP) growth rate was 18.17 % (Source CIA World Factbook – All figures are 2005 est.). If the CIA Factbook estimate was more or less close to reality (usually it tends to be on the conservative side for countries with less transparent data such as Syria), then one can argue that Dardari’s figure of 5.25% was more on the side of “real” growth rate (in contrast, the real growth rate estimated for 2006 by the CIA Factobook was 2.8% – The IMF puts the real GDP growth in Syria for 2006 at 3.2%).

I also agree with Ausamaa that the actual Syrian GNP is underestimated by all measures. Just look at the investments and savings of Syrians in the gulf. The overwhelming majority of them are purely Syrians, they do not hold any other nationality and most would have to go back home to Syria (with most of their savings) at one point of their lives as per the residency laws in the gulf.

Finally, I recommend you take Ausamaa’s suggestions and contact Dardari directly and ask him all the tough questions. I agree with Ausamaa that this will entail a combination of persistence and diplomacy from your part to get this information. Of course you would also have to put all your “biases” and preferences for the Syrian economy aside to be as balanced as possible. Welcome to the world of journalism! Personally, I think that you will do a great service to readers of this forum as well as to Syria itself if you take up this crusade.

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April 4th, 2007, 11:31 am

 

3. ausamaa said:

Hi Ehsani,

I sure made it sound like getting responses from Official Syrian sources is as easy as getting answers to your questions from answers.com !

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April 4th, 2007, 3:41 pm

 

4. Homo Libanus said:

I have met with many very senior Syrian officials at the Central Bank and at various Ministries. The problem is not just the lack of publically available information, but a complete lack of understanding of basic economic concepts by the entire bureaucracy. Even the concept of a Monetary Base is not something that the central bankers can understand. We don’t know how anything is really calculated, and if at all bears any realtion to reality, despite the IMF’s Artcile IV. Scratch beneath the surface, and you will find that the Article IV is based on data compiled by some very ignorant people. Don’t waste time dwelling on this. This is an area worth tackling only in a post-baathist Syria.

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April 9th, 2007, 10:30 pm

 

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