Idaf asked Ehsani, "What’s your take on this article?" (I summarize only the highlights of the article)
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.
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.
This article may also be of interest: Property prices in Damascus go through the roof