Abdullah al-Dardari, the personable London School of Economics graduate in charge of reforming Syria’s economy, mixes realism about the scale of the challenge he faces with a not-entirely-convincing optimism. Dardari’s State Planning Commission has drawn up a blueprint to transform Syria from a centrally planned to a market-driven economy over the next five years. He received political endorsement for this enormous task when, after last summer’s Ba’ath Party congress, he was promoted to the cabinet with the rank of deputy prime minister for economic affairs.
Dardari is one of a handful of Syrian officials prepared to speak frankly about the chronic weaknesses of the economy – low growth, high unemployment, an unsustainable subsidies system, an inefficient public sector and an unhealthy dependence on fast-depleting oil reserves. In a new spirit of transparency, Dardari approved the first ever publication of an International Monetary Fund (IMF) assessment of the economy last October.
The central issue identified by the IMF is the threat posed by Syria’s declining oil output. Oil production peaked at 600,000 barrels per day (bpd) in the mid-1990s, but has since fallen steadily as the Euphrates Basin fields operated by Shell near exhaustion. Output is now running at about only 400,000bpd. Deprived of the cut-price Iraqi oil it received in the final years of Saddam Hussein’s regime, Syria, on current trends, will be a net importer of oil by 2010. Unless it can generate alternative revenue flows, the government will be faced with huge fiscal and balance-of-payments deficits.
Dardari’s answer is to push for a surge of private investment-led growth coupled with trade liberalisation and fiscal and monetary reforms – specifically, a switch from universal subsidies to targeted benefits and the introduction of VAT in 2008. (Privatisation, however, has been judged to be taking things too far in the new “social market economy” model endorsed by the nominally socialist Ba’ath Party.) Some progress has been made in the past two years. Half a dozen private banks have started operations in the country, and surplus Gulf money is pouring into real estate and tourism projects. The government’s debt has been whittled down thanks to a Russian write-off of some $10bn last year, and the European Union is still bankrolling infrastructure projects.
The Assad regime has made extensive use of EU financial and technical aid in pushing through economic reforms. This has gone ahead in the context of an association agreement – initialled but not yet signed – which includes political reform benchmarks as well as a commitment to open up the economy.
But Dardari’s plans may still prove overambitious. Space for effective private investment in Syria is severely limited by interference from the security agencies and the privileged status of regime cronies. The retreat from Lebanon in 2005 also came at a high price, as Syrian smuggling and extortion rackets unravelled, and the role of Lebanon as an employer of Syrian surplus labour was curtailed. Tourism is a potential panacea for the country’s economic woes, and the government has set a target of doubling the number of visitors to seven million by 2010 and increasing revenue from tourism to $5bn from an estimated $2.2bn last year. Most of the visitors to Syria come from within the region – day trippers from Jordan and Lebanon, business people and summer tourists from the Gulf. The development of a tourism industry taking full advantage of Syria’s archaeological treasures and Mediterranean climate is still some way off. For all the good intentions of Dardari and the small band of like-minded officials, a more promising future for Syria’s economy seems unlikely under the present political regime.
David Butter is Middle East editor of the Economist Intelligence Unit
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