The macro-fiscal picture

Table 13.3 presents a rudimentary summary of Syria’s fiscal operations. While this data may somewhat underestimate total public spending, it does allow us to draw some preliminary conclusions. The first conclusion is that Syria has a fairly robust current surplus and is in fact able to finance all its development expenditures from total revenues, up to the year. In other words, Syria occa- sionally runs a small fiscal deficit and, at times, a fiscal surplus. Different data sources reveal no immediate fiscal crisis, in the medium-term, and hence there is room for focusing on the growth and distribution aspects of fiscal policy.

Table 13.3 Syria’s basic macro-fiscal picture, 1992–2002

Percent of GDP 1994 1995 1996 1997 1998 1999 2000 2001 2002

(1) Total revenue 24.06 25.35 24.57 26.45 25.88 26.47 27.17 31.99 30.18 (2) Total expenditure

27.34 26.75 27.00 25.02 25.99 25.07 26.54 28.16 30.73 (3) Current expenditure

14.49 14.87 12.97 12.89 14.05 14.19 16.04 16.62 17.15 (4) Development expenditure 12.84 11.88 11.48 12.13 11.93 10.87 10.50 11.54 13.58 Source: Data provided by Ministry of Finance of Syria.

Discussions with authorities revealed that the likelihood of a fiscal deficit exceed- ing 3 percentage points of GDP was small, given high oil prices. Syria thus enjoys considerable fiscal space and is able to fund human development expenditures with little recourse to external or internal borrowing. The crucial question remains: is this fiscal space sustainable? Available Syrian budget data indicate that oil revenues and non-oil domestic revenues together contribute the bulk of revenue, accounting for 80 per cent of total revenue in the period 1992–2002.

POLICY CASE STUDIES

Table 13.4 reveals some interesting trends in the mid 1990s, as Syria was able to meet its current revenue needs with non-oil revenues. In this sense, it might be argued that the fiscal position was stable and healthy since oil revenues were being used exclusively for investment purposes. The picture has worsened significantly since then and it is clear that oil revenues, increasingly, have to cover current expenditures, thereby leaving very limited room for the enhancement of fiscal space. In addition, it appears that oil revenues are increasingly being used for public consumption, implying a squeeze on resources available for public investment.

Table 13.4 Non-oil surplus/deficit as a percentage of GDP, 1992–2002

Year Current expenditures/

Current non-oil GDP

Non-oil revenues/

GDP

surplus/deficit/GDP

1994 14.49 14.56 (–)0.07 1995 14.87 16.14 1.27 1996 12.97 13.95 0.98 1997 12.89 15.00 2.11 1998 14.10 15.12 1.02 1999 14.20 15.72 1.52 2000 16.00 14.84 (–)1.16 2001 16.60 13.47 (–)3.13 2002 17.20 16.11 (–)1.09 2003 18.60 15.00 (–)3.60 Source: Data supplied by Ministry of Finance of Syria.

It is clear from Table 13.4 that the current ‘non-oil deficit’ is not of an order of magnitude that would cause a fiscal crisis. The existing fiscal space is therefore sufficient to withstand fiscal shocks due to exogenous events including fluctuations in oil prices.

It is also clear that the macro-fiscal challenge that Syria faces is of a medium-term nature. Syria’s ability to maintain a credible investment programme in human development sectors relies critically on it being able to deploy existing oil revenues entirely for productive public investment and to ensure that non-oil revenues fully finance current expenditure. In this sense, there exists considerable fiscal space for Syria to use its oil wealth to expand capital investments in activities promoting human development without recourse to the types of short-run stabilization policies the IMF employs. The next question to ask, therefore, is: what are the potential sources of non-oil revenue growth that would enable Syria to enhance public investment?

POLICY

The macro-fiscal picture