IMF tells Syria to pick up reform pace

The International Monetary Foundation (IMF) has urged Syria to more actively embrace reforms aimed at encouraging private entrepreneurship, promoting market mechanisms, opening the economy, and liberalising the financial system.

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By  Andrew White Published  August 13, 2006

The International Monetary Foundation (IMF) has urged Syria to more actively embrace reforms aimed at encouraging private entrepreneurship, promoting market mechanisms, opening the economy, and liberalising the financial system. An IMF report warns that the nation’s recently adopted five-year plan (FYP) – a comprehensive strategy to deepen such reforms – will become crucial as “the short-term windfall afforded by the surge in international oil prices will end as Syria becomes a net oil importer in the next few years, with adverse implications for medium-term prospects.” Whilst the IMF does commend the Syrian authorities for their “steady progress in implementing reforms”, it stresses that there are “important challenges ahead”, and lists a series of strategies that it feels will “create new sources of growth and income to replace the waning oil wealth.” The report also emphasizes that putting in place efficient safety nets will help preserve social equity and engender public support for the proposed reform efforts. IMF directors note that “a sizable fiscal adjustment will be needed to preserve sustainability… and the adoption of a transparent fiscal policy framework, aimed at a steady improvement in the non-oil budget balance, would be key to help maintain fiscal discipline.” They also comment that “a front-loaded effort, taking advantage of the current favorable economic conjuncture, would boost market confidence.” The report is outlined in an IMF Public Information Notice (PIN). PINs form part of the Fund’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country concerned, PINs are issued after executive board discussions of consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. The IMF-Syria consultation concluded on July 31 this year. Directors agreed that introducing a broad-based value-added tax (VAT) and phasing out petroleum price subsidies should be the main pillars of the fiscal adjustment. In addition, phasing out petroleum price subsidies should generate significant efficiency gains, redress part of the social inequity in the existing policy, and bolster long-term growth prospects by enabling fiscal retrenchment without cutting critical spending on education, health, and infrastructure. Critically, the IMF called for faster progress in implementing the reforms of tax administration needed to underpin a VAT. In particular, preparations for introducing the tax self-assessment mechanism and opening the first large taxpayers’ unit need to be accelerated. Directors also concurred that “a tighter monetary stance, along with wage discipline, is needed to reduce inflation pressures.” Security and firm supervision of the burgeoning financial sector were also highlighted by the IMF report. “[The directors] encouraged the authorities to build on the preliminary assessment of the activities and financial position of the state banks with further steps toward their restructuring. In this regard, independent audits of state banks could help to guide the decision on the restructuring options, including opening their capital to strategic investors, or liquidating significantly undercapitalized or low-franchise-value banks.” They also stressed “the importance of ensuring that bank supervision keeps pace with financial liberalization, and that Anti-Money Laundering/Combating Financing of Terrorism legislation is effectively implemented.” IMF directors welcomed the steady progress made in trade liberalization, and the Syrian authorities’ commitment to greater transparency regarding remaining trade restrictions. They urged the authorities to give priority to eliminating key non-tariff barriers in order to signal their determination to address the trade agenda. “Implementing the regulatory measures under the Syria/European Union Association Agreement will contribute to making progress towards observance of WTO rules and disciplines,” said the report. In addition, the IMF urged the authorities to press ahead with reforms aimed at scaling down the state’s involvement in the economy, improving governance, and fostering private-sector growth. Finally, directors urged Syria to improve the quality and timeliness of economic statistics, including indicators of short-term activity. They welcomed the authorities’ decision to participate in the General Data Dissemination System, “which should give impetus to a far-reaching revamping of Syria’s statistical infrastructure.”

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