Country Report Syria

Summary

The president, Bashar al-Assad, is expected to remain in power in 2008-09. He will continue to rely on the strength and loyalty of the security services, which will keep opposition forces weak and ineffective.
The start of talks with Israel and a reduction, at least temporarily, in tensions in Lebanon may give Mr Assad the opportunity to reduce Syria's political isolation, but he is unlikely to end its strategic alliance with Iran.
Economic policy in 2008 will be dominated by conflicting views on how to respond to high global oil and commodity prices in the context of a growing fiscal deficit.
Syrian oil output will fall over the outlook period, which will reduce export volumes and government spending and thereby curb economic growth.
The Syrian pound is forecast to appreciate against the US dollar this year (largely because of dollar weakness), but to depreciate in 2009, as the Central Bank of Syria responds to concerns about export competitiveness.
The current-account surplus is expected to remain large in 2008, at around 2.6% of GDP (US$1.4bn), before narrowing in 2009 to 1.8% owing to falling oil export volumes.

The first round of indirect Syrian-Israeli talks began in Istanbul on May 19th and was announced simultaneously by the two governments, but there are significant preconditions and obstacles on both sides to any peace deal.
The Lebanon peace agreement mediated in Qatar met the demands of Syria's ally, Hizbullah. However, although the new president, Michel Sulieman, is on good terms with Syria, there are signs of potential future disagreements.
A delayed draft law on introducing a 10% value-added tax in 2009 is now ready to be submitted to the cabinet and parliament. The additional revenue is urgently needed as oil revenue declines and subsidy costs remain high.
The finance minister, Mohammed al-Hussein, has forecast that the 2008 fiscal deficit will be 9.8% of GDP, twice the IMF's projection (which predated the 25% increase in public sector wages).
The IMF's latest data contradicts the Syrian government's estimates for GDP and the current account. The IMF shows much lower GDP growth and a current-account deficit in its estimate for 2007 and projections for 2008.
Syria met about 35% of its consumption of refined oil products through imports. Although its 2007 crude oil production of 380,000 barrels/day marginally exceeds consumption, it is likely to become a net importer in 2008.