Syria Today | Syria and the Global Financial Crisis: Emerging from the Storm

Syria and the Global Financial Crisis: Emerging from the Storm

By Bassel Hamwi
Photo Fadi al-Hamwi

While it is true that Syria has not been totally shielded from the worst global financial crisis in living memory, the country’s economy has managed to escape the recessionary trap which has plagued many other countries this year. Growth in real economic activity is slowing, a deceleration brought on by weak global conditions which have impacted upon the local economy. Yet by no means is Syria expected to witness the negative real growth rates predicted for some of its largest Arab peers in the Middle East-North Africa region. In fact, the International Monetary Fund recently put real growth at 3 percent for 2009 (against 5.2 percent in 2008) and all other official and private real growth estimates for this year fall within a 2 to 4 percent range.

The weak links between Syria’s financial sector and global financial markets have shielded the country from the sharp downturn witnessed in regional and international peer capital markets. Instead, it is Syria’s real economy that has been affected by the indirect spillover from the global financial crisis. Exports and remittances are two areas which have been hit.

Export volumes are being hampered by weaker consumer demand in the economies of major trading partners. The decline in consumer demand is particularly evident in the EU, where it has fallen by 28 percent over the year to date. In terms of remittances, some 1.5 million expatriates regularly send money back to Syria, mainly from Gulf countries. With these economies experiencing a sharp downturn, this flow of cash, estimated to weigh in at close to SYP 46bn (USD 1bn), is sure to have eased over 2009.

Among other external growth drivers, Foreign Direct Investment (FDI) inflows have also not been left unscathed by the crisis. Hard figures for FDI in 2009 are not yet available, but even here Syria is unlikely to have witnessed any significant contraction. The country’s political opening and the quasi-normalisation of relations with the West seems to have offset lower liquidity in the Gulf. Indeed, inflows from European countries may even result in a slight rise in FDI this year to just under SYP 46bn (USD 1bn), according to recently published figures by the World Bank.

There are several other factors dampening spillovers from the crisis, namely tourism, agriculture and tight banking regulations. The number of tourists to Syria grew by 10 percent in the first nine months of the year, with a solid increase in visitors from Europe and the Gulf. This year’s harvest was also noticeably better, with the agricultural sector once again accounting for a growing share of the country’s total output. Stringent banking sector regulations and conservative management practices ensured banks were not forced to deleverage, thus sparing them heavy direct losses as was the case in many emerging and global peer markets. Banking activity throughout the year actually continued to grow, albeit at a slower pace. Deposits rose by 5 percent in the first half of the year, against a 7.5 percent growth rate in the same period a year earlier. Lending activity continued and even picked up in the second quarter of 2009, posting a healthy 11 percent rise for the first six months of the year.

Looking ahead, while the global economy has only started down the long road of recovery, Syria’s economic planners find themselves presented with a genuine opportunity. They can now take advantage of the economy’s competitive strengths – improving macro fundamentals, an alleviated political risk, strong financial sector regulation and prudent banking practices – to press ahead with broad structural and financial reforms. Major challenges to be tackled in 2010 include opening up and further diversifying the economy and fostering greater entrepreneurship and investment. These changes are essential to boost investment and consumption while gradually improving living standards in the years ahead.

Bassel Hamwi is the deputy chairman and general manager of Bank Audi Syria.