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Syrian economic recovery remains on track

Banque Audi Saradar released an economic report on Syria, which highlighted the main economic indicators in 2006 and saw considerable growth in some sectors. The report said Syria would be able to maintain growth provided that reforms are implemented on time. Syria has undeniably been enjoying an economic revival in recent years, with the economy doing remarkably well in 2006. Although GDP growth rates differ according to the various sources, there is no doubt that the economic recovery that began in 2004 remains on track.

The Economist Intelligence Unit estimated real GDP growth at 4 percent last year. The Syrian Central Bank reported growth at 6.3 in 2006, against 5.2 percent the year before. The Syrian Finance Ministry stated that growth in the non-oil sector had come in at 7.0 percent in 2006. The non-oil sector continues to grow significantly, but the overall effect is masked in the overall GDP figure, due to the decline in oil exports as oil output dries up and consumer demand fuels import growth. Growth has already fed into a drop in the rate of unemployment from 11.7 percent in 2002 to 8.5 percent as of September 2006 according to Central Bank figures, but the latter remains a key concern within the context of high population growth. Creating sustainable employment, particularly outside of the capital, is a real challenge for Syria, and one of which the government is keenly aware, given its political implications.

Moreover, creating employment is also necessary if consumer spending is to remain robust in order to counter the drop in oil exports. Syria is witnessing a consumer boom, with foreign brands having entered the market for the first time in four decades.

The liberalization process is now gaining its own momentum, and the need to offset the declining oil sector, combined with Syria's aim to win trade concessions from the EU, and eventually membership in the World Trade Organization should provide the incentive for reforms. The Syrian Investment Authority has apparently licensed 30 projects worth $240 million since its inception early this year and interest, particularly from the highly liquid Gulf region, is strong.

At the monetary level, the Central Bank of Syria has done a commendable job over the past couple of years in managing the exchange rate arrangement. Progressive liberalization of access to foreign exchange for current account transactions and skillful exchange rate management dismantled barriers within the previously segmented foreign exchange market and gradually guided the parallel market rate closer to the official rates. The news that Syria is to drop its currency's peg to the US dollar is seen as a positive sign that the Central Bank is doing its utmost to tackle inflation. The decision to peg the pound to the IMF's (International Monetary Fund) currency is actually a favorable move, in line with the country's trade portfolio.

Within this environment, Syria is witnessing an improvement in its global risk positioning. According to the latest country risk ranking undertaken by Euromoney, Syria has seen its ranking improving from the 138th rank in September 2005 to the 124th rank worldwide in March 2007, i.e gaining 14 ranks over an 18-month period. The amelioration in global risk ranking is due to an improvement in political risk indicators, economic performance indicators and debt indicators at large.

The outlook for 2007 remains relatively favorable. The critical mass of reforms implemented in recent months, the continued direct and indirect support of aggregate demand from the Iraqi presence, and favorable growth prospects globally and in the region are expected to continue to underpin private consumption and non-oil exports, as well as a possible strengthening of private investment.

These factors could sustain the growth momentum in 2007 at about the same pace as in 2006. Although any slowdown of capital inflows associated with the Iraqis is expected to dampen aggregate demand directly, it should be kept in mind that a normalization of the political situation in Iraq could open a large market for Syrian products. According to the recent IMF Article IV Consultation preliminary conclusions, Syria needs to continue to grow faster but it also needs to grow better in the coming years.

The growth acceleration in the past couple of years seems to have been largely driven by private consumption, with an initial impulse generated by the influx of Iraqis. For this growth to strengthen and solidify, it is important that the sources of growth be rebalanced toward investment and durable gains in external market shares. Stronger investment growth and higher productivity are the bedrocks of high and sustainable growth in the long run. To that end, Syria should undeniably continue to strengthen its macroeconomic policy frameworks and to accelerate structural adjustment reforms at large. - Banque Audi Saradar Group

Source: http://www.dailystar.com.lb

Lebanese banks show growth amid political turbulence
Balance sheets increase by 3.75 percent

Lebanese banks, the pillars of the economy, are surprisingly still able to cushion the turbulence raging in the country as clearly illustrated by the good results in the first six months of 2007. According to the latest report by the Central Bank, total balance sheets of all banks operating in Lebanon up to June of this year reached $79.038 billion, an increase of 3.75 percent compared to the same period of 2006.

In the month of May alone total assets rose by $873.7 million while in June the assets jumped by $1.144 billion. Banque Audi Saradar, one of the largest banks in the country, saw its assets rise by $800 million during the last six month. This rise was attributed to the bank's placement of $700 million of Solidere International's new capital which was oversubscribed in the markets. Audi and BLOM bank are fiercely competing to become the largest bank in Lebanon in terms of assets, deposits and size of profits.

Both banks have expanded outside Lebanon to diversify their sources of revenue and increase their shares in the thriving regional market. Other leading banks such as Byblos and Fransabank made similar moves outside Lebanon. Lebanese banks are currently operating in Egypt, Syria, Jordan, Sudan, Algeria and Qata and have representative offices in other countries as well. Total customer deposits also maintained reasonable growth despite the security incidents and tense political situation, rising by 4.1 percent in the first six months of this year to reach $63.201 billion.

The assets of Lebanese banks are three times more than the country's GDP. Bank deposits fell slightly during the summer war of 2006 but nervous investors quickly replenished their hefty accounts in the local banks once the drums of war fell silent. "Close to $2 billion fled the country in 2006 but most of the cash came back as the government gave signals that reconstruction would resume in earnest," one financial analyst said.

He added Lebanese banks are among the rare sectors which always manage to override the problems and "lands on its feet." The profits of the banking sector in the first six months increased by 4.74 percent to $397 million while private equities rose by 9.34 percent in the same reporting period. But contrary to the assets and deposits of the private sector, the deposits of the public sector in these banks fell by 44 percent.

The Central Bank said public-sector deposits in the first six months of this year fell to $586 million from $1.050 billion. The drop in public-sector deposits is the biggest in 10 years. There was no official explanation behind the drop. The loans to the private sector up to June of this year rose 8.93 percent to $20.614 billion from $18.924 billion in the same period of last year. Loans to the public sector slightly increased by 0.64 percent in the first six months to $20.825 billion. All successive governments since 1994 borrowed heavily from the local banks to cover the cost of debt servicing, the largest spending item in the budget.

The governments also borrow from local banks to finance investment projects.

Source: By Osama Habib, Daily Star staff

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