The Institute of International Finance projected Syria’s real GDP to contract by 14 percent in 2012 compared to 6 percent in 2011. It attributed the contraction in activity to the large reduction in agriculture output and further declines in investment and net exports due to the escalation of fighting and economic sanctions.
It warned that the contraction in output would exceed 20 percent in 2012 if the fighting continues through the end of the year, as reported by the Country Risk Weekly Bulletin, the emerging markets publication of the Byblos Bank Group.
The IIF said foreign direct investment and tourism, which drove economic growth during the 2003-10 period, have dried up. It estimated tourism receipts to have dropped from 11 percent of GDP in 2010 to 4 in 2011, and to drop to 0.6 percent in 2012.
It also estimated net FDI to have dropped from $1.5 billion in 2010 to $600 million in 2011, and to drop further to $100 million in 2012. It noted that the disruption in economic activity, along with the intensification of sanctions and the fall in agricultural output, have led to major shortages of basic consumer items. As such, it forecast inflation to average 17 percent in 2012 compared to 5.2 percent last year.
Further, the IIF expected Syria’s fiscal deficit to widen to 14 percent of GDP in 2012 from 8 percent of GDP in 2011 due to the planned further increase in government spending and weaker tax revenues associated with the continued sharp contraction in output.
It attributed the deficit widening to lower oil revenues, which used to account for between 25 and 33 percent of government revenues, depending on oil prices. It forecast Syria’s oil exports to drop to 100,000 barrels per day in 2012 relative to 130,000 bpd in 2011.
It noted the government is financing most of the fiscal deficit through borrowing from the domestic banking system. It projected the current account deficit to widen to 13.1 percent of GDP in 2012 from 9.2 percent last year.
It said the volume of merchandise exports fell by 12 percent in 2011 and is expected to drop by 20 percent this year, with non-oil exports dropping by 17 percent this year after a drop of 11.5 percent in 2011.
Also, it forecast the volume of merchandise imports to fall by 21.5 percent this year after dropping by 14.2 percent in 2011, with non-oil imports falling by 20 percent this year after dropping by 12.5 percent in 2011.
In parallel, the IIF pointed out that the large fall in foreign exchange receipts, along with an estimated $5 billion in capital flight last year, have led to a sharp decline in official foreign currency reserves to $10.8 billion, equivalent to 4.4 months of imports of goods and services at end-2011, from $19.5 billion or 7.6 months of import cover in 2010.
It projected Syria’s foreign exchange reserves to decline to $1.1 billion at end-2012, equivalent to 0.6 months of import cover.
It warned that the expected widening of the current account and fiscal deficits, and continued capital flight, will deplete Syria’s official reserves by end-2013 assuming no significant financial support from the regime’s allies.
It estimated total capital flight between March 2011 and July 2012 at $10.5 billion, equivalent to 21 percent of GDP. It said official and black market foreign exchange rates have fallen by 40 and 80 percent, respectively since March 2011, and expected the official exchange rate to average 64.5 pounds against the U.S. dollar in 2012 compared to 49.2 pounds in 2011.
It also projected the average weighted exchange rate, which assigns a weight of 60 percent to the official exchange rate and 40 percent to the black market rate, at 81.5 pounds against the U.S. dollar this year relative to 58.2 pounds in 2011.