Government Debt of Syria - Term Paper Example

 Government Debt Of Syria Introduction The Syria nation is based on diversified economic activities, which includes tourism activities, industrial sector and agricultural activities. 1The GDP per capita income increased from 80 percent and reached the peak of 90 percent from the year 1960s to 1970s consecutively. The economy started to shrink in the year 1980s but successful diversification contributed to the total economic growth by 12 % in the following years. Agricultural activities, tourism and production of oil are the main pillars of economic growth in Syria. However, the subsequent poor climatic conditions severely impacted the economy and this impacted the agricultural sector drastically. This reduced the shares of the economy to an estimate of 17 percent in the year 2008 in terms of GDP, which by 2007 was 20.4 percent (Gelvin 2007, p. 53). Since the agriculture sector accounted for 25% of the total GDP, and labour also 25%, the consequences of climatic changes impacted also the employment sector; thereby, contributing to increase unemployment level. The reduction of crude oil also led to augmented prices for oil products, which in turn contributed to elevated export receipts and budgetary. Although the Syrian Government have made significant efforts of reducing income-tax and increasing subsidies for state sector employees, the country faces varied challenges including high unemployment level, oil resource depletion, poor investments and suction laws, as well as, public and external government debt challenges. The economic structure of Syria bears a greater government debt, which is linked to the political, social and economic structure of the country. Since the beginning of 1993 when 2Baath Party began to rule, the state has been centralised because of bad political governance, which has led to deterioration of the economy. Syria is among the economies that have been impacted both economically, politically and the economic debt is associated with highly centralisation in the government structure. The high exportation of oil to varied country is one of the main economic sources of income for Syrians. Syria is the leading economies in the Middle East with high exportation of petroleum because the economy is rich of petroleum oil products. The second source of revenue is tourism activities but the tourism industry was significantly impacted because of Syria uprising. The Syria economy has been hit by immense economic problems since the political issues which contributed to war outbreak and this has contributed to high government debt. Aita (2000, p 3.) argued that the weak government revenues, whereby the growth of revenues falls behind that of the GDP was among the economic problems that contributed to the increased government debt. Syria is a nation of low tax income, which is about 316 percent to the GDP and yet the government believes that the tax burden is too heavy because the revenues from oil production consist of a substantial constituent of the GDP. The economic sanctions such as trade barriers and financial restriction suctions were also imposed upon the country because of economic, social and political problems. This restricted trading activities with other countries such as Australia, Canada, Japan, European Union and other Arab League countries. The sanctions especially the political sanctions were linked with the civil War, which arose in Syria and impacted the economy. The weak government spending power accounts for increased government debt in the Syria economy. Regarding to the current spending power of the economy, this is creating a huge deterioration in the state performance of employees due to low income levels, which forces many of them to search for better paying jobs elsewhere in order to meet their demanding needs. The weak government investment spending is also impacting the quality of the state services and their GDP contributions (Aita 2000 P. 4). This is one of the problems that hinders the investment and development process; thus inciting privatization of certain major state activities especially banking services. In this case, Syria requires also a new financial policy, which will enable them to clearly define the authority framework vital for enabling them to take responsibility of augmenting the government spending in an effective meaner. For instance, improving administration performance such as providing reasonable salaries for state workers to stimulate unemployment issues is vital. Promoting Syrian exports by stabilizing the political climate and also supporting the public production sector or subsidizing agricultural activities can contribute to better economic performance. In addition, 4President Assad pushed through income-tax reductions, increased subsidies for state sector employees, reduced customs and increase salaries to 50 % of the state minimum wage with an aim of suppressing domestic protest, but the economic activities will still remain severely depressed until violence subsides. These dispensations proved fruitless and the government crackdowns on protestors, which followed in earlier 2011, instigated the crisis in the state. Presently, the conflicts that enwrapped in a geopolitical disagreement reveal that the resolution to end the conflicts appears far despite the intensification since the midst of 2011. As such, the economic growth of the country is likely to recover in the long term and this creates a huge impact on the economy as the government debt will not be cleared easily. This is because the factors of production such as infrastructure and many others were destroyed; thus the economic growth will not return swiftly even though the violence will totally end. The government will also be forced to borrow more in order to enable them meet the steep reconstruction costs and diminished productive capacity ( ISH Global Inch 2012, p. 3). The legacy of the state intrusion, control of foreign exchange, trade and price control issues hampered economic growth; thereby, contributing to increased government debt. Syria is among the nations which has experienced many economic, social and political issues; hence contributing to low investment levels. Although, the economic reform was incremental whereby Syria legalised the private banking services in 2001, the government debt was still high. The Syria government formed a board in the year 2004 whose aim was to oversee the establishment of the stock market (Richards and Waterbury 2006, p. 56). The major economic changes were made in the financial sector and similar changes were made to commercial code, as well as, other laws were implemented to solve the issue of property rights. Syria faces varied challenges including public and external government debt, high unemployment level, oil resource depletion, poor investments and suctions, which were placed by the United States. All these challenges are threats to economic performance of the state and they will increase the government debt burden. For instance, the public and external government debt of Syria accounts for 89% and this means that for the state to clear this debt within a year, they have to dedicate themselves to GDP for this aspect (ISH Global Inch 2012, p. 4). The Syrian government also has an external debt of 21.55 billion dollars, which is estimated at 45% of its revenues. Such kind of abnormal debts and their servicing charges places a constraint on the economy of Syria; thus impacting economic growth of a state. They also lessen the ability of the state to acquire or receive new loans from other international credit agencies such as International Monetary Fund and many others. According to ISH Global Inch (2012, p. 12), Syria is recorded as one of the countries with high government debt of 18.64% in relation to GDP of the country in the year 2010. GDP is one of the significant factors employed by investors in measuring the future economic performance of the country and it measures in case the state is able to make future payment of money borrowed or debts. The Central Bank of Syria reported that the government debt of Syria is close to the country’s GDP and this is a great threat to the economic performance of the country. Previously, 5the government debt to GDP was estimated to be 92.1 percent and this was from the beginning of the year 1990 to recent year. Therefore, the government debt of Syria may possibly affect the country’s borrowing costs and administration bonds. The figure below reveals the government debt of Syria in relation to GDP from the year 1990 to the present. Source: http://www.tradingeconomics.com In conclusion, although the Syrian Government have made significant efforts of reducing income-tax and increasing subsidies for state sector employees, the country faces varied challenges including high unemployment level, oil resource depletion, poor investments, suction laws, as well as, public and external government debt challenges. The Syria economy has been hit by immense economic challenges since the political issues which led to civil war; thereby, contributing to elevated government debt. The weak government spending power, high rate of unemployment and weak government incomes all accounts for increased government debt. The country current has a high public and external government debt, which creates a threat to economic growth of the country. Bibliography Aita, S. (2000). Financial & Monetary Aspects of the Syrian Economy. Pp. 1-12. Gelvin, J. L. (2007). The modern Middle East. New York: Oxford University Press. ISH Global Inch. (December 2012). "Country Intelligence: Report: Syria." Syria Country Monitor, pp.1-22. Business Source Complete, EBSCO host (accessed June 5, 2013). Richards, A., & Waterbury, J. (2006). A political economy of the Middle East: State, class, and economic development. Boulder: West view Press. Read More