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"We have recently completed a draft law on introducing a treasury bill and are now waiting for the IMF to read and consult the draft before we submit it to the cabinet"
Mohammed Al-Hussein |
The IMF recently released the preliminary conclusions of its latest Article IV consultation, which drew attention to the rapid decline in Syria’s oil revenues. Given the importance of this income to government finances, how is the ministry trying to counteract the downturn?
This is an extremely important issue, given that over the past years oil revenues have been dropping quickly, with no new discoveries made. This has necessitated a number of changes in our policy, and in particular we have adopted three methods.
The first way has been to grant new rights to prospect for untapped sources of oil, and more than 20 new contracts have been signed. Although there have been no definite results yet, the outcome has so far been encouraging and we still hope to discover new reserves.
Second, we are redirecting public expenditure into more profitable and efficient areas. The third way, which is the most promising in my view, is a reform of the tax administration. We are not looking to impose new taxes or raise taxation rates, but on the contrary have been reducing taxes over the last few years and have taken an increasingly rigorous approach to tax evasion.
What specific measures have been taken in terms of such reform, and what kind of progress has been made?
As part of a large-scale restructuring programme that has been in progress for some years, we have updated or introduced 130 pieces of legislation. The reform of the tax administration will provide the main substitute for the reduction in oil revenues and is something we have been working on with numerous international bodies. We are finalizing further new legislation that will bring about a full transformation within a couple of years.
As for public expenditure, there are huge chunks of our budget being poured into subsidies. This situation needs to change. We are doing it as gradually and as subtly as possible to avoid any abrupt change, but our aim is to significantly alter the system to make it fairer and better targeted towards the needy. We are already working on these reforms, but they will take a couple of years to implement fully.
So far, the results of tax reform have been more favourable than those of public expenditure [reform]. Tax collection actually rose by 20% between 2003 and 2006, even though we have reduced corporate tax rates from 63% to 22% and individual tax from 63% to 28% over same period.
We are reducing our outstanding loans and have cut down our external debt to $2.3 billion from $20 billion in 2003. Our main concerns remain in the area of subsidies, which we want to contain.
What kind of effect has this had on the budget deficit?
The total budget deficit in 2006 was around 1.8% of GDP, whereas in 2005 it was 4%. If you take oil revenues out of the equation then the total budget deficit in 2006 was 11.8%, against 13% in 2005. So even though tax rates were decreased and oil revenues went down, we are moving in a relatively stable direction.
The subsidies system has also been affected by the large number of Iraqis coming into Syria since 2003. What effect has that had on the economy and on your policies?
More than 1.5 million Iraqis have registered in Syria so far, and according to some reliable estimates it is likely that this number will eventually reach 1.7 million to 2 million. We have a 600km border with Iraq which is very difficult to control.
The Iraqis [who have come to Syria] are not living in refugee camps. These people have blended into the community, they pay rent, and they mostly live in and around Damascus.
But they have had several effects on our economy. They have contributed to inflation, which rose from 6% in 2005 to 10.3% in 2006, and of course are consuming many of those commodities which are subsidized by the Syrian government. We calculate that these 1.5 million Iraqis add a further $700 million every year to our subsidies bill and have particularly heavy demand on products such as oil derivatives and petrol. In total, they result in an extra burden of about $1.6 billion a year for the Syrian economy.
These people have not come willingly to Syria, but due to the daily bombings and the terrible situation in Iraq which was brought on by the American invasion. They should be taken care of by the regional authorities, by the humanitarian organizations and by the Iraqi government. We’re not saying that we want to deport them, but we need help from external humanitarian organizations as the Iraqi immigrants are now a huge burden on living costs. The end hope is to get them safely back home, as they should not need to stay here for ever.
Plans to introduce VAT are on the drawing board. Has any specific launch date been set?
At present we already have a consumers’ tax, which works in a similar way to VAT but only applies to certain commodities. In terms of preparing for VAT, we have been cooperating with the EU and the IMF and training our own national team to acquire better expertise. We are working towards a scheduled launch date of January 1, 2009.
There has also been expectation for some time that the government would issue a treasury bill. Could you provide an update on this?
This is a fundamental priority in our schedule. We have recently completed a draft law on introducing a treasury bill and are now waiting for the IMF to read and consult the draft before we submit it to the cabinet, to the parliament and finally to the President’s office. Our target is to issue the first bill by January 1, 2008.