2009 Index of Economic Freedom

Quick Facts

Population:

• 19.4 million

GDP (PPP):

• $82.0 billion
• 4.4% growth
• 3.5% 5-year compound annual growth
• $4225 per capita

Unemployment:

• 9.0%

Inflation (CPI):

• 7.0%

FDI Inflow:

• $600.0 million

Syria's economic freedom score is 51.3, making its economy the 141st freest in the 2009 Index. Its score is 4.2 points better than last year, reflecting improvement in seven of the 10 economic freedoms. Syria is ranked 15th out of 17 countries in the Middle East/North Africa region, and its overall score is lower than the regional average.

Syria still depends heavily on its oil sector, which provides half of government revenues and about two-thirds of export earnings. The economy has expanded steadily, yielding an average annual growth rate of 3.5 percent over the past five years. The private sector has contributed to recent steady growth, in part benefiting from reforms in banking, business regulations, and the investment regime. The fiscal deficit has declined to below 5 percent.

Considerable challenges lie ahead, and Syria's future economic development needs to include more committed economic reform. High tariff and non-tariff barriers limit overall trade freedom. The country's institutional capacity to enhance property rights and tackle corruption effectively remains weak. Persistent state influence in most areas of the economy taints the civil service and makes court rulings vulnerable to political influence.

Background Back to the top

Syria has been ruled by the Assad regime ever since Minister of Defense Hafez al-Assad seized power in 1970. His son Bashar, who succeeded him in 2000, has failed to deliver on his promises to reform Syria's socialist economy. Foreign investment has been restrained by U.S. economic sanctions and Syria's international isolation as a result of its involvement in the February 2005 assassination of former Lebanese Prime Minister Rafiq Hariri. Although the economy has been helped by higher oil prices for Syria's declining oil exports, the Assad regime has been forced to undertake such belt-tightening measures as reducing subsidies on gasoline and other commodities.

Business Freedom 61.4 Back to the top

The overall freedom to conduct a business is constrained by Syria's regulatory environment. Starting a business takes about half of the world average of 38 days. Obtaining a business license requires slightly more than the world average of 18 procedures. Closing a business can be a lengthy and burdensome process.

Trade Freedom 54.0 Back to the top

Syria's weighted average tariff rate was 15.5 percent in 2002. Prohibitive tariffs, import bans and restrictions, import taxes, non-transparent trade regulations, burdensome standards, inefficient customs administration, and corruption add to the cost of trade. Fifteen points were deducted from Syria's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 87.0 Back to the top

Syria has a low income tax rate and a moderate corporate tax rate. The top income tax rate is 20 percent, and the top corporate tax rate is 28 percent. Other taxes include an estate tax and a property transfer tax. In the most recent year, overall tax revenue as a percentage of GDP was 10.7 percent. The government plans to introduce a value-added tax (VAT) in 2009.

Government Size 74.9 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 28.9 percent of GDP. The centralized, state-run economy is gradually opening. A private airline was launched in 2008.

Monetary Freedom67.2 Back to the top

Inflation is relatively high, averaging 7.9 percent between 2005 and 2007. The government controls prices for many goods; sets prices, provides subsidies, and controls marketing in the agricultural sector; influences prices through state-owned enterprises and utilities; and constrains private participation in manufacturing with input and output pricing limits. Fifteen points were deducted from Syria's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom40.0 Back to the top

Officially, foreign investment receives national treatment, and foreigners may own 100 percent of a company in certain sectors. Most sectors are open to foreign direct investment, except for power generation and distribution, air transport, port operation, water bottling, telephone services, and oil and gas production and refining. A weak and arbitrary legal environment and complex investment-related laws are deterrents to investment. Many capital transactions are subject to controls, and all foreign exchange and trade transactions require government approval. New laws provide guarantees against expropriation and permit repatriation. A new investment law approved in January 2007 allows foreigners to own land in connection with investments and permits repatriation of capital and profits with some restrictions.

Financial Freedom20.0 Back to the top

Syria's small financial system is subject to heavy state influence. Regulations are cumbersome and unclear, and interest rates are set by the government. State-owned banks account for over 90 percent of private-sector lending, and the central bank is not independent. There have been some considerable changes in the Syrian financial sector. The government has opened the state-dominated banking sector, and eight private banks are currently in operation, including two Islamic banks. All are joint ventures between Syrian shareholders and Arab banks, with a foreign ownership ceiling of 49 percent. These private banks represent just over 15 percent of total assets and liabilities in the banking system. In 2005, the insurance sector was opened to private companies, breaking the monopoly previously enjoyed by the state-owned Syrian Insurance Company. Private insurance companies are allowed 100 percent foreign ownership. Capital markets are negligible and restricted to small amounts of government debt. There is no stock market.

Property Rights30.0 Back to the top

Protection of property rights is weak. Political connections and bribery influence court decisions. A new law promulgated in 2007 permits foreigners to own or lease real property, but there is practically no legislation that protects intellectual property rights.

Freedom From Corruption24.0 Back to the top

Corruption is perceived as widespread. Syria ranks 138th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007, a steep decline from 2006. Even members of the regime are said to be alarmed at the level of corruption in the legislative, judicial, and executive branches of government.

Labor Freedom54.9 Back to the top

Syria's inflexible labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is moderate, but the difficulty of firing workers creates disincentives for additional hiring.