Syria is a middle-income, developing country with a diversified economy based on agriculture, industry, and energy. Its current GDP per capita expanded 80% in the 1960s reaching a peak of 336% of total growth during the 1970s. But this proved unsustainable and it shrank by 33% during the 1980s. However current GDP per capita registered a very modest total growth of 12% (1,1% per year on average) during the Nineties due to successful diversification.
Foreign Aid to Syria In 1997, foreign aid totaled an estimated US$199 million. The World Bank reported that as of July 2004 it had committed a total of US$661 million for 20 operations in Syria. One investment project remained active at that time.
Despite the mitigation of the severe drought that plagued the region in the late 1990s and the recovery of energy export revenues, Syria's economy faces serious challenges. With almost 60% of its population under the age of 20, unemployment higher than the current estimated range of 20%-25% is a real possibility unless sustained and strong economic growth takes off. Oil production has levelled off, but recent agreements allowing increased foreign investment in the petroleum sector may boost production in two to three years.
Commerce has always been important to the Syrian economy, which benefited from the country's location along major east-west trade routes. Syrian cities boast both traditional industries such as weaving and dried-fruit packing and modern heavy industry. Given the policies adopted from the 1960s through the late 1980s, Syria failed to join an increasingly interconnected global economy. In late 2001, however, Syria submitted a request to the World Trade Organization to begin the accession process. Syria had been an original contracting party of the former General Agreement on Tariffs and Trade but withdrew in 1951 because of Israel's joining. Major elements of current Syrian trade rules would have to change in order to be consistent with the WTO. In March 2007, Syria signed an Association Agreement with the European Union that would encourage both sides to negotiate a free trade agreement before 2010. Nonetheless, EU member states have yet to ratify the Association Agreement.
The bulk of Syrian imports have been raw materials essential for industry, agriculture, equipment, and machinery. Major exports include crude oil, refined products, raw cotton, clothing, fruits, and cereal grains. Earnings from oil exports are one of the government's most important sources of foreign exchange.
Over time, the government has increased the number of transactions to which the more favorable neighboring country exchange rate applies. The government also introduced a quasi-rate for non-commercial transactions in 2001 broadly in line with prevailing black market rates. Exchange-rate unification remains an elusive goal as pressure is building for Syria to harmonize its exchange rate system.
Given the poor development of its own capital markets and Syria's lack of access to international money and capital markets, monetary policy remains captive to the need to cover the fiscal deficit. Although in 2003 Syria lowered interest rates for the first time in 22 years and again in 2004, rates remain fixed by law. In a positive move in 2003, Syria canceled an old and draconian law governing foreign currency exchange (that law imposed a punishment of up to 15 years in prison and confiscation of property for engaging for buying or selling currency other than with government banks); that -and other- regulatory changes allowed currency exchange shops to spring in Syrian cities; however, the fate of various aspects of the old regulatory system are still unclear, and detailed new regulations are still lacking.
Some basic commodities (such as wheat, fuel) continue to be heavily subsidized, although -in 2008- the government raised the price of various petro products, effectively cancelling the subsidies for benzine and scaling it back for heating oil. Social services (most notably education, including at public universities) are provided for nominal charges.
Syria has made progress in easing its heavy foreign debt burden through bilateral rescheduling deals with virtually all of its key creditors in Europe. In December 2004, Syria and Poland reached an agreement by which Syria would pay $27 million out of the total $261.7 million debt. In January 2005, Russia and Syria signed a deal that wrote off nearly 80% of Syria's debt to Russia, approximately €10.5 billion ($13 billion). The agreement left Syria with less than €3 billion (just over $3.6 billion) owed to Moscow. Half of it would be repaid over the next 10 years, while the rest would be paid into Russian accounts in Syrian banks and could be used for Russian investment projects in Syria and for buying Syrian products. This agreement was part of a weapons deal between Russia and Syria. And later that year Syria reached an agreement with Slovakia, and the Czech Republic to settle debt estimated at $1.6 billion. Again Syria was forgiven the bulk of its debt, in exchange for a one time payment of $150 million. Syria has also settled its debt with Iran and the World Bank.