Outlook for 2011-12

• Despite some tensions within the regime, the president, Bashar al-Assad, is unlikely to face any significant threats to his rule and is expected to remain in power in 2011-12. Some limited domestic political reform is expected.
• Relations with the US and leading Arab states are expected to improve, albeit gradually, although rapprochement will be overshadowed by ongoing tension between the US and Iran, Syria's closest ally.
• The International Atomic Energy Agency will increase pressure on the government to respond to its repeated requests to allow inspectors to visit a suspected former nuclear research site.
• Syrian real GDP growth is estimated at 4% in 2010. We forecast that this will accelerate to 4.5% on average in 2011-12, driven mainly by private investment in industry, construction, transport and electricity generation.
• The liberalisation, privatisation and diversification of the centrally planned economy will continue, helping to offset the effects of falling oil production.
• The central government runs a persistent budget deficit, which is expected to average 2.6% of GDP in 2011-12, lower than previously forecast.
• Inflation will rise to 4.4% in 2011 as global commodity prices increase and value-added tax (VAT) is introduced, but will fall to 4.2% in 2012 with the deflationary effect on rental prices of Iraqis returning home.
• The current-account surplus will widen to an average of about US$660m (1% of GDP) in 2011-12, owing to a rise in the non-merchandise surplus (due to booming tourism), higher oil production in 2011 and slightly higher oil prices.

Monthly review

• Mr Assad has sought to limit the damage that could result from the Special Tribunal for Lebanon indictments.
• The media has speculated that the Baath party is preparing for its 11th regional conference; the previous conference was in 2005.
• The Ministry of Finance has issued its first Treasury bills. However, they have only been taken up by public banks at low rates.
• The finance ministry has published the fiscal outturn for 2009, showing a deficit of 2.8% of GDP, compared with a target of 9%. It has also released a fiscal forecast for the 2011-15 five-year plan, with deficits averaging 6% of GDP.
• The index of the Damascus Securities Exchange rose by 75% in 2010.
• Tamin Telecom (Iran) has been rejected from the mobile licensing contest.
• The government's 2010 oil bid round has received a strong response.

The president, Bashar al-Assad, and his ruling Baath party, are expected to retain their grip on the country, supported by key elements in the security services. The core of the elite is drawn largely from Mr Assad's Alawi sect, and any move against him would risk endangering its hold on power. Underlying resentment of Alawi rule and friction between reformers and conservatives mean that tensions within the regime are likely to persist.

Only limited progress is expected on political reform in 2011-12. Although some promised measures may be implemented, it is hard to envisage any steps being taken that would significantly diminish the Baath party's hold on power. Mr Assad initially advocated political reform when he came to power in 2000, but he has acknowledged that the pace of reform has been slow since then. He has pledged to increase popular participation in the political process by introducing a political parties law, which will create a second chamber of parliament, the Majlis al-Shura-in addition to the existing lower chamber, the Majlis al-Shaab. He also pledged to devise a local administration law to bring about greater decentralisation. Although there have been few visible signs of progress with these reforms, a reduction in international pressure on Syria owing to improved relations will make it easier for at least a few cosmetic changes to be made domestically. However, the security and intelligence services, which are pervasive and effective, will continue to arrest activists demanding democratic reform, and Syria faces numerous accusations of torture and unfair trial of political prisoners. The various opposition-in-exile groups and domestic critics are unlikely to pose a substantive threat to the government.

A parliamentary election was last held in 2007, and Mr Assad's Baath party won 134 of the 250 seats, with no other party winning more than eight seats. The next election will be in April 2011, but the outcome will have little consequence as the primary role of the parliament is to rubber-stamp presidential decrees. The parliament proposes a presidential candidate every seven years who is then voted on in a referendum. Mr Assad was confirmed for his second term as president in 2007.

After a period of diplomatic isolation in 2005-07, Syria has developed steadily better relations with Western and regional states-notably Turkey, Saudi Arabia, Lebanon and Iraq. Consequently, the EU is now ready to sign a long-delayed Association Agreement and final negotiations are ongoing. Better relations are primarily due to perceptions that Syria is playing a more constructive role in Lebanon-helped by rumours that Syrian officials may not, after all, be implicated in the UN inquiry into the killing of Rafiq Hariri, a former Lebanese prime minister. However, Hizbullah, a Lebanese militant group, may be implicated by the tribunal and could respond aggressively, endangering regional stability.

Relations with the US have also improved, and although US sanctions on Syria were renewed in May, the US has withdrawn its objections to Syria's accession to the World Trade Organisation. However, risks remain, in particular Syria's continued commitment to a strong relationship with Iran and its ongoing support for Hizbullah and Hamas, the Palestinian group that controls Gaza. An ongoing investigation by the International Atomic Energy Agency into allegations that Syria has a nuclear programme also poses a threat-the agency has made repeated appeals for Syria to co-operate. There is also opposition to closer ties with Syria within the US Congress-a group of Republican senators are intent on blocking US concessions to Syria.

Talks with Israel are unlikely to yield results, despite recognition by the US that Syria is important to the peace process. Syria has expressed its willingness to resume peace talks if they are based on Israel's full withdrawal from the Golan Heights (captured from Syria in 1967). However, there is little popular or parliamentary support in Israel for a withdrawal. Syria would be required to end its strategic alliance with Iran and its support for Hizbullah and Hamas, as part of any peace agreement, which would be politically difficult but not impossible.

IAEA increases pressure on Syria to co-operate

The International Atomic Energy Agency (IAEA) has for the first time made a direct appeal to the Syrian government to respond to its repeated requests to allow inspectors from the agency to visit sites suspected of being used for undisclosed nuclear activity. The Reuters a news agency reported that the IAEA secretary-general, Yukiya Amano, had told a meeting of the agency's board in Vienna on December 2nd that he had written to the Syrian foreign minister, Walid al-Muallim, on November 18th asking the government to grant access to inspectors, and that he was still awaiting a response.

The IAEA dispatched a team of inspectors in June 2008 to examine the site of a building at Al Kibar, near the northern city of Deir al-Zor, that had been destroyed in an Israeli attack the previous September. The government denied allegations from the US administration that the building had housed a covert nuclear reactor. However, the IAEA team stated in a report issued in November 2008 that there were grounds for supposing that the US allegations were correct, but that further study of Al Kibar and other sites and of relevant documentation would be needed before a definitive conclusion could be reached (December 2008, The political scene).

Since then, the only significant development has been the change at the top of the IAEA: the outgoing secretary-general, Mohamed ElBaradei, had made clear his displeasure both with the US for failing to notify the IAEA of its suspicions about Syria's activities and with Israel for taking matters into its own hands. Mr Amano has focused his attention more closely on Syria's lack of co-operation. However, he has stopped short of mentioning what further action the IAEA may take if Syria continues to impede its inspections. The agency does have the option of invoking a special inspection mechanism to gain access to sites at short notice, and ultimately the matter can be referred to the UN Security Council. However, there does not appear to be any strong interest among Western powers to escalate matters, particularly given the improvement in Syria's relations with a number of important international and regional players, such as France and Saudi Arabia, over the past two years.

The gradual liberalisation of Syria's centrally planned economy is expected to continue under the leadership of the deputy prime minister for economic affairs, Abdullah al-Dardari. However, the economic debate remains highly charged. There are influential officials who oppose this process, and these conflicting interests will inhibit policy formulation and implementation. Recent press reports have highlighted concerns within the Baath party about the negative impact of reform on poverty. There are also powerful members of the business elite who benefit from the status quo and might resist changes that would threaten these advantages.

The overriding policy challenge will be to offset the impact of the long-term trend of declining oil production by developing other sectors of the economy, particularly those that can boost export earnings in the medium term. This will require making established state-owned and family businesses more dynamic and encouraging entrepreneurship and investment. Moves intended to increase domestic and foreign investment include offering infrastructure investment opportunities to private investors, expanding the Damascus Securities Exchange, relaxing foreign-currency restrictions and boosting bank lending. The introduction of Treasury bills in December 2010 is an indication that financial reforms are moving forward, albeit slowly. Plans to introduce a public-private partnership law to aid financing of investment projects have been announced. There are also plans to cut government subsidies, which are burdensome and inefficient, particularly fuel subsidies.

We have revised down our forecasts for the budget deficit, as the Ministry of Finance has announced a lower deficit in 2009 than had been estimated previously. It also announced estimated and planned expenditure and revenue for 2010-12, with deficits expected to average around 6% of GDP each year. However, government expectations for revenue and oil prices tend to be conservative, and the government also usually fails to disburse its spending allocations fully. We therefore estimate that the budget deficit reached 3.7% of GDP in 2010. In 2011 we expect that the deficit will contract to 1.3% of GDP, even further below government projections, as it has not fully accounted for proceeds from a value-added tax (VAT) and windfall revenue from converting existing mobile-phone contracts into licences and awarding a licence to a third operator. In 2012 continued strong growth in capital expenditure-in keeping with the government's five-year plan to boost investment-without exceptional increases in revenue will lead to a small widening the deficit to 3.9% of GDP. Plans to reform public enterprises-most of which are unprofitable-by transforming them into autonomous companies with their own budgets should have a net positive impact on the public finances, and some privatisations are possible, particularly if the Damascus Securities Exchange displays more vibrancy.

The Central Bank of Syria is expected to continue to implement monetary reform and gradually gain greater autonomy. The Ministry of Finance has begun issuing Treasury bills to help to establish a local bond market. Interest rates were cut by 1 percentage point in January 2009 and by 50 basis points in August 2010, but the authorities are unlikely to cut them again in 2011 as inflation is expected to pick up. To encourage investment, the Central Bank is likely to continue to reduce the restrictions on foreign-currency transactions-two decrees, which facilitated foreign-exchange transactions, were issued in November. All of these measures will help to develop and modernise the banking sector, in which privatised banks (which can now be 60% foreign owned) are playing an increasing role.

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We estimate that real GDP growth reached 4% in 2010, as strong government spending and private consumption both supported the economy. We forecast growth of 4.6% in 2011, dropping to 4.5% in 2012 owing to lower oil production. Growth will be driven by rising foreign investment as the economy is opened up and international relations improve. This, combined with a government focus on capital spending, will drive growth in fixed investment, although the rate of expansion in government consumption and capital expenditure will slow during 2011-12. Private consumption growth will pick up as the private sector expands and as an expected recovery in agriculture in 2011 boosts incomes. However, if there is a significant improvement in security in Iraq-not our core scenario-a sizeable number of the Iraqi refugees in Syria (estimated at between 500,000 and 1m) may return home, thereby depressing consumption. Growth in trade will also pick up in 2011-12 as Syria becomes more integrated into the global economy.

On the sectoral side, a poor harvest in 2010 has held back agriculture. Although there should be some recovery in 2011-12, water shortages will remain a risk. A government investment drive will boost industry, building and construction, transport and electricity generation. This will be augmented by investment in the oil and gas sector, which will help to limit declining output in mature fields and boost production in new fields. There will also be a substantial increase in cement production in 2011. Securing finance for some investment projects may face difficulties, especially in commercial real estate where there are concerns about overheating. Services will continue to grow, driven largely by a strong increase in tourist arrivals.

Consumer price inflation is expected to accelerate to 4.4% in 2011, as global commodity prices rise slightly and VAT is finally introduced-although food, a major component of the consumer price index, may be exempted. Inflation will then ease to 4.2% in 2012, as inflationary pressures, particularly on rents, fall because of a stabilisation or a small decline in the number of Iraqi nationals in Syria and declining global commodity prices, particularly of foodstuffs.

The Syrian pound has been loosely pegged to the IMF's special drawing rights since October 2007 and is tightly managed by the Central Bank. The authorities are unlikely to let the pound float freely, because they place a high importance on exchange-rate stability. Weakness in the euro zone (the euro is a major component of the Central Bank's currency basket) caused the pound to depreciate against the US dollar in the first half of 2010, although it has recovered since, resulting in an estimated average exchange rate of S£46.4:US$1 for 2010. Persistent worries about the euro in 2011 will lead to a slight depreciation of the pound against the dollar, and we forecast that it will average S£46.7:US$1 in 2011-12. The Central Bank had healthy foreign-exchange reserves-US$17.4bn (about 13 months of import cover) at end-2009, leaving it well placed to maintain control of the local currency.

In 2011-12 we expect export earnings to grow to an average of US$13.7bn, although this is still below the oil-price-related peak in 2008 of US$15.3bn. In recent years, drought has seriously constrained production, and therefore exports, of cotton and textiles. The drought has now eased, but the 2010/11 wheat crop is expected to be disappointing and a boll weevil infestation may affect the cotton crop.

Oil production is increasing at a number of small fields but declining at the larger, mature fields, with the net effect that output may pick up slightly in 2011, but will probably start falling thereafter, averaging 371,000 barrels/day in 2011-12. The net impact of changes in oil prices on the trade balance is limited, because Syria's imports of refined products are about equal in value to its exports of crude oil. Higher production in 2011, augmented by a rise in average international oil prices to US$82/barrel in 2011-12 from US$80/b in 2010 owing to a small recovery in global demand, will push up crude oil export revenue to an average of US$3.7bn in 2011-12, from US$3.6bn in 2010. Overall, the trade deficit will narrow slightly to an average of US$974m in 2011-12, or 1.5% of GDP.

The non-merchandise surplus is set to continue expanding in 2011-12 as Syria becomes increasingly integrated internationally. In particular, tourism receipts will grow strongly as a result of improving international relations and a developing tourism infrastructure. The non-merchandise surplus is expected to widen, causing the current-account surplus to grow slightly, to an average of US$663m (1% of GDP).

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The Syrian president, Bashar al-Assad, sought to gain European and Arab support for his efforts to prevent the impending announcement of indictments by the Special Tribunal for Lebanon (STL) from sparking off sectarian conflict in Lebanon. The STL, which is based in the Netherlands, was established by a UN Security Council resolution as a mixed international-Lebanese body tasked with bringing to justice those responsible for the assassination of Rafiq Hariri, a former Lebanese prime minister and an iconic figure among the country's Sunni Muslims, in February 2005 and several related murders. Hizbullah, a Shia movement that is the strongest military force in Lebanon, has reacted to reports that its members are likely to be indicted by ratcheting up the pressure on the Lebanese government (of which it is a minority member) to renounce the STL. The government is underpinned by an accord between Syria and Saudi Arabia to guarantee stability.

Mr Assad held discussions during December with the leaders of France and Qatar, two other states that have made a strong commitment to upholding Lebanese stability. During his visit to Paris, where he held private talks with the president, Nicolas Sarkozy, Mr Assad said that every effort was being made to avoid sectarian conflict over the STL, but he also emphasised that this was ultimately a matter for the Lebanese and that Syria had no wish to intervene. During a subsequent visit to Doha, the Qatari capital, on December 14th, Mr Assad said that he had discussed with the Qatari emir, Sheikh Hamad bin Khalifa al-Thani, unspecified ideas about how to lessen tensions over the STL. He said that he was concerned that any indictments issued by the STL should be based on conclusive evidence and that the trial should not be politicised.

Syrian president seeks to limit damage from the STL

The Syrian president, Bashar al-Assad, appears to have adopted a deliberately vague position with respect to the direction that the Special Tribunal for Lebanon (STL), which established to bring to justice those responsible for the assassination of Rafiq Hariri, a former Lebanese prime minister, is taking, even though the issue is of critical importance for Syria's security interests owing to the risk of conflict breaking out in Lebanon and drawing in Israel and Syria. Mr Assad has been generally sceptical about the STL, but he has avoided overtly attacking its integrity. This is in contrast to the leader of Hizbullah, a Lebanese Shia group, Hassan Nasrallah, who has denounced the tribunal as an arm of Israeli policy. Mr Assad has also closely consulted the Lebanese prime minister, Saad Hariri (a son of Rafiq), about how to deal with the STL. Mr Hariri remains committed to maintaining official Lebanese government support for the tribunal, but he has also declared that he wishes to avoid the process become politicised. This suggests that if Hizbullah members were to be indicted for carrying out the assassination he would not wish the tribunal to pursue the question of whose orders they were following.

Such an outcome would probably satisfy Syria and Saudi Arabia, and could even be deemed adequate by France. However, one of the problems facing the parties seeking to minimise the damaging fallout from the STL is that they cannot guarantee such an outcome without interfering in the judicial process. During his visit to Paris, Mr Assad said that he believed that France could play a role through its position as a permanent member of the UN Security Council in preventing the STL's "politicisation". Mr Nasrallah appears to have concluded that he cannot afford the risk that the STL's indictments will spread further than those directly involved in the assassination, and that he has little option but to persist in his campaign to force the Lebanese government to renounce the tribunal, even if that entails bringing the government down.

Syria would undoubtedly be closely involved in negotiating a solution to the political crisis that would ensue. Mr Assad would have to take into consideration Israel's assessment of such a situation. Israel could be prompted to attack Lebanon once more if it considered that Hizbullah had in effect taken control of the country. However, Israel might be persuaded to hold back if Syria were able to broker a deal involving some checks on Hizbullah's power. In the former scenario, Syria would have to take care to manage the risk of being drawn into the conflict, particularly given the recent allegations by the US and Israel that Syria has directly supplied advanced medium-range missiles to Hizbullah. Conversely, if Syria were to impose curbs on Hizbullah, this might put Mr Assad on a collision course with Iran.

There was some discussion in the Syrian media in December about whether the ruling Arab Socialist Baath Party might be preparing to hold its 11th regional congress. The previous congress was held in 2005, and typically such gatherings are held every five years. Mr Assad, who is the regional secretary of the party (region, or qitr in Arabic, in this context is a reference to Syria as part of a wider Arab national entity), declared recently in response to a question at a press conference that the important issue with respect to any coming congress was not its timing but whether it produces results matching people's expectations.

Speculation that the Baath party may be gearing up for a new congress has been fed by reports of internal elections in several branches of the party. The previous Baath congress was notable mainly for its approval of a strategy of establishing a social market economy, which marked a departure from the party's previous commitment to socialism. The congress also decided to set up a special committee to study proposals for political reform, including ending the party's automatic majority. This is enshrined in the constitution, as amended in 1973, which guarantees the Baath party and nine allied formations at least two-thirds of the 250 seats in the People's Assembly, Syria's unicameral parliament. No parties are permitted outside this National Progressive Front, meaning that the remaining seats go to independents, who are typically loyalist business people. (A handful of independents have in the past used their status as members of parliament to criticise the government, but this has not made them immune from arrest.) There has been no indication since the 2005 congress of any active consideration of these proposed reforms. The next parliamentary election is scheduled to take place in April 2011.

The Economist Intelligence Unit's 2010 democracy index ranks Syria 153rd out of 167 countries. Of the 20 countries in the Middle East and North Africa, 17 are ranked as "authoritarian" and only Saudi Arabia, Libya and Iran score worse than Syria. The Syrian score is held back by the fact that there are few options for political participation, no meaningful elections and highly restricted civil liberties. It has improved its position in the rankings owing in part to an improvement in its score but also to a general decline in our evaluation of democracies elsewhere as governance, political participation, civil liberties, media freedoms and attitudes that are conducive to democracy have been generally eroded. Syria's score has increased as a result of greater confidence in government, as it has proceeded with the (mainly economic) reform programme and the expansion of civil liberties, which have mainly improved because of a better security situation in Iraq.

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The Baath party is dominant

Syria has been governed by the Baath party since it seized power in 1963. The party has, for most of that time, been dominated by the Assad family and associated members of its Alawi sect. Baath party rule has brought stability but has restricted political debate, with the party having co-opted other organisations such as trade unions. At its June 2005 congress, the Baath party endorsed the principle of amending the law on political parties to permit a degree of pluralism, and in 2007 Mr Assad promised that the government would begin work on a political parties law and establish a second chamber of parliament to expand the decision-making circle. However, there has been little sign of progress in implementing such reforms. In any case, the proposals fell far short of the demands of Syria's main opposition forces, including the banned Muslim Brotherhood, Kurdish nationalists and human rights activists. The Baath party conference is supposed to take place every five years and is therefore overdue.

Further political liberalisation is possible

Syria has survived the global economic crisis in relatively good health and has managed to stem the decline in oil production temporarily. Combined with better relations with Western and regional countries there is a chance that the Baath party may feel more secure and hence able to deliver at least the limited political reforms that it has previously endorsed. Conversely, a lack of pressure on the regime provides little urgency for it to take action and it has continued to arrest and restrict the movement of political dissidents and democracy and human rights activists.

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indices.

The category indices are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regimes:

• full democracies-scores of 8 to 10;
• flawed democracies-score of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

The Ministry of Finance in December launched a S£5bn (US$108m) Treasury-bill programme. It was a long-awaited development since the original legislation that enabled the issue was passed in 2007. The offerings started on December 13th with the auction of two lots of S£1bn each, one with a three-month maturity and the other with a six-month maturity. The next three issues-launched one week later-were also of S£1bn each, but with maturities of one year, three years and five years, respectively.

The finance minister, Mohammed al-Hussein, described this initiative as marking the launch of a market in government securities. However, private banks expressed concern about extremely low ceilings for the yields on the bills. This resulted in the auctions for the shorter maturities being won by state-owned banks, which were thereby, in effect, lending to the government at subsidised rates. The ministry stated that the interest rate on the first two issues must not exceed 1% for the three-month bills (4.1% on an annual basis) and 1.15% for the six-month paper (2.3% on an annual basis)-this is well below the current rate of inflation.

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All of the issues were oversubscribed. The 3-month and 6-month securities were sold to four state-owned banks at 0.4% and 0.6%, respectively (1.6% and 1.2% on an annualised basis). Eleven banks took part in the auctions; evidently some of the private banks disregarded the ceilings as a means to register their view of what a fair market price for the bills should be.

The next auction was held on December 20th, with the ceilings set at annual rates of 1.5%, 2% and 2.5% for the one-year, three-year and five-year paper, respectively. Again all of the offers were oversubscribed and the rates achieved were close to the ceilings, or, in the case of the five-year bill, above the ceiling. The ministry has not provided details of the banks that were involved, but given the number of awarded bids some private banks must have been successful.

The involvement of the private banks is a clear indication of their support for the initiative. Private banks are keen to see the creation of new instruments in which to invest their burgeoning deposits. They are even willing to consider taking returns that are below their average cost of funds-about 3.5%-because any surplus liquidity is currently deposited interest-free with the Central Bank of Syria; according to the most recent monetary data, for July 2010, 16% of total bank assets were held as balances with the Central Bank.

The caution with which the government is approaching the T-bill issues reflects a general aversion to taking on debt. However, Syria's current debt burden is relatively light, following an agreement reached at the start of 2005 to write off most of what it owed to the former Soviet Union. Total external debt is only 13% of GDP, and net public debt is 26% of GDP, according to the Economist Intelligence Unit 2010 estimates. Law 60, covering the T-bills, grants considerable latitude to increase government borrowing: it specifies that both domestic and external debt must be below 60% of GDP, and total public debt must not exceed 80% of GDP. The government is embarking on a five-year (2011-15) plan that includes a target of total investment of S£4trn (US$87bn), to be split evenly between the public and private sectors. In order to have a chance of hitting this target, the government will need to take a more bold approach to issuing new debt than has been evident so far.

The finance ministry produced final budget outturn figures for 2009 in its report on the 2011 budget. The report also included fiscal projections for the five-year plan, envisaging budget deficits averaging almost 6% a year as investment spending is ramped up. The actual deficit last year was 2.8% of GDP, compared with a target of 9% of GDP. The lower outturn resulted from higher than expected revenue and from underspending on investment. The report stated that current revenue was 20% above target (S£398bn, or US$8.7bn, compared with S£331bn) and that investment revenue was 6% higher than expected (£S135bn, compared with S£127bn). The third item of revenue listed in the report-foreign loans-was on target at S£12.3bn.

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The report did not provide a breakdown of expenditure. Nor did it include a figure for actual expenditure. However, the report stated that the actual deficit was S£70.45bn, which implies that total expenditure was S£615bn, 10.2% lower than the target of S£685bn. The government has persistently struggled to meet its capital expenditure targets, which raises questions about whether it will be able to meet the ambitious spending objectives in the new five-year plan.

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The Damascus Securities Exchange (DSE) was the best-performing stockmarket in the Middle East and North Africa region (after Iran) and one of the best in the world in 2010. The market was launched in March 2009, and the DSE index was introduced on the last day of trading that year, at 1,000. By mid-December the index had risen to 1,750. Trading is still restricted to three days a week, and there are currently only 18 stocks listed, with a total market capitalisation of only about 5% of GDP. Daily trading rarely exceeds S£100m (US$2.2m), and the market is heavily skewed towards finance, with banks accounting for 11 of the listed stocks and insurance companies for four.

Privately held companies have thus far been resistant to listing, and the government has for the time being ruled out privatisation, which would offer a means to boost the capitalisation of the DSE. Nevertheless, a relatively secure platform has been created for the market's rapid expansion. The award of three mobile-phone licences next year (one to a new operator and two to the incumbents) may be a catalyst for the DSE's growth-the telecommunications companies may consider listing shares as a means to help cover the costs of the licences.

The Ministry of Communications and Technology announced at the end of November that it had pre-qualified five of the six operators that had applied to take part in the auction for a third mobile-phone licence. The ministry accepted offers from Etisalat of the UAE, Saudi Telecom, Qatar Telecom, France Telecom and Turkcell, but rejected the application of Iran's Tamin Telecom as it failed to meet the requirement to have substantial operations in more than one country (December 2010, Economic performance).

The ministry said that there would be a pre-bid meeting in Damascus, the capital, on December 8th, to allow the companies to discuss the auction conditions. This would be followed by the issue of a request for proposals four days later. These bids are scheduled to be opened in March.

Bidders that score at least 70% of the marks available for their technical and investment proposals will be invited to take part in a one-day auction at the end of the month. Local press reports have indicated that the base price will be about US$500m, and that each of the existing operators-Syriatel and MTN-will be required to pay this sum in order to convert their build-operate-transfer (BOT) contracts into licences. The ministry has specified that the new operator will be required to form a company in which the state-owned Syrian Telecommunications Establishment will hold a 20% stake, and that 25% of gross revenue will be paid to the state, in addition to 0.5% to finance the operations of a new regulatory agency, which is in the process of being formed.

The General Petroleum Corporation received 15 bids from a total of 13 oil companies for the eight onshore exploration blocks offered in its 2010 bid round (May 2010, Economic performance). According to the deputy oil minister, Hassan Zainab, as quoted by Bloomberg, the bidders included several companies already active in Syria: Suncor (Canada), Total (France), London-based Gulfsands Petroleum, China National Petroleum Corporation, Loon Energy (Canada) and US-based IPR. The new entrants to the market included Eni (Italy), Sea Dragon Energy (Canada), US-based Flournoy Oil and Gas, the Dana Gas (UAE), Pico International (Egypt) and Hadi Bouchmaoui (Tunisia). The blocks are to be awarded in the first quarter of 2011. The government has also announced plans to invite bids to explore a number of offshore blocks next year. Syria's oil production has stabilised at about 370,000 barrels/day, as new production from fields operated by Gulfsands has offset the continued decline of some more mature fields.

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

185,180 sq km

Population

20.5m (mid-2008 estimate)

Main provinces

Population in millions, 2006

Damascus (capital) area: 4.01

Aleppo: 4.23

Homs: 1.59

Hama: 1.44

Hassakah: 1.33

Idlib: 1.31

Climate

Subtropical on coast, arid in the centre, cold winters in the highlands

Weather in Damascus

Hottest month, August, 18-37°C (average daily minimum and maximum); coldest month, January, 2-12°C; driest month, August, zero average rainfall; wettest month, January, 43 mm average rainfall

Languages

Arabic, French, some English

Religion

Sunni Muslim (72%); Alawi Muslim (14%); Christian (12%); Shia Muslim and Druze minorities

Measures

Metric system

Currency

Syrian pound (S£) = 100 piastres

Time

GMT plus two hours

Fiscal year

January 1st-December 31st

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. Mawlid al-Nabi (the birthday of the Prophet, February 26th 2010); Eid al-Fitr (September 11th); Eid al-Adha (Feast of the Sacrifice, November 17th); Islamic New Year (December 7th)

New Year's Day (January 1st 2010); Revolution Day (March 8th); Mother's Day (March 21st); Easter (April 4th); Orthodox Easter (April 5th); Independence Day (April 17th); Labour Day (May 1st); Martyrs' Day (May 6th); October Liberation War (October 6th); Christmas Day (December 25th)

Official name

Syrian Arab Republic

Form of state

Republic

Legal system

Based on the constitution of 1973

Legislature

250-member Majlis al-Shaab (People's Assembly) directly elected for a four-year term

Electoral system

Universal adult suffrage

National elections

Next legislative and presidential elections due in 2011 and 2014 respectively

Head of state

President, elected for a seven-year term. The president appoints the vice-presidents, the prime minister and the Council of Ministers. Bashar al-Assad, the current president, is also the commander-in-chief of the armed forces and the secretary-general of the Baath party

Executive

The prime minister heads the Council of Ministers, a large number of whom are drawn from the ruling Baath party and its partners

Main political parties

The ruling National Progressive Front includes the Arab Socialist Baath Party; Arab Socialist Party; Arab Socialist Unionist Party; Communist parties; Syrian Arab Socialist Union Party; Unionist Socialist Democratic Party; Union Socialist Party

Prime minister: Mohammed Naji al-Otari

Deputy prime minister for economic affairs: Abdullah al-Dardari

Key ministers

Agriculture & agrarian reform: Adel Saffar

Awqaf (Islamic endowments): Mohammed Abdel-Sattar al-Sayed

Communications & technology: Imad Abdel-Ghani Sabbouni

Defence: Ali Habib

Economy & foreign trade: Lamiya Assi

Education: Ali Saad

Electricity: Ahmed Qusay Kayyali

Environment (minister of state): Kawkab al-Sabah al-Dayeh

Expatriate affairs: Joseph Sweid

Finance: Mohammed al-Hussein

Foreign affairs: Walid al-Muallim

Health: Rida Said

Higher education: Ghiath Abdel-Wahab Barakat

Housing & construction: Omar Ghalanji

Industry: Fouad Issa Jony

Information: Mohsen Bilal

Interior: Said Sammour

Irrigation: George Soumi

Justice: Ahmed Hamoud Younis

Labour & social affairs: Diyala al-Hajj Aref

Local government: Tamer al-Hijjeh

Petroleum & mineral resources: Sufyan Allaw

Presidential affairs: Mansour Azzam

Tourism: Saadallah Agha al-Qalah

Transport: Yarob Suleiman Badr

Central Bank governor

Adib al-Mayaleh

State Planning Commission

Amer Lutfi