DAMASCUS, 30 October 2007 (IRIN) - Syria is struggling to reform unsustainable and inequitable subsidies, despite warnings from leading economists that delays increase the likelihood of drastic economic shocks and possible social unrest.

The question is how to do so without provoking sharp price increases in a country where the average state wage remains little over US$120 a month.

"The long-term solution to the government's budgetary shortage is to reduce spending by cutting subsidies and increase tax revenues from the private sector," said Nabil Sukkar, managing director of the Syrian Consulting Bureau.

Sukkar believes price increases are inevitable. "Subsidy cuts are bound to result in price increases across the board. However, if subsidies are left unchanged, public debt will grow, with the resulting inflationary pressures forcing prices upwards."

Subsidies unsustainable

According to Samir Seifan, director of the Arab Development Centre, an economics consultancy, the current subsidy system is "unsustainable but the cancellation of subsidies would result in price increases and social trouble. Some form of subsidies must be continued."

Syria's 40-year-old policy of subsidising everything from electricity to fuel and food is reaching breaking point. The rising costs of oil, increased fuel smuggling to neighbouring countries and declining state revenues have left the government struggling to pay its bills.

Next year's subsidies will cost the government about US$7 billion, according to Deputy Prime Minister Economic Affairs, Abdullah Dardari, a situation he described as "no longer bearable".

However, the Syrian government remains undecided on how to reform one of the central tenants of its socialist state-run economy.

"In the current political and social situation, the elimination of subsidies is difficult and there is a risk of uncontrolled and spontaneous protests," said Nabil Mazook, an economist and chief architect of Syria's 10th five-year plan, the blueprint for economic policy to 2010.

Compromise solution

A possible compromise solution has been suggested by telecommunications minister Amr Salem: a smartcard-controlled rationing scheme that will provide quotas of subsidised fuel for each family. Once quotas are exceeded, fuel will have to be bought at market prices.

"The system will reduce the government's subsidy bill while also ensuring the price stability of basic commodities for poorer sections of society and helping to avert a social crisis," said Seifan.

Some economists argue the schemes do not go far enough, however. "The smartcard system may be enough to prevent social trouble but it is only one of a number of measures that are required to rectify economic inefficiencies," said Mazook.

Mtanios Habib, professor of economics at Damascus University, believes extra money should be made available to cushion the blow for the poorest in society.

"We have very low salaries in Syria. Subsidy reform should include the creation of a fund to support labourers; the labour force cannot live without subsidies and there is a risk of social trouble," said Habib. "Also, the smartcard scheme will not stop the smuggling and corruption which is a part of our history in Syria."

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