ICRG data contains insight into FDI inflows

Did you know ICRG data was used to show that the presence of domestic conflict or major political instability has a large and negative effect on FDI inflows to emerging market economies, which highlights the role of inclusive policies to promote growth and avoid sudden stops of FDI inflows. See “Economic Policies and FDI Inflows to Emerging Market Economies” Elif Arbatli, IMF Working Paper (11/192), August 2011. International Country Risk Guide’s latest commentary on Syria’s Economy:

SYRIA

Serious Economic Risks

Real GDP contracted by an estimated 4% in 2011, as EU sanctions and sabotage of pipelines and other oil infrastructure sent daily oil production plummeting from 385,000 barrels to just 220,000 barrels, a fall of more than 40%.  The more recent addition of Arab League sanctions and new EU restrictions on trade in precious metals and phosphate will reinforce the negative pressure on the economy.  Although a 60% spending increase in the 2012 budget may reverse the downturn, any positive growth will be negligible. The combination of a crashing tourism sector, falling foreign direct investment (FDI), and the tightening of sanctions has put heavy pressure on Syria’s reserves, resulting in a depreciation of the pound by 25% against the dollar over the past year.  The central bank abandoned its effort to hold the official exchange rate below SYP 50 to the dollar in November 2011, but attempts to close the gap between the official and black-market exchange rates have been thwarted by the steady decline of the latter, which hit an all-time low of SYP 70 to the dollar in late January. The central bank responded by introducing a managed float, but it is debatable whether the supply of reserves is sufficient to support that policy for any length of time.  The governor of the Central Bank of Syria (BCS), Adib Mayaleh, claimed in January 2012 that reserves amounted to $18 billion.  However, Mayaleh’s credibility on that topic was badly damaged back in September 2011, when the government unexpectedly announced restrictions on imports designed to preserve hard-currency reserves, a move that contradicted the central bank head’s repeated assurances that the supply of reserves was ample. Tellingly, the government has embraced the principle of self-sufficiency, declaring that Syria must reduce its dependence on imports by producing more of the goods it needs at home.  There are also indications that the government is planning to ban exports of various foodstuffs, with the aim of reducing the need for imports to ensure a sufficient supply of food.  Perhaps the government really is pursuing a policy of self-sufficiency in hopes of preserving the country’s reserves.  But there is a strong probability that the supply of reserves has already reached a dangerously low level, and the rhetoric of self-sufficiency is being employed in the hope that it will dampen the negative reaction to strict import controls that are about to be imposed, not as a matter of policy, but as a matter of necessity. Import restrictions will only partially offset the negative impact of losses from tourism and sanctions on the external balances, and the current account deficit is forecast to expand to 6.7% of GDP in 2012.  The widening of the current account shortfall will contribute to persistent downward pressure on the pound, but curbs on imports of staple goods will limit the risk of imported inflation.