The Impact of Macroeconomic Shock on The General Budget Deficit in Syria

Abstract

This study analyzes the impact of macroeconomic shocks on the general budget deficit in Syria during the period 2000–2021 using the Structural Vector Autoregression (SVAR) model. It aims to understand how shocks in inflation, current account balance, real GDP, and real interest rate are transmitted to the fiscal deficit, considering the specific structural and crisis-related features of the Syrian economy. The study relies on quarterly official data and includes unit root tests and optimal lag selection. Structural restrictions were imposed on the model based on economic theory and empirical evidence. The results reveal a significant inverse relationship between real GDP and the budget deficit, highlighting the importance of economic growth in reducing the deficit. Shocks to the current account balance also had a negative effect on the deficit, supporting the twin deficits hypothesis. On the other hand, inflation and interest rate shocks showed no statistically significant effects, indicating the limited effectiveness of monetary policy tools in Syria. The study recommends promoting economic growth and improving external balances, along with reforming fiscal and monetary policy to ensure long-term fiscal sustainability. The research provides a scientific framework for understanding the dynamic relationship between economic policy and the budget deficit in an unstable environment, offering practical insights for policymakers.