Accurate information on the state of Syria’s economy is scarce. What is sure is that the country’s financial system is in ruins because of civil war and international sanctions. The main productive sectors, oil and tourism, have collapsed. Trade has all but come to a halt. Sanctions by the Arab League, the E.U. and the U.S., have stopped oil and gas exports which accounted for three quarters of export earnings and government revenues pre-civil war.
The loss of the Turkey market has cut off sales for Syria’s manufacturers and farmers. Production by both has fallen to a minimum. Unemployment is estimated to be around 40%. Food and fuel have become increasingly scarce and expensive within the country. Public finances are a wreck. It is not too much of a stretch to say that today there is no economy in Syria.
A new report sheds some light–or confirms the blackness–of the situation. Since the civil war started almost two years ago, Syria’s economy has shrunk by as much as $48.4 billion–or the equivalent of four-fifths of its pre-war annual GDP. The study, Socioeconomic Roots and Impact of the Syrian Crisis, was conducted by the independent Syrian Center for Policy Research. The report estimates that the economy contracted by 18.8% in 2012, while the deficit reached 18.5% of GDP.
The value of the Syrian pound has sunk by more than 65%. Syrian authorities have stopped citizens from exchanging their pounds for foreign currencies and imposed limits on bank deposits in foreign currencies among other measures to stop capital flight. The collapse of tourism has exacerbated the loss of oil exports as a source of foreign exchange.
In the past periods of political unrest, the government has been able to keep the economy afloat by public works spending and investment in financial markets. Its ability to do that this time is being whittled away to nothing. The country has no foreign reserves. The state’s treasury declined from $18 billion in 2010 to $2 billion by the end of 2012. The regime doesn’t have any capacity to raise revenue to replenish its coffers.
The only foreign investment that the country is getting comes from Iran, its staunchest regional ally, and Russia. Last month Iran extended a credit line to Syria of $1 billion. The money will go straight to the army to fuel the war.
The opposition faces the same economic problem as the regime, if not worse. In areas beyond government control, public services have disappeared. A parallel black-market economy is booming, as might be expected, exacerbated by looting and an increase in crime and violence. Prices for fuel and other basics are skyrocketing. Inflation is estimated to be running at 30% a year.
Opposition leaders estimate that they need $500 million a month to manage the areas they control. Money and support provided by supporters such as Qatar and Saudi Arabia isn’t enough. Increasing numbers of Syrians in opposition-held areas are relying on international humanitarian assistance or fleeing the country.
Some believe the moment is near when the government will face financial collapse, due in part to the difficulty of financing the army. The government has also promised hefty wage rises for public-sector workers this year; it is unlikely the regime will be able to pay them. That all encourages some to predict Bachar al Assad’s fall could occur in the next few months.
So far, however, the regime has been weakened but not undermined by the collapse of the economy as it fights to cling onto power. Whoever eventually wins that fight will have to face up to the significant economic problems of a broke state. Meanwhile, with economic conditions expected to deteriorate further this year, the humanitarian crisis will only worsen.