No End in Sight to Syria’s Economic Woes

Jihad Yazigi [editor@syria-report.com], 17 Nov 2016
Jihad Yazigi [editor@syria-report.com]

Most estimates of the economic cost of the Syrian war point to a total bill of around $250 billion as at the end of 2015. This number includes both the direct costs of the destruction, that is, the amount it would cost to replace what has been destroyed, such as residential buildings, factories and their machinery, power plants, oil wells and other infrastructure, and indirect costs to account for what the Syrian economy has lost in terms of economic output.

 

Several more months, if not years, are expected to run before the war effectively ends, meaning that Syria is likely to face a final war bill well upward of $300 billion, which is equivalent to around six times the level of its gross domestic product (GDP) in 2010, the year that preceded the uprising.

 

Also, GDP has now fallen to around $27 billion,[1] from $55 billion in 2010.  The government has not published any macroeconomic data since 2011 and accurate figures are hard to find. In this blog, most figures come from three separate reports on the state of the Syrian economy published during year 2016 by the International Monetary Fund,[2] the Syrian Centre for Policy Research[3] and the United Nations Economic and Social Commission for Western Asia (ESCWA).[4]

 

Prior to the war, Syria had one of the most diverse economies in the Middle East region. Agriculture contributed to around 20 percent of economic output, as did energy and trade while a number of other sectors contributed between five to 15 percent including construction, finance, transport and manufacturing.[5] Tourism was also growing and represented an increasingly important source of foreign currency earnings, thus contributing to reducing the dependency on oil exports.

 

The structure of GDP has now changed. The destruction of most economic sectors has led to a relative increase in the share of both agriculture, which now contributes to around a quarter of total output, and government expenses.

 

While agriculture production also declined in the past five years, other sectors contracted more rapidly, which explains the rise in their share of GDP. The relatively growing size of agriculture carries risks, however, because the sector is rainfed; making it vulnerable to poor rainfall. A drop in agricultural output would further exacerbate rural-urban migration and increase the price of food products in local markets.

 

As to the public sector, it now employs around 50% of the Syrian workforce, up from around a quarter in 2010; which is the natural consequence of massive layoffs from businesses that have either shut down or downsized their operations. Still, salaries to civil servants are the only considerable expense item of the government outside military expenditure. According to the IMF, government investments, which represented up to a third of the budget in 2010, fell to a dismal $98 million last year, equivalent to 2.3% of the budget.

 

The destruction has also had a significant impact on the balance of payments and foreign currency reserves and increased the country’s need for foreign financing. The central bank’s holdings of foreign assets are down from $20 billion to less than $1 billion, while the balance of payments deficit is at $4.1 billion from a surplus of $3.3 billion in 2010. 

 

The loss of state’s sovereignty over the east and northeast parts of the country also means it has no more access to resources produced in these areas. As a consequence, it is forced to import products it used to produce and export previously, such as oil, which is imported from Iran, and wheat, bought from Russia. The government is also forced to rely on Iranian loans to fund all these major imports.

 

Today, the main sources of foreign currency earnings are aid from the UN and other international humanitarian organisations, estimated at around $1 billion, and remittances from expatriates, many of whom left because of the war, at some $1.2 billion. Ironically then, two consequences of the war, humanitarian aid and expatriates, are contributing to the rare positive numbers in the Syria’s economy.

 

Last but not least are the social consequences of the war. Unemployment is estimated at a staggering 60% of the working force, while poverty is impacting more than 85% of the population. The significant rise in prices, partly a consequence of the devaluation of the Syrian pound has destroyed the purchasing power of the Syrian population. Since 2011, the dollar has seen its value multiplied by ten in the Syrian forex market, from 47 to around 540 pounds. The average salary, for the few who still have a job, is down from $200 to $60 today.

 

The picture of the near future doesn’t look any rosier. GDP is forecast to decline further by 6.5% and 5.0% this year and next.

 

Therefore, regardless of how we look at the developments in Syria, the picture is daunting. The only meaningful solution to stop the country’s collapse is to end the war, which is unlikely to happen anytime soon.

 

[1] Syria at War: Five Years On. United Nations Economic and Social Commission for Western Asia (ESCWA), [Online]. 2016. Available at https://www.unescwa.org/publications/syria-war-five-years

[2] Gobat, Jeanne. Kostial, Kristina. IMF Working Paper, Syria’s Conflict Economy. International Monetary Fund, [Online]. June 2016. Available at https://www.imf.org/external/pubs/ft/wp/2016/wp16123.pdf

[3] Syria Confronting Fragmentation, Impact of Syrian Crisis Report, Quarterly based report 2015. Syrian Center for Policy Research, [Online]. February 2016. Available at http://scpr-syria.org/publications/confronting-fragmentation/

[4] Syria at War: Five Years On.

[5] Statistical Abstract. Central Bureau of Statistics (Syria), [Online]. 2011. Available at http://www.cbssyr.sy/yearbook.htm

 


Jihad Yazigi is the founder and editor of The Syria Report, an online bulletin covering Syrian economic affairs since 2001. He has written extensively on the Syrian economy and has provided research, advisory and consultancy services to regional and international businesses and organizations.

 


The views expressed here are solely those of the author in his/her private capacity and do not in any way represent the views of neither the Arab Development Portal nor the United Nations Development Programme. 

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