Syria’s Economic Crisis: 2021 in Review – January 2022

Syria’s economic crisis deepened to unprecedented levels in 2021, with international organizations warning of the worst humanitarian conditions in Syria since the beginning of the conflict a decade ago. Once a middle-income country, 60% of Syrians are now deemed food insecure as the cost of basic food items has more than doubled and purchasing power has rapidly diminished. Bread shortages and hunger are only expected to worsen next year with the shortfall in Syria’s domestic wheat harvest due to drought, and the regime facing import difficulties due to financing and sanctions. While there is widespread frustration with the untenable living conditions and the regime’s austerity measures, hopelessness is pushing those able to emigrate, only exacerbating the crisis through capital flight and brain drain. Meanwhile, Assad’s Syria is increasingly described as a narco-state, where the regime’s revenue from drugs smuggling far exceeds that of the country from legitimate sources of revenue. Even as Syrians go hungry and state institutions further deteriorate in 2022, the worsening economic crisis alone is not expected to shake up the regime as its inner-circle of war profiteers and the security apparatus are sustained through their involvement in illicit and malign activities.

 

 

Summary: Key Findings

  • Collapse of the Supportive State: Long the linchpin of Syria’s economy and guarantor of essential goods for the population, the state is in full blown retreat from its traditional role. More austerity measures are expected this year, with the regime further cutting subsidies and reducing the number of people in recipient of subsidized goods, resulting in widespread suffering in the year ahead.
  • Specter of Famine: A combination of historic drought, surging planting costs, corruption, and mismanagement of regime agriculture policy has devasted the once mighty wheat sector. The vast majority of Syrians survive on bread sold at subsidized bakeries, and the disastrous harvest this year is raising fears of intensified hunger in 2022.
  • Currency Collapse: The diminished purchasing power of Syrians due to the collapse of the Syrian pound has pushed much of the middle class into poverty over the past year. The regime worked aggressively to prevent the further devaluation of the Syrian pound in 2021, mostly keeping it between 3200-3500 SYP to the dollar. While some further devaluation is expected next year, the regime will continue to rely on the same strategies to stabilize the exchange rate.
  • Emigration & Capital Flight: Failing public services, ubiquitous corruption and increasingly predatory state policies towards business has triggered a massive exodus of financial and human capital from Syria. Even traditionally pro-regime businessmen are fleeing the country, threatening an intensifying cascade of capital flight and limiting chances of local investment for rebuilding.
  • Regime Business Cronies: The regime further consolidated its network of business cronies this past year, with almost all coming from Syria’s new class of war profiteers. Many of them are involved in illicit activities, but a growing number are taking over legitimate sectors of the economy yet lack the technical skill set needed to revive these industries.

Syrian Pound’s Collapse & Regime Mitigation Strategies

The Syrian pound’s collapse last year, linked in large part to the Lebanese financial crisis, continues to shake the foundations of the Syrian economy. While a number of factors have contributed to Syria’s economic collapse, none has been more devastating than the pound’s rapid devaluation and decreased purchasing power of Syrians. The regime has worked aggressively to stabilize the Syrian pound (SYP) and prevent its further devaluation this past year by relying on a number of strategies. These have included constricting the money supply of Syrian pounds and bolstering its foreign exchange reserves through seizing assets, limiting imports and implementing new taxes and fees, or increasing the cost of existing ones. Currency manipulation is another main pillar of the Assad regime’s financial survival. With four divergent exchange rates, the regime extracts significant margins of profit from almost every conversion that takes place in the country.

Regardless of the regime’s attempts to shore up the Syrian pound, the recently approved budget for 2022 was a striking admission of the country’s dire economic straits. At the current unofficial exchange rate, the state budget for 2022 amounts to only $3.8 billion US dollars making it the smallest annual budget in decades. With the Syrian state’s reduced financial capacity, the regime has aggressively implemented austerity measures across the board this year, and its cuts to subsidies are only expected to deepen next year, exacerbating suffering for most Syrians.

 

Living Conditions & Austerity Measures

Facing reduced purchasing power, hyperinflation and subsidy cuts, international humanitarian agencies are describing the current conditions in Syria as the worst humanitarian situation in Syria since the beginning of the conflict, despite this being the period with the least active fighting. The World Food Program (WFP) has warned that approximately 60% of the population face food insecurity and hunger, and with the regime’s recent six-fold price increase of bread to 1200 SYP, this basic staple that families increasingly depend on is becoming unaffordable. The average cost of living for a Syrian family is now 600,000 SYP per month, in contrast with the average monthly public employee salary of just 90,000 SYP ($25 USD), forcing many families rely on remittances to make ends meet.

In addition, deteriorating public services, fuel and electricity shortages and unemployment, have also contributed to growing grievances against the regime, even in areas that are considered regime strongholds. There is frequent criticism of regime officials on social media, but protests have been almost non-existent in regime strongholds. In areas such as south Syria, where the regime’s hold on power is tenuous, there have been regular protests against deteriorating living conditions and regime violence, along with a rising number of assassinations targeting money exchangers in 2021. Steadily worsening economic hardship is manifesting itself through a sharp uptick in crime, with reported rates of theft and murder surging around the Damascus countryside, in cities on the Syrian coast, and in Homs.

The economic collapse has had a particularly devastating impact on Syrian women, as families are resorting to negative coping strategies, such as skipping meals or eating less, to survive. Increasing numbers of women are being pushed into the informal economy to help their families make ends meet, and even women who are seeking employment in the formal sector face increasing sexual harassment. Many women have been forced to leave school due to unaffordable fees and transportation costs, and gender-based violence is rising as male family members are spending more time in the home due to unemployment.

Wheat Crisis

Over the course of 2021, Syria has faced multiple severe bread and fuel crises, with people forced to line up for hours to get bread and petrol, and bakeries in different parts of the country shutting down completely at times due to flour shortages. The wheat and fuel crises in Syria are only expected to worsen in 2022, and it is expected that periods of severe shortages will again cause the country to grind to a halt. A combination of historic drought, surging costs of agricultural inputs, corruption and mismanagement of regime agricultural policy resulted in a devastating 80% shortfall of 2021’s wheat harvest, which will have serious implications for this year. The regime tripled its wheat purchase price to 1.5 million SYP per ton compared to a year ago, in an effort to incentivize farmers to grow more wheat, but domestic production alone will not be able to meet the country’s needs.

Capital Flight & Emigration

The regime’s predatory policies against Syrian industrialists and businessmen are undermining those left with the financial and technical capacity to support the Syrian economy. Since the onset of the country’s financial collapse, the regime has regularly confiscated funds and assets from businessmen in order to shore up capital. Industrialists report regular visits by the regime’s security apparatus and tax authorities threatening asset seizures on trumped up charges unless they are paid off.  In response to these predatory policies, failing public utilities, soaring production costs, onerous bribes and the burden of sanctions, Syrian industrialists are opting to emigrate to countries offering better business environments, such as the United Arab Emirates, Egypt and even, Erbil. The regime’s business cronies are taking advantage of the departure of mid-size industrialists in a number of sectors to extend their control into the void that remains.

 

Warming Regional Relations

There have been significant political shifts over the last year in regional relations with the Assad regime. The US-backed and World Bank-funded plan to supply Lebanon with electricity involving Egypt, Jordan and Syria has engaged the regime in regional politics after a decade of isolation. Senior regime ministers have met with their counterparts in Lebanon and Jordan to work through the details of the agreement. Negotiations in the latter part of this year have resulted in a final draft agreement for the transfer of electricity from Jordan to Lebanon via Syria. It is expected that Syria will be paid in-kind for transporting electricity through its grid to Lebanon, rather than through cash payments, to avoid complications with sanctions. The details surrounding plans to ship Egyptian gas through Jordan and Syria to provide Lebanon with electricity are still under discussion, with it being unclear where the electricity would be produced. It is thought that while these plans are technically possible with maintenance and repairs to the infrastructure, the political complications surrounding them will drag out the timeline. As negotiations are still taking place, it is expected that the regime will increase its demands for what it will try to acquire from the agreement.

The Nassib border crossing between Syria and Jordan re-opened in September following its closure due to Covid-19. Following the border’s re-opening, there has only been a limited increase in cross-border trade. Furthermore, drugs smuggling from Syria to Jordan through the border remains a major concern.

The UAE’s ongoing efforts to renew diplomatic relations with the Assad regime culminated in a visit by the Emirati Foreign Minister to Damascus and promises of economic cooperation, and a few days later plans for the Emirati firms to support Damascus with a solar power plant were announced. However, to what extent these plans and new economic initiatives are actually implemented in the next year remains to be seen.

In spite of Syria’s deepening economic crisis, the lack of Russian and Iranian support is notable. While they have been instrumental military and political allies in preserving the Assad regime’s grip on power, they have made it clear that they will not provide support to alleviate the humanitarian crisis that the country is facing. However, being two of the largest producers of wheat and oil, they are willing to sell the regime these desperately needed commodities at a cost while also carving out sectors of the Syrian economy for themselves.

  • Human suffering and living conditions in Syria will deteriorate further with hunger, unemployment and localized violence becoming more widespread over 2022.
  • With the scale of capital flight and emigration currently taking place, it is expected that what remains of Syria’s once traditional business class will continue to disintegrate and that void will quickly be filled by the regime’s business cronies, none of whom are the skilled industrialists that the country desperately needs for local rebuilding efforts.
  • Current international initiatives to ease the economic crisis in Syria through facilitating humanitarian aid operations and some electricity provision are insufficient to mitigate against Syria’s downward economic spiral, as the roots of the crisis lie in the destruction wrought by a decade-long conflict, the Syrian pound’s collapse and the regime’s malign economic practices.
  • With the Assad regime’s growing entrenchment in the drugs trade and predatory practices, the regime, its inner-circle and the security apparatus will remain unaffected even as state institutions collapse and Syrians go hungry. Furthermore, due to the regime’s financial dependence on the drugs trade, it has little incentive to curtail the drugs smuggling activity originating from Syria.