Quarterly Review of Syria’s Economic Crisis – October 2022

A wrenching combination of cratering currency and runaway inflation is setting the stage for what will be a miserable winter for most ordinary Syrians. As 2022 enters its final quarter, the Syrian pound has plummeted to an historic low, while the regime continues to carry out aggressive austerity measures, further stripping more categories of Syrians from the state’s subsidy rolls. With skyrocketing prices and shortages, subsidized goods have been a lifeline for many families, ensuring some minimal access to essentials. However, it is expected that the regime eventually plans to cut all Syrians from receiving subsidies and instead, reallocate these funds towards raising what are now fledgling public sector salaries. Service provision sectors such as education, health and electricity are facing collapse as employee salaries are insufficient to cover even transportation costs to work, resulting in absenteeism or resignations and leaving schools and hospitals with severe staffing shortages.  In other areas of the public sector, corruption levels have exploded as employees abuse their positions to fill pay gaps, further exploiting the already suffering population. The long-term devastation of the agricultural sector is of growing concern due to the high costs of agricultural inputs and cuts in state support to farmers, leaving many farmers unable to plant for next year. While Syria’s economic collapse intensifies and Syrians face devastating poverty, the Assad regime remains focused on further consolidating its control over resources through its business networks, leaving prospects for recovery increasingly distant.

Summary: Key Findings

  • Plunging Syrian Pound: As government debt mounts and the regime’s budget struggles to keep up with surging inflation, the Syrian pound has hit a historic low, with the exchange rate at 5,100 Syrian pounds to the dollar. This development is compounding the cost of the living crisis ravaging Syria, as a diminishing currency adds fuel to Syria’s unstoppable inflation.
  • Austerity Enters New Phase: Officials have continued to purge more categories from the rolls of subsidy eligibility, striking off 32 distinct categories of civilians that cover almost half of the population while preparing to eliminate traditional subsidies altogether for the rest of the population in the coming months.
  • Collapsing Public Sector: While the regime plans to redirect budgetary savings from subsidy cuts into salary increases for public sector employees, the efforts may come too late to save many areas of the collapsing civil service. With monthly wages overshadowed by the simple cost of commuting to work, many employees have left jobs in the public sector, leaving essential services critically understaffed.
  • Wheat Planting Season: With less than six weeks remaining until the beginning of wheat planting season, the regime has liberalized fertilizer costs and will no longer sell them through government agriculture banks. This leaves Syrian farmers perilously exposed to soaring global fertilizer prices at a critical moment, and the decision will have catastrophic effects for the 2023 harvest.
  • Qaterjis’ Fall From Favor: After rising to power as loyal business partners of the Assad regime, the Qaterji family and their accompanying militia have become targets of a state crackdown.
  • Pervasive Hopelessness: Ordinary Syrians describe their situation from continuing to go from “bad to worse,” with everyday survival and securing of basic needs a perpetual challenge. Women in particular report facing tremendous pressures, struggling to manage family dynamics, household responsibilities and increasingly having to seek employment outside of the home.

Depreciating Exchange Rate & Devastating Austerity

The Syrian pound has tumbled drastically in value over the previous quarter, falling by 22%, with the actual exchange rate now hitting 5,100 Syrian pounds (SYP) to the dollar – a historic low for the currency. While the latest depreciation in the Syrian pound’s value is mainly attributed to the strengthening dollar, as well as high fuel and commodity prices, it is expected that the Syrian pound will continue to decline in value as long as the Syrian economy remains in freefall and shockwaves to the global economy continue. Notably, the regime devalued the official exchange rate in September to 3,015 SYP to the dollar. As Syrians’ purchasing power further plummets and price inflation remains rampant, the regime has prioritized purging Syrians from critical state subsidies as its top domestic policy priority. Over the last few months, many who were once considered middle-class – including working professionals, owners of cars and those with children attending private school – have been cut from receiving subsidies, resulting in a total of more than 30 social categories of people and families stricken from subsidy rolls. However, with the decimation of the Syrian pound and rapid inflation, even those who were once solidly middle class have been left impoverished, relying on multiple jobs and still unable to make ends meet. Subsidies have been a desperately needed cushion against skyrocketing market prices and allowing access to the bare minimum of basic goods. Over the past 18 months, however, almost half of the Syrian population has been excluded from the eligibility rolls for subsidized goods, while the rest are increasingly squeezed by shrinking financial support and menaced by the certainty of future exclusions.

However, these disruptive purges from the subsidy rolls are little more than the opening salvo of the next phase of Asaad’s transformation of the Syrian state. It is expected that the regime will fully remove the remainder of the Syrian population from subsidy rolls over the coming year, reversing decades of policy under the Assads that placed the state at the center of economic life in Syria and served as the cornerstone of the nation’s social contract. Destitute Syrians will soon be forced to purchase goods at the “free” market price, with the regime disbursing vouchers for specific segments of the population and redirecting a portion of these cost savings towards wage increases for public sector employees. Additionally, dramatic cost increases are expected in the cost of bread, electricity and fuel as the differential between the actual costs of these goods and their subsidized prices is creating an enormous deficit that the regime cannot afford.

While to some extent, inflation is straining many nations around the world amidst supply chain bottlenecks and the fallout from Russia’s invasion of Ukraine, the situation in Syria is far worse than most and the underlying cause remains the regime’s mafia-esque management of the country and its predatory policies. An entrenched wartime economy, centered around endemic corruption at all levels of the state and supply-chain monopolies dominated by regime cronies, is at the heart of Syria’s soaring cost of living. While Syrians are being plunged further into poverty, most public criticism of the regime’s austerity policies remains muted or quickly suppressed, as many Syrians are forced to choose between starvation or being disappeared.

Syria Economic Monitoring

Public Sector Collapse

Unable to provide even the basic support or economic conditions for the majority of citizens to survive, the regime increasingly views support among public sector employees as the key to its future survival. This includes the security apparatus, financial and economic ministries as well as service-provision institutions. This strategy rests on aggressively cutting subsidies needed by the middle and lower classes and shifting a portion of those savings into pay raises for state employees. However, even this transfer of support has failed to keep public wages at a livable level. A striking example of this disconnect is the cost of public transport, which averages 200,000 pounds per month for an employee to commute round trip to work daily. This now exceeds the total average monthly salary for public sector employees, which is 150,000 pounds. As a result, unpaid absenteeism is on the rise across the public sector as the cost of commuting to work outstrips total salaries. In order to sustain the provision of basic services, many local communities in south-west Syria have resorted to fundraising campaigns – collecting support from local residents and Syrians in the diaspora – to support transportation costs for teachers and salaries for medical professionals.

Another result of the situation is that corruption levels have exploded throughout the Syrian civil service, as public employees abuse their positions to fill pay gaps and further drain a population already reeling from runaway inflation and evaporating government support. Employees of the security apparatus and finance ministries have the widest margin for corruption. For example, members of the regime’s intelligence extract bribes in return for promising detainees’ families information about their loved-ones’ whereabouts. Employees of finance, trade and tax ministries will secure bribes in return for processing documents or issuing licenses. However, state employees in the service sector such as education, health and electricity have limited capacity to cushion their income through rent-seeking on the population. Furthermore, many employees in the education and health sectors have limited-term contracts, often only valid for a year, and are resigning due to the low salaries, with the regime struggling to find replacements. As a result, personnel shortages are beginning to hinder basic public services across regime-held Syria, particularly in the case of hospitals, utility operators and educational facilities. However, permanent public sector employees continue to remain in their positions as they are guaranteed their paycheck at the end of the month, regardless of whether they show up or not, while often working other side jobs to supplement their salaries.

This collapse of the public sector is only expected to deepen in coming months, with service provision being the most heavily impacted. Even with anticipated reallocations of the national budget to raise public sector salaries, it is unlikely that they will be able keep up with the currency’s depreciation and spiraling inflation. Endemic corruption has characterized Syrian state institutions since long before the conflict, and with the demise of the country’s economy, there is little prospect for public sector employees to curtail their extortion of the population.

Agricultural Sector Collapse

The centerpiece of the regime’s failed economic policies in the past year has been its catastrophic attempt to revitalize the country’s decimated wheat sector. The plan implemented last summer sought to boost domestic wheat harvests by massively injecting state subsidies and bureaucratic micromanagement into the sector – although endemic dysfunction has instead resulted in an unprecedented wave of corruption, waste and mismanagement that was further compounded by a devastating drought during the planting season. These results have come fully into view, with the total wheat haul for 2022 reaching only 512,000 tons, barely a quarter of the 2 million tons that officials say are required to cover the need in regime-controlled areas for the coming year. Much of the wheat harvest has been transferred to the regime’s Foundation for Seed Propagation (Haboob), leaving Syrians increasingly dependent on commitments of Russian imports – some of which are stolen grain from Ukraine – and humanitarian aid.

Another devastating consequence of the regime’s failed agricultural policy is shortfalls in other essential grains, notably barley, as the regime redirected resources to wheat. The shortages in barley are destabilizing the livestock industry as prices for fodder have exploded. The poultry sector, which has already seen dramatic price increases due to its monopolization by the regime’s 4th Division, is expected to become increasingly inaccessible and experience severe shortages with the price increases in feed. The 4th Division’s malign economic activities exacerbate shortages for the unit’s own profit, and have recently extended to smuggling wheat across the border into Lebanon, where it can sell a ton of wheat at the going rate of $1,000 – more than double the regime’s purchase price for a ton of wheat.

Equally concerning is the fast approach of the planting season for next year’s harvest, which begins in six weeks. Rather than learn from the disastrous mistakes of this year, the regime has charged forward with a decision to liberalize fertilizer costs and a plan to halt the distribution of fertilizers through state-run agriculture banks. In effect, this leaves struggling Syrian farmers on their own to pay free market global prices for fertilizers at a particularly critical moment. For many farmers, the surging prices of agricultural inputs and scarce returns are pushing them to give up farming. Agricultural lands are increasingly being sold off to Syrian expats who have little interest in cultivating the land, while farmers are seeking their livelihood elsewhere, at times through involvement in illicit activities or planning to emigrate. This decision to cut state-support for the agricultural sector when farmers are most in need of it, will not only have catastrophic consequences for the 2023 harvest, but for Syria’s long-term food security. Syria was once self-sufficient for meeting its domestic food security needs and agricultural exports were a major source of state revenue, however, now, the country relies on importing basic commodities it can ill afford.

Living Conditions

With Syria’s continued economic collapse, the day-to-day reality for ordinary Syrians is defined by worsening suffering. In a series of snap interviews conducted with 24 women across south-west Syria, ETANA asked respondents to share the consequences of the economic crisis on their daily lives. All of the respondents explained that the economic situation, from the beginning of the year until now, continues to deteriorate going from “bad to worse,” with how to secure and balance between competing basic needs – food, medicine and fuel – the preoccupying daily concern. One woman explained that her husband’s salary used to be enough to last her for five days out of the month as of earlier this year, and now it is barely enough to last her two days. As a result, many families reported being forced to borrow money from friends, family or colleagues in order to meet their daily needs, but then are left stuck with debt that they cannot afford to pay back.

Most of the women described deteriorating family dynamics due to the growing stress of survival, including tension and fighting with their husbands and sometimes their children. Many of the women respondents felt that women are bearing the brunt of the economic crisis as they are forced to balance competing priorities within the family, running their households and being forced to work outside the home – sometimes facing censure from their families for taking on jobs considered undesirable or menial. While a number of the respondents were teachers, other women had become agricultural day workers during the harvest season due to circumstance. Some of the women had also pulled their children from school to work during the harvest. Women also reported growing numbers of divorces in their communities due to the unbearable economic strain being put on families, while at the same time, early marriage is becoming more commonplace as families believe that they will be relieved of the financial responsibility for their daughters. All of the respondents shared their concerns that costs will only continue to rise in the coming winter months, especially for food, fuel and heating, further raising the specter of hunger and stress for most households.