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Syria - Economy & War

Starting in March 2011, Syria has witnessed an extremely violent civil war. The 2011 uprising has evolved into a crippling and violent civil war with fierce fighting between the regime and various secular and Islamist opposition groups in different parts of the country. Syria has politically disintegrated into autonomous provinces and territories controlled by the central government, Islamic State of Iraq and the Levant (ISIL), and various rebel groups. The conflict has also attracted financial and military support from external powers.

Analysis of the impact of the war on the Syrian economy between 2010 and 2015 relies heavily on third party sources, the analysis of scattered information and strong assumptions, particularly about how the war and economic sanctions are impacting the economy.

The Syrian Center for Policy Research (SCPR) estimated that by 2016 more than 60 percent of the labor force (about 3.5 million) is unemployed, with some 3 million having lost their jobs as a result of the conflict. SCPR also estimated the overall poverty rate in 2014 to be 83 percent (compared to 12.4 percent in 2007). Many Syrians, including children, have had to find jobs in the informal sector to offset the loss of income. More than two-thirds of Syrians were living in extreme poverty, unable to meet basic food and non-food needs.

The war in Syria and spillovers to Turkey, Lebanon, Jordan, Iraq, and Egypt cost close to USD 35 billion in output, measured in 2007 prices, equivalent to Syrias GDP in 2007. Syria and Iraq have seen per capita income in constant terms decline by 23 percent and 28 percent relative to the levels that could have been achieved had the war not broken out.

Civil war badly damaged the Syrian economy. Official data are not available, but estimates from the Syrian Center for Policy Research (SCPR) puts the fiscal deficit at 40.5 percent in 2014 with public debt growing to an unprecedented 147 percent of GDP in the fourth quarter of 2014. Iraq, too, is facing high fiscal deficits. The drop in oil prices together with the high cost of fighting ISIS have resulted in a fiscal deficit of 14.5 percent of GDP in 2015. Growth is estimated to have remained below 1 percent in 2015. Given the ongoing violence and conflict, the economic outlook remains bleak. The fiscal situation will remain fragile due to weak oil prices and rising humanitarian and security expenses, together with the forced displacement crisis (see next section).

On 11 February 2016 the Syrian Center for Policy Research, a Damascus-based independent, non-profit, reported in their paper "Confronting Fragmentation! 2015" that "the economy continued its downward cycle, with total economic losses till the end of 2015 reaching USD 254.7 billion, which is equivalent, at 2000 constant prices, to 468 per cent of GDP in 2010. GDP loss over the period is estimated at USD 163.3 billion through contraction of 36.5 per cent in 2013, 15.2 per cent in 2014, and 4.7 per cent in 2015. But this is about 64.1 per cent of the total economic loss, with loss of capital stock due to damage and destruction valued at USD 67.3 billion accounting for 26.4 per cent of total economic losses. Additional military expenditures accounts for 8 per cent of this loss, with USD 14.5 billion for the government and USD 6 billion for the armed groups... "

The World Bank estimates that as of mid-2014 the damage to the capital stock in Syria amounted to $ 70-80 billion. A preliminary World Bank-led assessment of damage in six cities in Syria showed an estimate of $3.6-4.5 billion as of end 2014. The report focused on damage in Aleppo, Dar'a, Hama, Homs, Idlib, and Latakia, over seven sectors -- housing, health, education, energy, water and sanitation, transport and agriculture. As of end of 2014, damage to the housing sector in Syria accounted for more than 65 percent; restoring the energy sector in the six cities will require between $ 648 and $791 million; damages to the health sector infrastructure was estimated to be between $203 and $248 million; damages to education sector infrastructure was estimated to be between $101 and $123 million.

Syrias food production in 2015 remains at 40 per cent below its pre-crisis levels, impacting the price of bread, which has spiralled by 87 per cent, and shrinking poultry production by half, according to a United Nations agency report released on 23 July 2015 that warned that the risk of irreversible damage to the children is real, with tragic future consequences. Arif Husain, chief economist of the UN World Food Programme (WFP), said The evidence is clear: almost five years of conflict have destroyed the Syrian economy and the peoples ability to buy essentials like the food they need to survive.

The absence of public data has fuelled speculation about the impact of the first years of the crisis on the economy. Under a UN simulation for the period 2011-2013, tax revenues (both direct taxes and indirect taxes on consumption and imports) may have dropped by as much as 58.7 per cent in 2011 compared to 2010, with further falls in 2012 and 2013 of 69.3 per cent and 33.6 per cent respectively. The simulation suggests that the impact on employment of the crisis is not proportional to the economic recession. While GDP declines by 6.8 per cent in 2011 compared to 2010, unemployment grows at three times that rate, rising from 8.6 per cent in 2010 to 22.3 per cent in 2011. In 2012 and 2013, it reaches around 40 per cent and 54 per cent of the active population respectively.

A key consequence of the ongoing crisis is likely to be a further decline in GDP, by 4.1 per cent in 2014 and 3.5 per cent in 2015 respectively. We note a slowdown in the rate of decline in 2014-2015 when compared with the period 2011-2013, mainly because destruction of productive capacities was already so extensive in the first years of the crisis.

Unemployment was expected to reach around two thirds of the active population by 2015. However, the expected high level of unemployment will not be fully reflected in levels of poverty. Experience in countries in conflict shows that, when the formal economy declines, the informal sector takes over a large share of productive capacity, thereby offsetting a significant portion of the economic and social losses caused by the crisis. Between 2016 and 2020, even with sustained and high GDP growth rates, the Syrian Arab Republic will be unable to make significant progress on reducing unemployment.

By late 2013 some oil fields were controlled by opposition forces, including those affiliated with Al-Qaida, which benefited from sales. The manufacturing sector contracted owing to both the destruction of factories and sanctions. The burning of crops and the disruption of agriculture raised prices of goods, including flour. Notwithstanding the ever-growing number of people in need of urgent assistance, the Government and some anti-government armed groups obstructed the delivery of humanitarian assistance. Despite security constraints, some cross-line deliveries of aid were made, but were insufficient to meet the ever-growing needs of the affected population. Some locations remained inaccessible. Some 2.8 million people are in need inside the country. The situation is particularly dire in besieged areas of Aleppo, Homs and Damascus.

United Nations aid agencies estimated that $3.1 billion was needed to aid the affected population, in the Syrian Arab Republic and in neighbouring countries, until the end of 2013. Only half the pledges made at the international donors conference held in Kuwait in January 2013 had been fulfilled by September 2013. The Governments currency crisis was temporarily stemmed by the extension of a $3.6 billion credit line from the Islamic Republic of Iran. A loan from the Russian Federation is reportedly under discussion, while pre-conflict arms deals between Moscow and Damascus continue to be honored.

Oil production, one of Syrias biggest foreign currency earners, had dropped by 95 percent by 2013. Oil once accounted for 70 percent of exports and 30 percent of government revenue, but production was in steady decline. Crude oil production in areas under government control fell sharply, declining to about 9,000 barrels per day (b/p) in 2014 from 386,000 b/p in 2010, a 98 percent decline in oil GDP. However, total crude oil production is higher when taking into account output from fields under rebel control, that is then sold via the black market, including to the government-owned domestic refineries.18 Taking these fields into account, total oil production is estimated to have amounted to 40,000 b/p in 2014.

Tourism -- another foreign currency mainstay -- ground to a total halt. The World Bank said Syrias GDP dropped almost by a third in 2012. Perpetually under-performing, the Syrian economy creates jobs for less than 50 percent of the country's university graduates. Syria continues to suffer from a number of chronic economic problems. Though economic statistics in Syria are difficult to come by and notoriously inaccurate, rising prices are a major concern for Syria consumers and a regular front-page news item.

After more than two years of civil war, and with international economic sanctions wreaking havoc on the countrys economy Syrians are facing bleak prospects. By July 2013, the Syrian government was moving to shore up the value of its free-falling currency, imposing harsh penalties on black-market dealing in foreign currencies. Economists, however, predicted the rescue effort wont halt the currencys plunge as evidence mounts that the war-battered Syria was now in the grip of hyperinflation. Penalties for dealing in foreign currencies include substantial fines and prison terms of up to 10 years necessary punishments, the government said, to prevent manipulation of prices in the market and curb exploitation of citizens needs. But the measures are unlikely to stop the currencys free fall, or prevent Syrians anxious to protect their savings from converting them to U.S. dollars.

On the black market the value of the countrys currency hit an all time low in mid-2013, with the exchange rate now ranging from 300 to 310 Syrian pounds to the U.S. dollar. Before the uprising began against President Bashar al-Assads government in March 2011, the rate was 50 pounds to the dollar. Syrian President Bashar al-Assad's government tried to shore up the currency in the midst of a civil war. For ordinary Syrians, just getting by had become a nearly impossible task in the face of wildly rising prices for basic goods.

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Page last modified: 11-02-2017 16:28:03 ZULU