Syria’s economic freefall continues despite Arab League return

Syria’s dramatic readmission into the Arab League in May was perceived as a turning point for the country’s fortunes. A swift normalization agreement was concluded with Saudi Arabia and an official meeting — albeit tense and brokered by Russia — was even held between the Turkish and Syrian foreign ministers, giving the impression that a new phase was upon us.

Although Damascus may have come in from the cold diplomatically, there has been little change on the economic front, where the situation remains dire. Since the start of May, the Syrian pound has lost over 80% of its value and shows no sign of stabilizing. The pound currently stands at 15,500 to the dollar, an all-time low. Despite the regional political maneuvers and flurry of diplomatic activity, Syria’s greatest weakness remains its ailing economy, unable to rise from the ashes of war.

There was much unofficial expectation that the UAE, Saudi Arabia, and other reconciled countries would help to steady the Syrian pound by providing financial assistance, counteracting fading Iranian support and reinvigorating the Syrian economy. The thinking was Gulf financial aid for cash-strapped Damascus could create more leverage over the war-torn country, which craves financial stability, but this has not come to pass.

The lack of financial support could be linked to several factors, including the early nature of Syria’s return to the fold and the impact of U.S. Caesar Act sanctions, which may be problematic for Gulf countries on an operational and diplomatic level. There may also be a lack of genuine interest in balancing Damascus’ books for the time being, at least until relations are fully restored.

Without additional external economic support, especially from the Gulf, the current period is likely to prove especially difficult for Damascus to navigate.

From bad to worse

Economic conditions continue to deteriorate as the Syrian pound depreciates while raw materials prices remain linked to the dollar, resulting in the need for urgent measures. According to the head of the Syrian pharmacies syndicate in Damascus, Hassan Derwan, the government has decided to increase drug prices by 50%, likely due to a lack of hard currency and raw materials needed to make medicines.

Regular Syrians, already stretched thin, are struggling to put food on the table. State salaries were increased to 200,000 SYP per month as of Aug. 16, which works out to roughly $12.50, while the U.N. estimates the cost of the minimum monthly food basket is 1.35 million SYP ($90).

The sudden increase in salaries has been met with a continued hike in prices. The fuel sector has been particularly unstable. The subsidized price of 20 liters of octane 90 gasoline more than doubled overnight, rising from 75,000 SYP to 160,000 SYP, while black market gasoline is going for in excess of 300,000 SYP per 20 liters. 

The latest indicators from the World Bank, released in mid-April, underscore the worsening economic situation, noting that, “Syria’s real GDP contraction is projected to widen by 2.3 percentage points to 5.5 percent in 2023 as a result of the devastating earthquake.” The World Bank also forecast an increase in inflation this year from 44% to 60% due to “supply chain disruptions and higher transportation costs” and a resulting contraction in private consumption.

A number of factors have contributed to the dire economic situation: the war and the related destruction of industry, the economic meltdown in neighboring Lebanon (which triggered Syria’s biggest currency collapse in 2019), widespread corruption and mismanagement, the impact of Western sanctions, the fallout from the February 2023 earthquake, the fact that oil-rich areas in the northwest remain outside of government control, and consistent economic underperformance, exacerbated by the ongoing exodus of skilled workers. All of this has fueled the currency’s nosedive, and the Syrian economy is in desperate need of stimulus.

The economic freefall is aggravated by the lack of financial support from Syria’s chief allies, Iran and Russia. With the former bogged down with its own financial troubles at home and the later involved in a costly war in Ukraine, Syria’s patrons are reluctant to foot the bill, leaving Damascus looking for other options.

On Aug. 8, the Central Bank of Syria issued a circular raising the ceiling for daily withdrawals from bank accounts from 15 million SYP to 25 million SYP, increasing liquidity for customers at a time when the value of the pound continues to fall. The exchange rate has soared so much that the Central Bank recently decided to raise the official rate against the dollar to 8,542 SYP, an increase of almost 25% from the previous rate of 6,532 SYP.

The blame game

Speaking at the People's Assembly about the economic upheaval, Syrian Prime Minister Hussein Arnous was defiant, saying, “The most difficult economic problem we face is how to manage the gap between limited resources and unlimited needs.” He added that, “When the government intends to control the exchange rate and restrict liquidity in the markets to preserve the purchasing power of the national currency and maintain the general level of prices in the country, this approach will be accompanied by a contraction in economic activity and restriction of the business sector in one way or another.”

The currency’s ongoing deterioration has sparked debates over who is to blame for the rapid rise in the cost of goods, whether it is a government policy or a ploy by the private sector to maximize profits. Qais Ramadan, a high-ranking government official monitoring the supply sector in Damascus, told the pro-state newspaper Al-Watan that, “Merchants raise their prices when the exchange rate increases and do not reduce it when it decreases.” He added that the private sector has “proven unable to ensure the flow of goods to retail stores at an acceptable and fair price.”

Looking abroad for assistance

The countries that were quick to normalize relations with Damascus, such as the UAE, have been focused on the humanitarian situation of late, with plans to boost Syria’s economy a matter for discussion further down the line.

The UAE and Saudi Arabia have primarily been working on providing support to earthquake-affected areas, not projects to shore up Syria’s broader economy. Saudi Arabia has yet to fully reopen its embassy in Damascus or even begin much-needed renovations, which indicates that ties are still in the lengthy process of being restored. 

On June 8, Syrian Prime Minister Arnous visited Lattakia with Mohammed al-Kaabi, head of the Emirates Red Crescent in Syria, to inspect progress on an Emirati project to build 1,000 housing units for victims of the Feb. 6 earthquake in the area. The prefabricated units were constructed to provide much-needed housing quickly at a total cost of $17.7 million. Arnous expressed his thanks for the UAE’s help, saying it “underscores the depth of brotherly relations between the two countries and their people.”

Yet Syria needs more assistance and to quickly find a way to stabilize the Syrian pound, but in return, countries with the ability to help economically will require political concessions and a long-term commitment to addressing issues like narcotics trafficking.

In the meantime, unless Syria’s ailing currency finds a solid footing, investor confidence will remain low and Damascus will have to constantly plow dollars into its markets through various means to maintain faith in the pound.

The Gulf countries have been coy about their lack of financial commitments, favoring a more measured approach of slowly building trust and consensus with Damascus before ramping up support. If that is to happen, it will require patience from both sides.

Danny Makki is an analyst covering the internal dynamics of the conflict in Syria and a non-resident scholar with MEI's Syria Program. He specializes in Syria’s relations with Russia and Iran.

Photo by LOUAI BESHARA/AFP via Getty Images