Deposits from Gulf states 'critical' for Syria's financial reform amid low foreign exchange reserves

Support may take form of currency swaps, direct transfers to central bank, concessional lending or asset trading, analysts say

An employee counts money at a bank in Damascus, Syria. Banks in the Syrian capital resumed operations after Bashar Al Assad was forced from office. EPA

Gulf countries will play a major role supporting Syria's efforts to urgently reform its financial system, experts are predicting, as the country seeks to resuscitate its economy when international sanctions are lifted.

Financial deposits from Gulf allies will support Syria's monetary stability and rebuild confidence in its commercial banking system as the country grapples with near-depleted foreign exchange reserves, analysts said.

"Extremely low levels of foreign-denominated cash reserves are proving debilitating for the Central Bank of Syria, preventing it from stabilising the currency and supporting the commercial banking sector,” Dominic Pratt, senior analyst at the Economist Intelligence Unit (EIU), told The National.

"Securing liquidity injections will be crucial to address these issues, and deposits from Gulf partners in particular will be critical given a lack of alternatives as balance of payment pressures remain high.”

Deposits from Gulf partners in particular will be critical given a lack of alternatives as balance of payment pressures remain high

Dominic Pratt,
senior analyst at Economist Intelligence Unit

Gulf states have a record of providing large-scale financial assistance to distressed economies in the region, which Syria can benefit from as it requires "substantial external inflows”, said Hani Abuagla, senior market analyst at XTB Mena.

"Deposits from Saudi Arabia, Qatar, and the UAE could provide immediate support. This approach has been employed in other crisis-hit economies to restore market confidence and prevent currency collapses,” he said.

Gulf states can support Syria’s financial system through several channels: A direct and immediate measure is to place foreign currency deposits with the Syrian Central Bank, helping to rebuild reserves and stabilise the exchange rate, Mr Abuagla said.

Another way is financing urgent government expenditures, such as public-sector workers' wages, while long-term support could include equity injections into local banks or into infrastructure investments.

Support from Gulf countries could also take the form of currency swaps, direct transfers to the central bank, concessional lending or asset trading, Mr Pratt said.

Asset sales in return for foreign currency liquidity, similar to the UAE's deal with Egypt to develop the Ras Al Hekma project, is a model that can be applied in Syria, analysts said.

Backing by Gulf countries in the form of foreign direct investments into projects in Syria would increase the inflow of foreign currency into the cash-strapped country, said Ibrahim Nafeh Koshaji, a Syria-based economic and banking analyst.

Such a move will also improve its business environment by introducing advanced managerial and technological know-how.

Employees count stashes of Syrian pounds at the central bank in Damascus. EU countries agreed on May 20 to lift all their remaining economic sanctions on Syria. AFP

However, foreign financial assistance often comes with strings attached and Syria is no exception, analysts said.

"This type of assistance is rarely unconditional. Gulf countries would likely link their financial aid to political concessions, governance improvements and signs of serious economic reform,” Vijay Valecha, chief investment officer at Century Financial, said.

"Without these, large-scale deposits could be withheld or limited to symbolic gestures.”

But without near-term access to international capital markets or IMF programmes, "Gulf support remains one of the few viable paths to easing Syria's immediate external constraints”, he added.

Syria's Tartus port crucial to economic recovery, with help from Dubai

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War's economic toll

Syria emerging from the overthrow of the Bashar Al Assad regime in December is facing the Herculean tasks of rebuilding its economy, repairing hollowed out institutions and returning to global capital markets after decades of isolation.

The Syrian economy has been devastated by the civil war, which began in 2011. The UN's Development Programme estimates cumulative losses – including physical damage ($123.3 billion) and economic deprivation – of $923 billion at the end of 2024.

The Syrian GDP has about halved in size since 2010 to around $21 billion in 2024, according to Bloomberg Economics calculations using World Bank data.

Syria is already getting signals of interest from Gulf countries to support its economic revival.

DP World – the Dubai-based global ports operator – signed an $800 million initial agreement with the Syrian government to develop and expand the north-western port of Tartus.

Qatar Airways was one of the first airlines to resume flights to Damascus International Airport back in January, while UAE carrier flydubai said this month it will restart service to the Syrian capital in June.

'Pivotal' opportunity after sanctions removal

US President Donald Trump, during a Gulf tour this month, announced the lifting of sanctions ahead of a landmark meeting with Syrian leader Ahmad Al Shara in Riyadh. Shortly after, the EU followed suit.

Removal of US and EU sanctions will be " transformative” for Syria's banking regulator, commercial lenders and the financial sector, Mr Pratt said.

The lifting of sanctions will help Syria in ending decades of isolation, opening up new credit lines and financial support and providing an opportunity to initiate critical, and long overdue reforms, he said.

A sanctions-free economy is a "pivotal” opportunity for the central bank to implement structural reforms, according to Mr Abuagla.

Without restrictions, Syria could re-enter the global financial system, reestablish access to Swift, speed remittances and revive trade flows. The recovery of frozen foreign assets would boost reserves, while some international banks have reportedly expressed interest in entering the Syrian market once sanctions are lifted.

The clearance of its debt with the World Bank has also made Syria eligible for credit lines and reconstruction funding.

The World Bank cleared Syria of its $15.5 million outstanding debt this month after Saudi Arabia and Qatar paid for it. The clearing of the arrears reinstates Syria's eligibility to receive World Bank support and operations after a 14-year hiatus.

Saudi Arabia and Qatar announced their plans to settle Syria's outstanding debts on April 27, in "support of and to accelerate the recovery” of Syria.

"The resumption of support from the World Bank and the IMF would also unlock funding and technical guidance essential for successful reform,” Mr Abuagla added.

Syria's central bank governor Abdul Kader Husriyeh taking the oath of office in Damascus. AFP

'Comprehensive' reform agenda

Syria's Central Bank Governor Abdul Kader Husriyeh, who was appointed in April, told The National this week among top priorities are updating monetary policy; reviewing banking legislation; strengthening anti-money laundering measures and engaging with foreign depositors, including sovereign entities.

To achieve its goal of reforming Syria's financial system, the central bank requires a rules-based policy framework to control inflation and build investor confidence, analysts say.

Also required is stabilising the exchange rate to control the volatility that deters foreign investments, Mr Abuagla said. Institutional reforms would attract the Syrian diaspora to invest their money back home, which means these funds could return if the domestic banking system becomes more stable.

Mr Koshaji said the key requirements for reform are modernising banking operations and granting the central bank full autonomy from political interference,.

Establishing a specialised advisory board to manage new money supply through open market mechanisms and removing restrictions on withdrawals and deposits are also important, he said.

Launching government bonds in Syrian pounds and US dollars and strengthening the Damascus Securities Exchange as a funding channel for reconstruction projects will also help reform efforts, Mr Koshaji added.