A near decade-long war in Syria has led to increased poverty, higher debt burdens, deteriorating labour markets and worsening access to public services in neighbouring Iraq, Jordan and Lebanon, according to the World Bank.
The Syria conflict reduced economic output by 1.2 percentage points in Iraq, 1.6 percentage points in Jordan, and 1.7 percentage points in Lebanon, from 2011 onwards, the Washington-based lender said in "The fallout of war: The regional consequences of the conflict in Syria" report released on Thursday.
The cumulative reductions correspond to 11.3 per cent of the combined pre-conflict gross domestic product across the three countries.
The conflict in Syria "has imposed a heavy economic and social toll on the country's neighbours in the Mashreq [countries in the east of the Arab world]," the bank said in the 228-page report. "The overall impact of the Syrian conflict on Iraq, Jordan and Lebanon has been disproportionately high compared to similar situations elsewhere in the world in the last few decades."
Syria is grappling with its own deepening economic crisis as the US imposes its toughest sanctions yet on the war-torn country this month. The Syrian pound which used to trade at 47 to the dollar before the conflict started in 2011, sank to a record low of 3000 against the greenback this month, ahead of a new wave of US sanctions on the country.
Syria is in the midst of a grim economic plight worsened by a decade of war and western sanctions, resulting in an exodus of millions of refugees to neighbouring countries and Europe.
The conflict in Syria has "far-reaching" consequences for its three neighbours, pushing up poverty rates by 4 percentage points in Jordan, 7.1 percentage points in Lebanon and 6 per centage points in Iraq, the report found.
Labour market conditions for locals in these three countries, particularly women, have deteriorated after 2011 due to the overall economic slowdown and arrival of refugees.
"Unambiguously, the tragic forced displacement since 2011 has been the most dramatic consequence of the Syrian conflict for others in Mashreq," the World Bank said.
For example, in Iraq, Syrian refugees have higher labour force participation than their Iraqi peers, but they have also been more likely to be unemployed.
In Jordan, Syrian refugees, especially females, are less economically active than their Jordanian peers.
In Lebanon, the labour force participation of Lebanese and of Syrian refugees were similar, while the the unemployment rates of Syrian men and women were about 20 percentage points higher than those of their Lebanese peers.
The influx of Syrian refugees also resulted in a sudden 20 per cent increase in demand for public services – such as transportation, education, health care, water and sanitation, and utilities – creating "monumental challenges" for governments of these countries.
The channels through which this economic fallout was transmitted from Syria to its neighbours include decreased transit trade through Syria, stalled export of services such as tourism, and the "demographic" shock of refugee arrivals. This influx of people boosted GDP by 0.9 percentage points in Lebanon and Jordan by increasing demand and labour supply.
Iraq, Jordan and Lebanon have been particularly affected by the Syrian war because of three major factors, according to the World Bank. First, the sheer scale and duration of the conflict, which made it an outlier among all global civil conflict cases, with the scale of the economic collapse in Syria being much larger than average.
Second, the high exposure of Mashreq economies to the Syrian crisis – including dependence for transit trade, sensitivity of major economic sectors such as tourism to regional instability, and a large demographic shock – increased the scale of impact.
Third, the low "institutional resilience" of Mashreq economies, meaning low state capacity and policy space, magnified the impact of the conflict.
Looking forward, the World Bank provided three scenarios on how a future recovery in Syria could impact neighbouring economies.
In all three scenarios, economic recovery in Syria remains "modest" with limited effects on neighbouring countries, not exceeding a percentage point, even in the best-case situation.
"Any positive fallout from Syrian recovery will be through regional stability rather than immediate economic opportunities," the lender said. "The muted economic recovery in Syria will translate into a slow reversal of the adverse effects on Iraq, Jordan, and Lebanon."
In the baseline scenario, where Syrian GDP growth increases by 0.8 percentage points annually in the next five-year period, the additional GDP growth in Iraq, Jordan, and Lebanon is estimated to be limited to 0.2 to 0.3 percentage points.
In the other two scenarios, where security improvements and service restoration are both more significant, the growth increments are 0.3 to 0.6 percentage points in the second scenario. They range at 0.6 to 0.9 percentage points in the third scenario.
For the top five materials required for the reconstruction of Syria – concrete structure, rebar steel, wood, concrete block and waterproofing – the three neighbouring countries are net importers of them.
"In the medium term, a strong economic recovery in Syria and an associated positive fallout are unlikely," the lender said.
The World Bank recommends policies that take a regional approach between the three countries to improve the current situation.
The lender highlighted potential gains from service market integration and infrastructure co-operation between the countries in energy, transport and communications technology. It also called for easing protectionist barriers between them.
"A balance between intra-regional competition and co-operation is essential for a dynamic regional economy," it said.
The lender said it is optimistic about regional solutions backed by international support.
"Can a regional perspective that is owned locally but supported internationally help stabilise the region? Our answer is affirmative, albeit cautiously so," it said. "If and when a consensus is established, the international community has the means to facilitate such a vision. Will there ever be such a consensus? We are optimistic because the alternative is in no one’s interest."