Syria economy: Country should brace for a financial collapse

Government analysts, however, defy experts prediction, despite isolation and woes.

DAMASCUS // Syria’s economy began 2011 in a strong state of health. The International Monetary Fund predicted moderate but meaningful growth, tourism receipts at more than US$8 billion (Dh29.3bn) were at a record high and set to rise, exploration for new oil and gas fields was under way.

Multimillion dollar international investment projects had started, including much-needed upgrades to dilapidated infrastructure.

The bullish optimism of Syria's monied classes was symbolised in the huge double tower block project under way in the centre of town: a high-tech steel and glass masterpiece for one of the world's most ancient cities. A vast excavation was dug out for the foundations, surrounded by billboards showing President Bashar Al Assad's face alongside the slogan "Together we build".

But work has stopped, leaving an enormous empty hole in the ground. If past unfinished Syrian building projects were an indicator, it may stay that way for many years – a perfect symbol of the current crisis now gripping the nation.

Tellingly, the posters of Mr Al Assad have also been covered by the authorities, replaced by images of the Syrian flag.

There was always something deceiving in such glittering projects, as well as the proliferation of Beirut-style upmarket cafes and nightclubs in the richer parts of town and the Porsche and Range Rover dealerships.

The well-connected elite never had it so good. But the poor were sliding deeper into poverty, passed over by the brave new world of a market economy and buried beneath a landslide of corruption.

A crippling drought pushed more than a million farmers and their families off the land and tens of thousands were suffering from malnutrition. It was a disaster the authorities preferred not to acknowledge and their failure to act surely played a role in the uprising.

It is no coincidence that the provinces and slum-like neighbourhoods around major cities revolted. How could a million impoverished refugees and wiped-out farming communities be anything but angry at the authorities who had turned their backs on them in their time of greatest need?

As the uprising gained momentum through the year and the violence grew, the most profitable areas of the tourism sector evaporated, with only low-spending Iranian pilgrims left.

Economic sanctions have hit hard, most significantly the isolation of banks and European bans on the small but crucial oil sector – oil and tourism accounted for more than $12bn of Syria’s approximately $50bn gross domestic product.

Fuel shortages and long power cuts are routine across the country, unemployment has soared to 30 per cent according to officials, while the Syrian pound has lost 30 per cent of its value against the US dollar, driving up the prices of the cheap imports that have all but wiped out Syria’s own uncompetitive manufacturing industries.

Rapid inflation has eroded the spending power of public-sector employees who were already just scraping by. State overtime payments have been stopped and many staff confess to turning up at work largely to drink tea and enjoy the warmth of a heated building after freezing nights at home, rather than to do anything productive.

Budget cuts mean that even that small luxury may end.

Independent Syrian economists are now more inclined to ask not if the final collapse will come, but when and in what form.

Officials and pro-government analysts have looked hard for a silver lining. They claim Syria has weathered economic isolation before and will do so once again, thanks to self-sufficiency in basic foodstuffs and help from international friends such as Iran, Russia and neighbouring Iraq.

There have even been optimistic declarations that the economic incineration will leave behind a fertile ground for renewal; that Syrian industries will rise from the ashes – although businessmen have been surreptitiously moving their money abroad, rather than paying to modernise factories at home.

Then there is the strategic reserve of hard currency, a foundation stone for the regime to fall back on. September’s panic measures to ban imports and save precious US dollars did nothing to shore up confidence that the government was being honest in valuing its funds at $18bn – Syrian economic data being notoriously disreputable – but whatever does remain of the reserve should be enough to see the country through several more months of hardship.

At best that will be a temporary reprieve, Syrian economists warn. The money will run out in the end and what happens then?