After six years of war, the Syrian regime finds itself in a disastrous fiscal situation, unable to shift funds to meet humanitarian and stabilization needs, according to Middle East Institute.
recent months, as international actors have slowly moved toward reconstruction
planning for Syria, the full scale of the economic challenge facing Damascus is
becoming clear. The UN reports that government fiscal revenue collection has
declined by almost 94 percent from 2010 to 2015. In absolute terms, this would
add up to an accumulated war impact G.D.P. loss of $226 billion 2010 dollars—or
roughly four times the country’s G.D.P. that year.
Yet, despite imploding finances, the regime has poured all its resources into meeting public sector salaries and sustaining military expenditures. Absent sudden peace and reconciliation, and with economic decline merely slowing, how can the Syrian regime avert fiscal implosion without fundamentally disrupting its own war effort?
In this context, recent moves by the Assad regime in the east make sense beyond the common “Iranian land bridge” narrative. Considering the regime’s tenuous fiscal position and import restrictions, Assad’s government is hard-pressed to reconstitute core sectors of Syria’s infrastructure on the cheap. Auctioning off stakes in the now-destroyed sectors of the economy to foreign stakeholders in return for investment, military support, and a cut of the revenue is preferable to turning to Western donors or private financiers. For example, a recent announcement saw a Russian company gain a 25 percent stake in Syria’s oil sector in return for investment in recovery, security, and other areas.
Similar deals have been struck with Russia and Iran in other sectors as well, such as the gas field recovery and exploration, or phosphate mines, which have both Russian and Iranian stakeholders. Permitting expansive Russian and Iranian roles in these sectors could further bolster exports of raw commodities to these countries, supporting the regime’s weak foreign accounts position.
The past year has also seen the regime’s foreign backers increasingly take over Assad’s current expenditure obligations. The much-publicized Fifth Assault Corps has been publicly known to be built and sustained from Russian coffers. More interestingly, Iran appears to have slightly shifted strategies, now increasingly financing its own Syrian-national militias directly. A series of documents leaked earlier this spring listed more than 86,000 Syrian nationals as members of the “Local Defense Forces” militias, whose salaries and—importantly—martyrs payments are covered by Tehran.
The latter project especially straddles the line between lifting weight off Assad’s shoulder, and carving a narrower sphere of influence from the carcass of a regime that is unlikely to become economically self-sufficient within decades. Instead of getting sucked into the larger problem of stabilizing Assad’s statelet, Iran and others may prefer to selectively invest in clients and infrastructure conducive to their narrower national interests, leaving the larger rebuilding part to the international community.
As usual, it is ordinary Syrians who have been bearing the cost of Assad’s brutal war and who will suffer the eventual economic adjustment. Their resilience, and the international community’s discipline in doling out stabilization aid to a regime that has wasted its people’s lives and wealth to cling to power, will prove decisive.
In the end, according to one sophisticated World Bank economic model, the objective damage to capital inputs and human casualties barely accounts for a twentieth part of the collapse of the Syrian economy. The real multiplier and true source of Syria’s economic destitution is the continuing destruction of its social fabric. Even loyalists must be skeptical about whether Bashar al-Assad will be able to address that issue.