DAMASCUS — As protests persist in Syria, the economy is becoming an increasing concern for many, who wonder if it will eventually falter in light of the recent unrest.

“The global financial crisis had a moderate affect on Syria,” Syrian economist Samir Seifan told IPS. But now, “people are only spending on basic items, which is resulting in a smaller economy. Foreign and local investments are also dwindling due to uncertainty.” 

According to the Institute of International Finance, the global association of financial institutions based in Washington, D.C., the Syrian economy will shrink by 3 percent this year as a result of the pro-democracy protests and instability which has persisted for some 100 days now. 

International companies have been flocking out of Syria due to the internal conflict. The Qatari Diar real estate company put an end to two projects — one in Damascus and another on the Syrian Mediterranean coast. Another Qatari firm, Qatar Electricity and Water Company, has delayed building two power plants in Syria — a 900 million dollar project. In addition, a 500 million dollar project planned by Emaar Properties, and another by the Gulf Majid Al-Futtaim Group have also been put on hold. 

The new sanctions imposed on various members of the regime are also making people wary, an analyst here told IPS on condition of anonymity. “This will certainly affect the level of Foreign Direct Investment (FDI) into the country,” he explained. 

As a result of decreasing FDI, there is a loss of confidence in the Syrian pound, which has been battered to a pulp since the start of the protests, according to analysts.

 

“Syria’s central bank was forced to raise interest rates on bank deposits from 7 percent to 9 percent in early May, and to lower reserve requirements from 10 percent to 5 percent,” economist Nassib Ghobril from the Byblos Bank in Beirut, a Lebanese institution with subsidiaries in Syria, told IPS. 

“The Syrian pound has lost about 3 percent of its value on the official market,” explains Seifan. However, it is rumored the loss reached 17 percent on the secondary black market — before the Syrian central bank intervened by introducing certain financial measures, such as banning the withdrawal of amounts over 5,000 dollars and increasing interest on deposits. 

Bankers also say they have detected a flight of capital in the last two months. Depositors are said to have withdrawn the equivalent of at least 680 million dollars from privately owned banks. 

Matters were only made worse when President Bashar al-Assad warned last week of a possible economic collapse. “This affected the Syrian stock market which has been dropping since,” explained Jihad Yazigi, editor in chief in Damascus of “The Syria Report,” an online business journal based in Paris. 

“Private traditional banks [excluding Islamic banks] have witnessed a decrease of 10.2 percent in demand deposits, which amounts to 2.1 billion dollars,” adds Ghobril. 

Further aggravating the economic situation in Syria is the decline in tourism. There were about 8.33 million tourists last year, a 40 percent hike from the previous year, according to the ministry of tourism. “The real figure, however, is about four million,” Seifan says. “Regardless, tourism growth is currently at zero percent, and this will have repercussions on subsidiary activities, like restaurants and commerce at large.” 

Such gloomy predictions will only exacerbate the unemployment situation, estimated to be at about 20 percent. “This figure goes up to 30 percent in the youth segment of the population,” emphasises Seifan. 

About one third of the population lives below the poverty line. In fact, growing social and regional inequalities — some 40 percent of the government budget is said to be allocated to large cities — are said to have triggered the recent unrest. 

“Rural regions, such as Daraa, have also been suffering from a severe draught for the past four years,” adds Yazigi. 

Poverty and draughts have pushed populations from rural towns and villages to immigrate into cities — namely, Damascus and Aleppo — which has only put more pressure on urban dwellers, who are already facing excessive inflation and rising real estate costs. 

In a bid to quell the protests, al-Assad has restored fuel subsidies and increased public salaries as well as put in place cash transfers to low-income households. Increasing government spending has not managed to calm demonstrators. 

As long as oil operations continue to be unaffected by the unrest and are not targeted by sanctions, the government can still keep the economy on its feet, according to some analysts. 

The fact that the oil sector is “very diversified, does not rely on external factors, and [Syria’s] population is relatively debt-free means that it is not likely to collapse any time soon,” stresses Seifan. 

Yazigi, on the other hand chooses to mitigate his answer. “Loss of confidence in the economy may be nonetheless a major aggravating factor.”   

(IPS)