x Abu Dhabi, UAEThursday 20 July 2017

Syria 'is heading for financial disaster'

Economists issue warning as Assad regime announces 58% rise in expenditure and analyst says: 'They're spending money they don't have with no access to credit'.

DAMASCUS // Syria could be heading for financial disaster after the government revealed dramatically expanded spending plans for 2012, economists warned yesterday.

With European Union sanctions beginning to bite, on Monday Damascus adopted a budget for next year equivalent to Dh97 billion, an increase of 58 per cent from 2011.

"Where are they going to get the money from to pay for this? That's the big question," said Nabil Sukkar, a leading economist and former World Bank official who now heads an independent think tank in Damascus.

"Our concern is that they are going to start printing money to meet their expenditure, which will lead to serious inflation," he said. "With the economy stagnating that would be an unfortunate situation to find ourselves in."

Another independent Syrian economic analyst was more blunt. "It is hard to see how Syria is doing anything other than walking into an economic disaster," he said. "They are spending more money, money they do not have, at a time when their income has dropped significantly as they have no way of getting credit.

"The numbers do not work. I cannot see any light at the end of the tunnel. I cannot see any way out of this, we will be feeling the effects of this for a long, long time."

Nevertheless, neither analyst expects the worsening economic climate to turn Syrian business leaders against the president, Bashar Al Assad."This will not topple the regime," the independent economist said. "The business community isn't happy about any of it but they will not turn against the regime, they cannot, they will not."

Washington and Brussels have imposed sanctions on Damascus, including the small but vital oil sector, for its handling of an anti-regime uprising. The United Nations says more than 2,700 people have been killed since March by security forces suppressing of pro-democracy demonstrations, with tens of thousands of dissidents arrested, many of whom face torture while in detention.

Syrian officials deny that, and insist they are locked in a battle against armed Islamist insurgents and foreign conspirators who have killed 700 members of the security services.

The budget was announced with little fanfare, and few precise details, although economists say day-to-day expenditure, including fuel subsidies and payment for expanded security operations, would account for more than 70 per cent of the total.

"If anything, I had hoped to see more investment spending, something that would inject some life into the economy and generate some growth," said Mr Sukkar. "But the investment programme has been frozen, we are seeing a reversal of essential market reforms and a return to protectionism."

The International Monetary Fund this month predicted Syria's economy would shrink by 2 per cent this year, revising its previous estimate of 3 per cent growth.

Many foreign aid programmes have been suspended and international banking services halted, while anecdotal reports indicate rising unemployment - which unofficially had been hovering at about 20 per cent even before the crisis began - as well as reduced payment of taxes and significant reductions in consumer spending.

Syrian officials have acknowledged the economy is under pressure. The foreign minister, Walid Moallem, told the United Nation's General Assembly on Monday that economic sanctions by the United States and EU would "jeopardise" the lives of ordinary people.

Working and middle-class Syrians have said they are braced for bleak economic times, with some already complaining of recent prices rises on basic foodstuffs, including eggs and sugar, with expectations of fuel and power shortages in coming months. Government sector salary increases from earlier this year have already been wiped out by creeping inflation, Syrians say.

"We know it is going to be bad for us," said one government employee, a father of six who has a second job as a delivery driver in Damascus. "The rich will be fine and the smugglers will be happy, but the rest of us are going to suffer.

"If we're lucky we will be able to afford to eat and heat one room in the house this winter. There will be nothing else, we will simply be existing."

Nonetheless, regime officials say the country - which faced sanctions, inflation, stagnation and hard currency shortages in the 1980s - will cope.

"We expect it will cost us at least one year's worth of budget to overcome the crisis and we have not spent that much yet," said one official. "In a few months the protests will stop and the situation will be getting back to normal, this is a problem we will overcome."

Hamidi Abdullah, a Syrian commentator and analyst, said the economy would not be crippled because of its relative self-sufficiency and the absence of a blanket UN-imposed embargo.

"Sanctions on oil will not amount to a deadly hit because we're not an oil dependent economy," he said. "We still have good links with non-EU countries, including Iraq, we're not heavily indebted and our strategic foreign currency reserves are still strong."

He also backed the expanded budget, saying it would safeguard the poorest section of society by ensuring fuel and food subsidies remained in place. "Economic reforms will continue and if waste is cut and corruption cut back, the economy will emerge from this period stronger than it was at the start," he said.

The budget announcement comes days after the authorities imposed a ban on non-essential imports. That move, made without advance notice, alarmed Syrian economists and businessmen, who described it as a "panic" measure.

Prices of electrical goods and cars have already begun to rise, with reports that the cost of a small family saloon is now thousands of dollars more than it was last week .

"The only explanation for the import ban is that the treasury saw some numbers that frightened it," said another leading Syrian economist. "They must be burning through their US dollar reserves faster than they thought and they had to plug the leak."

Syria says it has about US$17bn in hard currency reserves, although analysts say they have no way of knowing if that figure is correct because of opaque accounting practices.

The minister of economy and trade, Mohammad Nidal Al Shaar, said the suspension of luxury imports was designed to maintain those reserves. He also insisted it was a short-term move and that the list of items on the banned list was already under review.

"It is a preventive, temporary measure which will help enhance productivity and give a chance to local factories to produce more and create jobs," he said.

psands@thenational.ae