Socio-economic conditions are deteriorating rapidly in Syria, affected by a range of shocks including prolonged armed conflict, economic sanctions, the COVID-19 pandemic, a severe drought, deepening economic crises in neighboring Lebanon and Turkey, and the economic consequences of the war in Ukraine and associated sanctions. The continued depreciation of the local currency has led to rampant inflation, worsening already high food insecurity and pushing more people into poverty. Conflict, displacement, and the collapse of economic activities and social services have all contributed to the decline in welfare for Syria’s inhabitants.
Recent Developments
Between 2010 and 2019, Syria’s GDP shrunk by more than a half. The decline in Gross National Income per capita in Syria has led the World Bank Group to reclassify Syria as a low-income country in 2018. Conflict, displacement, and the collapse of economic activities and social services have all contributed to the decline in social welfare. Before the conflict, extreme poverty in Syria (US$1.90 2011 PPP per day) was virtually non-existent. It is now affecting more than 50% of the population.
Given the heavy reliance on imports, currency falls have quickly fed into higher domestic prices, causing hyperinflation. In response to the surge in inflation, the government introduced two rounds of wage increases for public sector workers in 2021, but this was not enough to compensate for the erosion of real incomes. Driven by the noticeable increase in commodity prices, government subsidies on essential food and fuel goods have dramatically risen over the past years, accounting for approximately 40% of the total budgeted expenditures in 2021 and 2022. To compress subsidies, the government has tightened rationing, which has inevitably deteriorated the already dire living conditions of the Syrian people.
Outlook
The economic condition in Syria is projected to continue to be mired by the low intensity conflict, turmoil in Lebanon and Turkey, the COVID-19 pandemic, and the economic consequences of the war in Ukraine and associated sanctions. A persistent twin deficit would further drain foreign exchange reserves, putting further pressure on the domestic currency. Inflation is projected to remain high in the short term, due to the pass-through effects of currency depreciation, persistent food and fuel shortages, and reduced food and fuel rationing. Owing to its heavy reliance on food and fuel imports, Syria is particularly vulnerable to soaring food prices triggered by the economic consequences of the war in Ukraine associated sanctions, which would worsen the already acute food insecurity of the country.