Syrian economy to shrink 20% in 2012

Reuters/Beirut

War-ravaged Syria’s economy will shrink by a fifth in 2012 and all its foreign reserves could be spent by the end of next year, a global finance industry association said yesterday.

Since a revolt that has since descended into civil war started in March 2011, inflation has risen to 40% and the Syrian pound’s official exchange rate against the dollar fallen by 51%, the Institute for International Finance said.

As well as financing the war, President Bashar al-Assad’s government has spent billions of dollars of hard currency reserves on wages, fuel subsidies and propping up the pound, bankers in Damascus say.

The Washington-based IIF said the reserves could be depleted by the end of 2013.

Opposition activists estimate some 40,000 people have been killed in Syria as fighting between rebels and the army has raged in almost every city and has now reached the outskirts of the capital.

International measures to pressure al-Assad to step down have also affected the economy.

“The sanctions by the Arab League introduced in late 2011 and the September 2011 US and EU  sanctions have meant more economic hardships for 2012 and 2013,” said Garbis Iradian, deputy director of the IIF’s Africa and Middle East department.

Syria has not yet released economic forecasts for 2012 but the finance ministry has said GDP growth will be positive.

Syria’s war has affected the countries around it, with hundreds of thousands of refugees fleeing to Turkey, Lebanon, Jordan and Iraq. Trading routes have also been cut.

Lebanon, its smaller neighbour that is rebuilding after its own 15-year civil war, has borne the brunt of the turmoil.

Lebanon’s economy is due to grow by 0.6% this year, a significant drop from 1.8% in 2011 and 7% in 2010, the IIF said, after political bickering and sporadic sectarian clashes linked to Syria’s conflict have scared off investors.

“The deepening conflict in Syria continues to pose a threat to Lebanon’s political order and economic stability,” Iradian said.

If Lebanese politicians were to reach a consensus on effective government, improve domestic security and implement fiscal and structural reforms then the 2013 GDP forecast could reach 3.5% at best, he said.

“If this doesn’t happen, it would likely be 1%.”

Foreign direct investment dropped from 10% of GDP before the Syrian crisis to hardly 2% of GDP, he said. But the banking sector has remained resilient and the Lebanese pound is stable.

Nassib Ghobril, chief economist at Byblos Bank, which hosted the launch of the report, said Lebanon could have mitigated the adverse impact of the Syria turmoil on the economy “if Lebanese politicians and government officials made a concerted effort to maintain political stability.”

‘Non-oil Mena economies face at best a modest recovery’

Non-oil economies in the Middle East and North Africa region face at best a modest recovery in 2013 as they combat weak growth, wide fiscal and current account deficits, and rising unemployment, the Institute of International Finance said in a report yesterday.

The group, which represents over 400 of the world’s largest financial firms, said increased government spending on fuel and food subsidies, combined with pressures to raise public wages, is straining public finances in the region’s non-oil economies. Concessional external financing has been promised but disbursements may not be sufficient to secure macroeconomic stability, it added. Meanwhile, monetary and fiscal policy buffers have diminished, and private investors are still in a wait-and-see mode.

“The main risks for Mena oil importers stem from ideological tensions, real or potential social unrest, populist policies, and fiscal slippages. Foreign investors need more clarity as to the economic policy frameworks to be adopted by the new governments in the region,” said Garbis Iradian, the IIF’s deputy director of the Africa and Middle East department, in the emailed report.

The IIF expects non-oil economies in the Mena area to grow by a combined 1% this year, compared with 1.5% in 2011. The Mena region’s oil exporters by contrast face a brighter future, with a combined economic expansion of 5.7% seen in 2012, up from 4.5% last year.

“Of the region’s oil exporters, the economy of Iran is expected to contract this year due to sanctions, but the six GCC countries, plus Algeria, Iraq, and Libya, continue to post strong growth, while fiscal and current account surpluses have been buoyed by higher oil production and a strong rebound in oil and gas production in Libya,” the IIF said.

For the region’s oil exporters, the main risk is the possibility of much lower oil prices for any sustained period.