Failed Economics: Syria ‘Restructures’ Its Subsidy System

Haid Haid

AFP Photo: Aaref Watad

The physical destruction from the Syrian civil war has devastated the economy – as one would expect. Equally predictable are the frequent shortages of fuel, bread and other essentials. What little is available would be unaffordable without subsidies. The government’s response has been to reduced the rations of subsidized goods allocated to citizens. It then issued grants to government employees as a form of direct support. The hope was that this would better balance supply and demand. Unfortunately, this is an economic plan that might make sense only from the other side of Alice’s Looking Glass.

 While the regime has tried to present the subsidy reduction as a temporary “austerity measure,” it clearly intends to change the country’s social support system –and indeed, its economic production. And therein lies the danger of wholesale, systemic breakdown, for if this is supposed to be a form of “supply-side economics,” it is a perverse version of it ; the government controls prices and controls the ability of buyers to afford goods. There is no free market.

Bent on its prosecution of war, the regime has sought to increase Syrian citizens’ dependence on state institutions. It seeks to make people beholden to the regime by being the primary provider of services and jobs. But with the economy having shrunk 60 percent since 2010, by the reckoning of the World Bank, and the Syrian pound since then plunging to less than a tenth of its previous value, the national coffers are empty. So, while more and more people have become dependent on the state, the ability of the regime to provide that very support has evaporated.

Until recently, the regime had been reluctant to revise its price and subsidy program, fearing public outrage. But chronic shortages have taken the decision out of its hands. Last October, it raised the price of fuel and bread by 100 percent. Yet the price rises had only a limited impact in incentivising producers and providers to source new supplies. They can’t. There are structural impediments in the form of sanctions, lack of credit, lack of foreign exchange, lack of trust and lack of so much more.

The price of bread rose beyond what many considered a level that people would tolerate. Interestingly, however, the much-feared protests did not materialize; people were simply too worried about the regime’s retaliation.  This then emboldened Al-Assad’s regime to further raise fuel prices twice since the beginning of this year. Cooking gas prices also went up. were . In addition, it introduced rationing of these subsidised goods.

To mitigate higher consumer costs, the government directed some savings from subsidy cuts into grants for civil servants, military personnel and pensioners. These workers received three tranches of 50,000 Syrian pounds ($15 at the black-market exchange rate). Two of those payments were made shortly after the first price hike.

While salaries in the local currency have remained constant, their buying power has plummeted. A civil servant might make the equivalent of between $16 and $26 a month today, when previously his salary would have amounted to between $200 and $320. As such, the extra $45 over the past seven months has hardly compensated for the depressed buying power of the average government worker – to say nothing of the misery endured by the unemployed, who account for probably half the number of willing and able workers.

There is so much wrong with the regime’s economic program that it is hard to know where to start. The cash grants are ad hoc handouts so workers cannot plan future expenditure based on further grants.

Meanwhile, raising the price of fuel isn’t going to prompt more production since the regime controls very little reserve within its territory. However, more expensive fuel automatically raises the price of transportation and of basic commodities. Additionally, industrial consumers of fuel – who have not benefited from the government grants – are squeezed further, causing factories to partially or even fully shut down. This, in turn, reduces the amount of tax collected, which is needed to pay for oil that is, in any case, mostly imported from Iran. Instead of making supplies of food, fuel and other needs more abundant, there is less of everything and it all costs more.

If Al-Assad’s officials and hangers-on were more competent, they would try to improve farming output and factory production. They would do battle against smugglers and tax evaders. But is that wishful thinking? For where would farmers get seed stocks and fertilizer? Where would factories get supplies? And Al-Assad loyalists are often the very same people smuggling contraband and evading taxes.

The best hope for those living under Al-Assad’s regime would be for it to fall, for it is hard to imagine a less competent steward of the economy – as if  tinkering with the subsidy system will fix an economy with almost nothing to subsidize. One is tempted to think that even communist regimes in the past did better.

Al-Assad’s Syria is never going to function like a normal economy. It cannot import and export at will; it has no store of foreign exchange. Its credit of goodwill among the usual aid-giving countries is zero. Until Al-Assad goes, the majority of Syrians will continue to be deprived of almost everything and at risk of hunger. 


Haid Haid is a senior consulting research fellow of Chatham House’s Middle East and North Africa program.