Syria’s economy is collapsing. Deposits fell by an average of 35 percent in 2011 at Bank of Syria and Overseas SA, Bank Audi Syria and Banque Bemo Saudi Fransi, according to April filings to the Damascus Securities Exchange.
Lending plunged 22 percent last year, the filings by the three banks show, compared with a 6.9 percent increase in Egypt and a 3.9 percent gain in the United Arab Emirates. The central bank’s foreign reserves may drop to $10 billion this year, half the 2010 peak, according to the Economist Intelligence Unit.
The 14-month long uprising that has claimed more than 9,000 lives is taking an increasing toll on the economy and the business class, mostly drawn from the majority Sunni Muslim community. Their support for President Bashar Assad – who stems from the minority Alawite sect – may buckle as the economy, which is forecast to contract 5.9 percent in 2012 by the EIU, spirals downward.
If “the government cannot come up with a consistent policy to stop this economic deterioration, at some point in time Syrian businesses are going to realize that backing Bashar Assad himself is too costly,” Ayesha Sabavala, an EIU economist on Syria, said in a telephone interview.
Syria’s pound weakened to about 68 per U.S. dollar, from 47 per dollar before the uprising started in March 2011, according to data on the Syrian central bank’s website. Unofficial money exchangers on the Lebanese side of the border sell the pound at about 72 per dollar.
Syria’s economy shrank 3.4 percent in 2011 because of the unrest, the EIU’s estimates show. Inflation may accelerate to 14.7 percent in 2012 from 4.8 percent in 2011, it said.
One of the country’s main exports has slumped since the European Union’s decision to stop importing Syrian crude oil last year. That has cost it $3 billion in revenue, Oil Minister Sufian Alao told the official Syrian Arab News Agency on April 30. State media regularly report “terrorist” attacks on the country’s oil pipelines, most recently in Deir Ezzor province this week.
Syria produced about 380,000 barrels a day before the move to impose sanctions, of which 150,000 barrels were exported, Alao said.
“The economy is a downward spiral and is trapped,” said Jarmo Kotilaine, chief economist at National Commercial Bank, Saudi Arabia’s biggest bank by assets. “This spiral can continue, and if it does, everyone including the government and individuals will revert to a more simple way of doing business. It’s not the ideal scenario.”
Syria hasn’t sold bonds since February of last year, a month before the anti-government protests began, according to central bank data on its website.
Abdul-Hafiz Attasi, 31, who lives in Damascus and owns a food distribution company, said his business is barely breaking even. “It’s really bad,” he said by phone from the capital on April 29. “It’s really hard to get any form of financing.
‘‘Credit cards are all in dollars ... Now the Syrian currency has lost 30 percent of its value so people are finding it difficult to repay credit cards,’’ he said.
Banks in neighboring Lebanon, where Syria has political influence, have halted all transactions with Syrian lenders to conform with United Nations sanctions, according to Gaith Mansour, Credit Libanais SAL’s head of capital markets.
‘‘Lebanon can’t afford politically to override any U.N. Security Council decision despite the strength in the ties between Lebanon and the Syrian regime,” he said.
“Most of retail loans or lending is on hold,” the EIU’s Sabavala said. “Syrians are not going to be able to pay these banks back because what they owe the banks now with the decline of the Syrian pound is probably going to be a lot more than what they owed when they took out these loans, which means that banks are going to be plagued by very, very high nonperforming loans.”
European Union governments stiffened sanctions on April 23, banning the export of luxury goods to Syria and adding more products on a list of banned technologies that could be used by the regime to suppress dissent. The U.N. is meanwhile sending 300 unarmed monitors to oversee the April 12 cease-fire agreement that has so far failed to stop daily attacks by government forces on urban areas.
Tightening credit and a slowing economy are having a “big psychological impact on those who have been sitting on the fence, like the business community, those that have been supporting the regime,” Salman Shaikh, director of the Brookings Doha Center, said in an interview.
“Is the banking sector facing the threat of collapse? I suspect it probably is,” Shaikh said. “Assad is piling all his money into this war, draining resources from other sectors like education and finance. This can’t go on forever.”