AMMAN — At the end of last year, the Syrian government approved the 2020 budget, totaling 4,000 billion Syrian pounds (SYP). The new budget is approximately SYP 118 billion more than the 2019 budget—an increase of approximately 3%. Current expenditures account for 62% of the budget, while future investments account for the remaining 38%.

Syria Direct has created a visualization for the 2020 government budget, which you can explore below. It shows all the budget items which the Syrian government plans to spend on, ranging from pensions to infrastructure projects. This visualization uses data from the government budget and classifications provided by Syria Report, a specialist economic publication. All values are in thousands of Syrian pounds (SYP 1000).

Fluctuations in the exchange rate

The budget, approved by the Syrian People’s Assembly (Parliament) on November 26, 2019, is equivalent to approximately $9.2 billion, using the official exchange rate of SYP 434 set by the Syrian Central Bank.

However, according to the black market exchange rate of SYP 768 (when the budget was passed in late November), the budget was equivalent to only $5.2 billion. Currently, the black market exchange rate stands at approximately SYP 1100, meaning that the budget is equivalent to $3.2 billion.

Because the budget is distributed in SYP and not USD, fluctuations in the exchange rate do not significantly affect domestic budget expenditures and distribution—even though the purchasing power of ordinary Syrians has dramatically decreased. However, for some large budget items such as price subsidies for imported goods such as food and gas, variations in the black market exchange rate can significantly affect the value of these subsidies.

Accordingly, the state contribution to price stabilization expenses (mostly food and fuel subsidies) is SYP 373 billion, or $859 million according to the official exchange rate. On the black market, however, these subsidies are equivalent to only $339 million.

Running budget deficits but low levels of investments

The budget deficit also increased to SYP 1,400 billion, or $3.2 billion, using the official exchange rate of SYP 434. According to the Syrian Minister of Finance, Mamoun Hamdan, this deficit is “estimated and does not reflect the real deficit.”

Hamdan also sought to minimize the deficit by rationing government spending and raising tax revenues, while also offering treasury bonds and attracting investments in order to keep the government solvent. He argued that deficit financing and budget expansion were necessary to avoid deflation and revitalize the Syrian economy.

While investment expenditures account for over 30% of the budget, these are simply projections and do not represent real figures. In reality, this figure will likely be much lower given low-levels of investment and infrastructure spending. For example, in 2019, the head of the Syrian Investment Agency announced 188 projects with an estimated cost of SYP 198 billion, providing 8,682 jobs. However, only 16 of those projects were implemented last year, with a cost of SYP 6.7 billion, providing 680 jobs.

Nonetheless, with the government announcing salary and pension increases in November 2019 to deal with the ongoing economic crisis, in addition to rising import costs, this deficit figure could increase further.

The elephant in the room

Missing from the government budget is the total amount allocated to the security and military sectors. Given that the military and security apparatus are some of the most powerful and important institutions in Syria, it is difficult to paint a complete picture of government expenses without these sectors included.

Moreover, with a number of Russian and Iranian-backed forces and Lebanese Hezbollah militias currently fighting in Syria, it’s unclear to what extent the Syrian government and regime-affiliated businessmen are funding the ongoing military campaigns.

Since the listed government expenses do not include the military and security sectors, this means that the deficit may be significantly larger than what is currently projected.

Ballooning public debt

By far the most costly budget item is the money allocated towards paying the public debt. According to the government budget, SYP 1,226 billion is dedicated to financing the debt, held largely by domestic banks and the Central Bank. If this is accurate, this expenditure accounts for just over 30% of the entire budget. This compares to 24% in 2019, 24% in 2018, and 7.8% in 2017.

Although the real figure of the Syrian public debt is unclear and details regarding the proportion of foreign versus domestic debt are unknown, most analysts agree that the figure is extremely high. In 2016, after serving as the governor of the Central Bank, the former Syrian Minister of Economy, Adib Mayaleh, said that Syria’s public debt increased 11-fold since the beginning of the uprising in 2011, but refused to state the actual figure.

That same year, the International Monetary Fund (IMF) estimated that the gross public debt to GDP ratio increased from 30% in 2010 to 150% in 2015. To put this into perspective, in 2018, two of the most indebted countries, Lebanon and Greece, had a gross public debt to GDP ratio of 152% and 180% respectively.

Regardless of the precise size of the public debt, it is concerning that over 30% of the budget is directed toward debt financing. In 2018, Lebanon and Egypt also spent over 30% of their annual government expenditures on debt financing. Although Lebanon and Egypt have higher proportions of foreign debt than Syria—which means that the majority of Syria’s debt remains shielded from fluctuations in the exchange rate—Syria is known to have received major forms of assistance and borrowing from Iran and Russia.

Uncertain times ahead

Since the budget was approved in November 2019, drastic changes in Syria’s economy have taken place. The value of the national currency has plummeted to historic levels, sparking a rise in prices of basic goods and forcing the government to initiate forms of rationing, establish an intermediary exchange rate, and crackdown on illicit economic activity.

The global spread of COVID-19 is also having an immediate and significant effect on Syria, likely sparking a new multi-layered crisis. The government recently announced new emergency measures, including suspending schools and universities, cutting back on public sector work and reducing work hours, establishing sites for medical quarantine and supplying border crossings with ambulances, testing services, and mobile medical clinics.

These new procedures will cost the state untold sums of money, meaning that parts of the government budget will be redirected toward containing the spread of the disease and treating those who are sick. It is highly likely that this will further increase budgetary pressures on the government, although it is difficult to quantify these costs.

What is certain, however, is that Syria’s dysfunctional economy, indebted government, and ongoing military campaigns will weaken the state’s capacity to deal with the multiple crises it faces.