Why Syria’s economic revival requires more than investment

Syria’s economic revival, once heralded as a promising sign following the departure of President Bashar al-Assad, continues to face formidable challenges despite some visible signs of progress. As the country enters its second year under new leadership, reports indicate that while certain sectors show promise, the broader economic landscape remains fragile, shaped by deep-seated structural issues that hinder sustained growth. The early optimism was fueled by the easing of Western sanctions and a series of diplomatic agreements brokered in Damascus. These developments led to the reopening of the Damascus Securities Exchange and the signing of several memorandums of understanding (MoUs) aimed at fostering international collaboration. However, experts have long cautioned that such measures alone cannot reverse years of economic decline and political instability. The recent surge in trade with Turkey, particularly in cement exports, which saw a 116.8% increase in the first half of 2026, alongside the return of over 1.2 million Syrians, has contributed to a modest uptick in domestic demand. These factors have helped dispel earlier pessimistic forecasts, offering a glimpse of potential recovery. Yet, beneath this surface-level optimism lies a complex and often contradictory economic reality. While large-scale infrastructure projects worth up to $25.9 billion have been announced at international summits, many of these remain unrealized or are subject to delays. Simultaneously, the financial system remains constrained by persistent liquidity shortages and a lack of effective mechanisms to channel funds into productive sectors. This disconnect highlights a critical challenge: the gap between financial indicators and tangible economic outcomes. One of the most pressing concerns is the limited depth of Syria’s banking sector. Despite efforts to modernize financial regulations and integrate with global systems like SWIFT, the country’s banking institutions continue to operate with a shallow capital base. The combined equity of all private banks stands at approximately SYP 8.7 trillion ($795 million), a figure that pales in comparison to even a single regional competitor. Moreover, the proportion of credit facilities relative to total assets remains low, at just 12.3%, underscoring the sector’s vulnerability. The imbalance between foreign reserves and domestic credit further exacerbates the problem, with the ratio of foreign account balances to domestic credit reaching 7.2. This means that for every lira lent domestically, nearly seven liras are held abroad, a clear indication of systemic inefficiencies and regulatory limitations. Another key issue is the concentration of capital within a small group of entities, raising concerns about equitable distribution and long-term sustainability. The high Capital Adequacy Ratios (CARs), some exceeding 100%, are not indicative of robust financial health but rather a result of reduced lending volumes. This phenomenon reflects a broader trend where banks, unable to effectively assess risks or secure property rights, remain hesitant to extend credit to businesses and individuals. Consequently, the real economy suffers from a chronic shortage of financing, limiting its ability to grow and adapt. As Syria navigates these challenges, the path forward will depend on addressing these structural weaknesses. Efforts to enhance regulatory capacity, improve risk assessment frameworks, and promote inclusive financial practices will be essential in ensuring that economic recovery is both meaningful and enduring. The coming months will likely reveal whether these reforms can translate into tangible improvements for ordinary citizens, or whether the country will continue to grapple with the legacy of conflict and mismanagement.