For the complete risk report on Syria, see the March edition of the International Country Risk Guide.

The UN-brokered peace talks in Geneva officially launched on February 1. The process aims to reach an agreement on a more permanent cease-fire and a new transitional government with representatives from both the incumbent Baath Party government and the opposition.  However, negotiations were suspended after just two days, the result of a rancorous dispute over the participation of the High Negotiations Committee (HNC), which represents opposition groups designated as terrorists by both the Syrian and Russian governments, and the government’s launch of a military offensive against rebel positions in Aleppo.

Crisis talks held in mid-February resulted in the government’s agreement to permit the delivery of humanitarian aid to besieged communities, but formal negotiations aimed at laying the ground for a peaceful political transition are not due to resume until March 7th.  The shaky start to the latest phase of the Geneva peace process suggests that there is little cause to expect any major breakthrough for the foreseeable future.

The most significant current obstacle to achievement of a comprehensive peace deal is the HNC’s condition that President Bashar al-Assad be excluded from any role in a power-sharing government, a demand that is supported by the US, but has been rejected out of hand by both Assad and his patrons in Moscow.  Disagreement on that point is at the center of the dispute over the HNC, which insists that it is the only legitimate representative of the Syrian opposition, but includes no representatives from groups that are more flexible on the question of Assad’s role in a post-civil war scenario.

With no respite from the armed conflict in view, the Syrian economy is facing another steep contraction in 2016.  Wheat production increased in the 2014/2015 season to around 2.5 million tons, but recent ISIL advances in the wheat-producing northern regions bode 0ill for boosting productivity in a sector where output has fallen by more than 40% compared to the pre-2011 level.  According to state media, spending is to increase by 27% (in local currency terms) under the 2016 budget.  Although the government’s largesse is less impressive when measured in dollars (owing to the depreciation of the pound against the US currency), any increase in spending implies a large deficit.  Given Syria’s lack of access to the credit markets and multilateral support, financing the shortfall will require generous support from partner countries.

The most recent data from the Central Bureau of Statistics indicates that the consumer price index rose by 39.9% (year-on-year) in June 2015, but the official figure excludes the ISIL-controlled governorates of Raqqa and Deir al-Zour and rebel-controlled Idlib, where inflation is believed to be much higher.  Average annual inflation is estimated to have topped 30% last year, and will continue on the upward trajectory in 2016 amid persistent currency trouble. Syrian pound currently trades at around S£220:$1, but the black market rate has been hovering near S£400:$1 since December.

The government has responded by raising taxes and slashing subsidies.  The authorities raised prices of bread by 43% in October, the third such increase since mid‑2014.  Prices of cooking and heating fuel have also gone up, and the basic rate of income tax on public-sector employees was doubled to 10%.  The measures will do little to alleviate the pressure on the budget, given the state’s limited ability to enforce revenue collection.

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