Enab Baladi, Wasim al-Adawi

The Syrian Ministry of Finance has taken a strategic step toward restructuring the country’s public finances, announcing that preparations have begun to issue the first sovereign sukuk since the fall of the former regime.

The move comes as the government seeks to leave behind the era of monetary financing, or printing money, which generated severe inflationary pressures over the past decade. It aims to shift toward market-based, noninflationary financing instruments to fund the estimated $1.8 billion deficit in Syria’s 2026 budget.

Transition Plan and Building a Yield Curve

Syrian Finance Minister Mohammed Yisr Barnieh recently chaired a meeting of the Securities and Sovereign Sukuk Committee to discuss a draft strategic plan for issuing bonds, treasury bills, and sovereign sukuk.

The new strategy seeks to achieve three main objectives:

• Noninflationary financing: Securing genuine sources of financing for the state’s general budget without direct borrowing from the Central Bank of Syria.
• Asset pricing: Creating a benchmark for government securities yields that will help banking institutions price their services efficiently according to risk.
• Liquidity management: Enabling the Central Bank of Syria to activate liquidity instruments and conduct open-market operations.

Barnieh said, according to information published by the Syrian Ministry of Finance through its official channels, that the plan is based on “gradually expanding issuances to longer maturities to build a benchmark yield indicator over the foreseeable and medium term.”

He stressed the importance of achieving fiscal sustainability and ensuring that the state can meet its obligations without creating structural imbalances.

Why Sukuk Instead of Printing Money?

Syria’s 2026 general budget forecasts approximately $8.7 billion in revenue and estimated spending of $10.5 billion, leaving a fiscal deficit of about $1.8 billion. This is equivalent to approximately 5% of the country’s estimated $32 billion gross domestic product.

Syrian economist and financial expert Mahmoud Abdul Karim told Enab Baladi that resorting to sukuk and bonds is the most appropriate way to address the deficit compared with borrowing from the central bank.

Abdul Karim said that when the central bank lends to the government, it creates new money through inflationary financing. More money then competes for fewer goods, a process that has historically contributed to the Syrian pound losing more than 99% of its value, from 47 pounds to the US dollar before the war to more than 15,000 pounds at the peak of the collapse.

“In contrast, sukuk and bonds do not create a new money supply. They withdraw idle liquidity held by banks, companies, and individuals and direct it toward productive spending,” he added.

With the global sukuk market exceeding $900 billion, the instrument, which complies with Sharia principles, may be particularly attractive to the Syrian market. Sukuk are linked to real, income-generating assets, such as public service buildings or power stations, rather than the conventional interest paid on bonds.

Timing Challenge and a Financial Bridge Between Budgets

Although the 2026 budget explicitly identified sukuk as a principal source for financing the deficit, Abdul Karim said the timing creates a different reality. He analyzed the expected next steps as follows:

• Current situation, mid-July 2026: The Ministry of Finance is still developing the legislative and regulatory framework and discussing the draft strategic plan for issuing treasury bills, treasury bonds, sovereign sukuk, and Islamic sukuk.
• Expected impact: The first issuance is not expected to be launched before the final quarter of 2026.
• Result: Proceeds from the first issuances will cover only a small portion of the current year’s deficit. In practice, the sukuk will become a financing bridge whose main impact will extend to funding the 2027 budget deficit. Preparations for that budget have already begun and are expected to be completed during September and October.

Safe Limits for Central Bank Borrowing

“The golden rule applied internationally is that borrowing from the central bank, unless it is prohibited entirely, as it is in Europe, should not exceed 5% to 10% of the previous year’s budget revenues. It should also be a temporary advance repaid before the end of the same fiscal year,” Abdul Karim said in response to concerns about the Syrian Ministry of Finance borrowing from the central bank without limits.

He cited Egyptian law as an example. It sets borrowing at 10% of the average revenue recorded over the previous three years and requires repayment within 12 months.

Applying this rule to Syria, with revenue of approximately $8.7 billion, would produce a theoretically safe ceiling of between $400 million and $800 million, solely as a short-term advance.

Abdul Karim said any central bank debt would cover no more than one-third to one-half of the deficit in the best-case scenario. Exceeding that ceiling would mean sliding back toward printing money.

As for whether bonds and sukuk could cover the entire deficit, liquidity is theoretically available both inside and outside the banking sector. Abdul Karim expects the first sukuk issuance to raise between $500 million and $900 million under the most favorable scenarios.

The remainder would be covered through supplementary sources, some of which have already been announced, primarily:

• The sovereign wealth fund, which would cover part of the financing gap.
• Partnership contracts with the private sector.
• Foreign grants.

Transparency and Attracting Foreign Capital

Abdul Karim stressed that the success of these instruments depends on compliance with international disclosure standards, including the International Public Sector Accounting Standards, known as IPSAS, and the International Monetary Fund’s Government Finance Statistics Manual.

He explained that any government withdrawals from the central bank automatically appear on the bank’s balance sheet under the category of “net claims on government.”

Should any government attempt to conceal such information through accounting practices, the market would quickly expose it through two indicators, the inflation rate and the exchange rate.

Transparency is particularly important for Syria at this stage as the country seeks to restore its place in international financial institutions and attract Gulf and foreign investment for reconstruction. Foreign investors price their investments according to a risk premium, and unclear data can increase borrowing costs severalfold. This occurred in Lebanon before its 2020 collapse, when bond yields exceeded 30% because of the loss of confidence.

Expected Investor Distribution in the Emerging Market

Analyses broadly agree, according to Abdul Karim, that the first sukuk issuance will not cover the entire deficit at once.

International experience indicates that initial issuances in emerging markets typically cover between 30% and 50% of the target, which in this case is the deficit.

This would amount to between $500 million and $900 million in Syria, with the remainder covered through the sovereign wealth fund, private sector partnership contracts, and grants.

According to the Syrian economist, the expected distribution of investors in Syrian sovereign sukuk would be as follows:

• Islamic and commercial banks would account for between 70% and 80%, seeking to invest their surplus idle liquidity.
• Insurance and takaful companies would hold a major share, seeking to match their long-term assets with future liabilities.
• Investment funds would join at a later stage as the market matures and the yield curve stabilizes.
• Individuals and small savers would account for between 5% and 10%, provided sukuk are offered in small denominations, such as $100, and digital subscription is made accessible.

Damascus Securities Exchange and New Assets

Abdul Karim explained that listing the sukuk on the Damascus Securities Exchange is not a luxury but a fundamental requirement for providing secondary-market liquidity. Without an active secondary market allowing investors to sell their sukuk before maturity, many would avoid subscribing. For example, an investor holding five-year sukuk may need to sell them after one year to access liquidity.

Listing the sukuk would provide the Syrian economy with two benefits:

• Revitalizing the stock exchange: The sukuk would inject new activity into the Damascus Securities Exchange, which has suffered from weak trading for years, by providing a low-risk, state-backed asset class.
• Encouraging private companies: The issuance would pave the way for joint-stock companies to issue their own sukuk in the future, transforming sovereign sukuk from an instrument used to cover the deficit into an engine for modernizing the entire financial market.

Three Conditions for Success

According to Abdul Karim, Syria appears to have a historic opportunity to put its internal finances in order. However, safely navigating the process depends on respecting three red lines:

• Absolute transparency: Regularly disclosing the size of public debt to prevent confidence from eroding and borrowing costs from rising.
• Development discipline: Directing sukuk proceeds toward investment projects and infrastructure that generate returns capable of repaying the debt, rather than using them to finance current consumption expenditure, such as salaries.
• Expanding the tax base rather than raising rates: Syria’s informal economy accounts for approximately 70% of total economic activity. Instead of raising taxes on the roughly 30% of the economy already operating formally, which would burden the recovery, bringing half of the informal sector into the formal system could increase tax revenue by more than 50%.

The available evidence indicates that sukuk could provide a major opportunity to cover a significant part of Syria’s 2026 budget deficit and deficits in subsequent years.

However, their success remains dependent on a supportive environment governed by transparency, investment discipline, and fair pricing.

Nevertheless, delays in implementing the plan or failure to manage it effectively would not simply return the economy to its starting point. They would expose the Syrian economy to urgent risks that could deepen its structural crisis, most notably:

• A return to printing money.
• Damage to the international credibility of fiscal reforms.
• Falling into a debt trap while using borrowing to fund current expenditure.
• Freezing banking sector liquidity.