Syria is in dire economic straits. The brutal civil war that lasted from 2011 to 2024 ended with the fall of the regime of President Bashar al-Assad. The country was effectively divided into several parts, each run by different rebel groups. The civil war created 6 million refugees and over 7 million internally displaced persons. Infrastructure, including energy and agriculture, has been massively damaged. The economy, hurt by international sanctions, has shrunk by more than one half. For years the Assad regime was supported militarily and financially by its main allies Iran and Russia, leading to the buildup of much external debt to them. In fact, most of Syria’s external debt may be owed to those two countries.

The caretaker government now faces a daunting task of exerting control over the country and rebuilding Syria’s political and economic system. It will need to mobilize massive resources for economic rehabilitation and reconstruction and will not be able to repay all of its external debt. A debt restructuring will likely be unavoidable.

But a restructuring will be difficult. It will need considerable, concerted involvement from the international community, as was done in the restructuring of Iraq’s Saddam-era debt. However, international political support will be difficult to marshal because of geopolitics. Support will require—and rightly so—the new government to respect the rights of women and minorities and to make some additional commitments. If the new government fulfills these conditions, the international community could ease sanctions and officially recognize the government to allow a debt restructuring and for Syria to obtain financing from official bilateral and multilateral sources and from private lenders.[1]

However, international support will be complicated for a number of reasons, especially by the fact that much of Syria’s debt is to Iran and Russia. The international community will be unlikely to provide Syria with debt relief and new resources, including from the International Monetary Fund (IMF) and the World Bank, if it uses them to repay Iran and Russia. International support will also be complicated by the recent shift in the new US administration’s attitudes toward Russia, which will of course affect how debts to Russia are treated; it is uncertain how much pressure the Trump administration will put on Syria not to repay Russia.

Why is a restructuring needed?

Syria’s real GDP is less than half of its pre-civil war level, more than half of the population has become refugees or internally displaced, and poverty has risen considerably. Mismanagement and corruption have eroded trust in the state. And sanctions have crippled the economy.

Now, governance must be reformed, institutions need to be rebuilt, and trust established, both domestically and internationally. The displaced population needs to be resettled. Public services need to be restored. And a massive reconstruction program awaits; reconstruction costs are unclear but are likely to exceed $250 billion. The government’s ability to raise revenues through taxation and oil exports is very limited and will take years to restore (World Bank 2024).[2]

Syria’s external debt is large relative to its repayment capacity. The new government has stated that Syria owes between $20 billion and $23 billion. These debt figures are high compared with a GDP of $17.5 billion in 2023, as reported by the World Bank.[3] The GDP figures for 2024 and 2025 are expected to be even lower. A sizable debt restructuring and write-off will be hard to avoid.[4] Of course, while Syria’s external debt is large compared with its means and needs, the amounts discussed are small relative to the external debt of many low- and middle-income countries.

But a restructuring will be complicated

First, the amount of Syria’s external debt is not clear. There are reports that it could be considerably higher than the amounts stated by the new government. For example, it may be facing claims by Iran and Russia of $30 billion to $50 billion.[5]

Second, the composition of creditors will make a restructuring difficult. It is likely that most of the debt is owed to official sources, mainly to Iran and Russia, for military purposes or oil imports. Commercial debt is likely to be small, and this could make restructuring easier; a large debt to private creditors has complicated and prolonged debt restructurings in other countries. The composition of Syrian obligors (e.g., the government, central bank, state-owned enterprises, or commercial organizations) also needs to be pinned down, for different types of debt may need to be treated differently under a restructuring.

Third, Syria may not agree to repay the Assad-era debt. This will be at odds with established principles—the doctrine of state succession—under which the new government will have to recognize the Assad-era debt as its own. Syria could, however, claim that Assad-era obligations are “odious debt”—that is, debt that was incurred without the consent of the people of the borrowing country or for their benefit.[6] At least one Syrian opposition group, the National Syrian Council, stated long ago that Syria will not be liable to repay debts incurred after March 15, 2011 (Cheng and Bento 2013). While a strong argument can be made that at least some of the amounts borrowed by the Assad regime, especially since the start of the civil war, are odious, international law does not yet have an accepted and operational framework for addressing odious debt. An additional factor complicating any debt restructuring negotiations will be Syria’s claims against Iran and Russia for damages Syria incurred during its civil war.

Fourth, given Syria’s complex geopolitics and the large share of Syria’s debt that is owed to Iran and Russia, the process could be excruciating. This will affect the type of debt relief (e.g., debt write-offs, lengthening maturities, and interest rate modifications). But the international community will be unwilling to provide debt relief and financing to Syria if those funds are used to repay Iran and Russia. There are risks that the process will be prolonged and acrimonious, with risks of litigation from Syria’s creditors. There will also be debates at the IMF regarding the application of its lending-into-arrears policies if and when IMF lending needs to be considered.

Some ideas for a roadmap

There are lessons for Syria from the restructuring of Iraq’s Saddam-era debt after the collapse of that regime in 2003. With the fall of Saddam Hussein, the US believed it was critical for Iraq to obtain debt relief. Iraq had debt outstanding amounting to $160 billion, 573 percent of GDP (Hinrichsen 2019). There were uncertainties about the amounts outstanding and the type of debtor (e.g., the government, state-owned enterprises, or quasi-state borrowers). There were debates whether Iraq’s debt was odious, but it was finally agreed that Iraq should not follow that path. The final agreement was determined by political considerations and the financing needed for rebuilding Iraq. Debt negotiations were held with Paris Club and non-Paris Club official creditors, as well as with commercial lenders.[7] The restructuring was made possible with considerable support from the US (in the form of a presidential executive order), the United Nations (via Security Council Resolution 1483), and other official creditors. With such backing, Iraq’s external assets and oil receipts were protected from attachment especially by private creditors, thereby accelerating restructurings (Buchheit and Gulati 2019, Gelpern 2005). Paris Club creditors agreed to provide Iraq with a debt reduction of 80 percent of the face value of the debt in three installments. Several audits were conducted to determine the size and composition of Iraq’s debt. The IMF supported the restructuring by preparing a debt sustainability analysis that helped determine Iraq’s debt repayment capacity, thereby demonstrating the need for sizable debt relief.

Based on the Iraq experience, the following steps could be elements of a roadmap for putting Syria on a path of solvency.

First, there is a need for a detailed debt reconciliation exercise to determine the size, the creditor composition, and the make-up of Syrian obligors. This exercise, which will require technical support from debt advisors or the international financial organizations, will help pave the way for the IMF to prepare a debt sustainability analysis to determine Syria’s repayment capacity and the extent of debt relief needed.

Second, official bilateral and multilateral creditors will be unlikely to agree to debt relief and new financing if the resources they provide allow Syria to repay Iran and Russia. Any restructuring will need to make ad hoc provisions for debts to those countries. Of course, much will depend on the improving US-Russia relations under the Trump administration and if the US tries to at least partially support Russia’s claims.

Third, it may be best if the new Syrian government does not invoke the odious debt doctrine. As with the case of Iraq, it is unlikely that the international community will support the odious debt approach as a suitable framework. Instead, Syria may choose at the outset to use the more widely recognized doctrine of “war debt” to renounce any debt incurred since the start of the civil war in 2011.[8] Any debt incurred before that date would be acknowledged and restructured; those incurred after that date would be considered as war debt and renounced. The difficulty of invoking that doctrine in the case of Syria will be that it will have to be applied in the case of a civil, and not a foreign, war. Another option would be for Syria to argue that debts to Iran and Russia should be treated as grants and not as loans, allowing it to renounce those obligations.[9]

Fourth, there will need to be a multilateral solution to debt negotiations, perhaps under the umbrella of the United Nations. While the Paris Club could play its traditional role as the forum for such restructuring negotiations, non-Paris Club creditors would also need to be involved.

Conclusions

Addressing Syria’s debt restructuring is certainly not the most urgent issue that Syria faces. Dire humanitarian and reconstruction issues should be the priorities. But sooner rather than later, unlocking the needed flow of financing to Syria will require a debt restructuring. Early preparation for that eventuality is needed. Given the difficult geopolitics of the Syrian case, especially the involvement of Iran and Russia, and the recent rapprochement between Russia and US, the restructuring is likely to be arduous.

This leaves the broader public policy and legal issue of odious debt. The international community is not likely to adopt debt odiousness anytime soon as a governing framework. Defining odiousness and establishing a framework for implementing it are difficult. It has also been argued that enforcing the odious debt doctrine will undermine the capacity of developing countries to access capital markets, which will raise borrowing costs (Hagan 2006).

Several alternative approaches have been suggested (Buchheit et al. 2007, Kremer and Jayachandran 2002). For example, the international community could establish sanction-like arrangements under which a designated body could determine whether a regime is odious, allowing the imposition of international sanctions to prevent that government from borrowing abroad. But these approaches have shortcomings too. These approaches (1) could help curtail borrowing from private lenders but not from official creditors; (2) do not adequately establish which will be the body that designates a regime as odious; and (3) fail to establish ways for avoiding the risks of manipulation by governments who would prefer to disavow debts they have inherited. Much more work will be needed on this front, but agreement on a framework is unlikely to be available to Syria anytime soon. A UN-based framework, close to the one used for Iraq, may be the best option available.

Notes

1. The international community is following a step-by-step approach toward the new government. There have been significant contacts with the new government. Some countries have provided it with some relief from sanctions. For example, the European Union has provided Syria with relief from sanctions on banking and energy. However, by and large the new government has not been officially recognized as the government of Syria. Some members of the caretaker government are still designated as terrorist.

2. In 2023, Syria’s oil production was only 40,000 barrels per day (bpd), compared with about 400,000 bpd in 2011.

3. According to the World Bank, Syria’s external debt is much lower. The Bank puts Syria’s external debt (excluding IMF credits and special drawing right allocation) in 2023 at $4.1 billion ($3.5 billion in long-term debt to official creditors and $0.6 billion in short-term obligations). However, the coverage of the Bank’s Debt Statistics for Syria is very much incomplete.

4. Syria has in the past restructured its external debt. In 2004-05 it obtained debt relief from the Czech Republic, Poland, Russia, and the Slovak Republic. The debt relief from Russia was close to 90 percent (IMF 2005).

5. There is little information on China’s claims on Syria. Syria has been a party to the Belt and Road Initiative, but China’s engagement has been limited (Fulton 2024).

6. See Buchheit et al. (2007) for a discussion of the concept of odious debt and the debate surrounding it.

7. The details of the Iraq restructuring are available in Hinrichsen (2019).

8. The war debt doctrine is discussed in Buchheit et al. (2007). I am grateful to Lee Buchheit for introducing me to the war doctrine approach.

9. Gelpern (2007) suggests odious debts to governments be treated as grants, which would make it easier to disavow them.