The Syrian economy is in bad shape. But it is not in bad shape for a country fighting a total war. And that is what matters.
The areas under government control are in total mobilization. What matters are physical limits, not “money” in the colloquial sense. If it can be produced and the government needs it, then the government can tax it, borrow it, conscript it or buy it with freshly printed money. Syrians may be liquidating their investments in-country and using the receipts to buy assets in Lebanon and Turkey, but the farms and factories in government territory are still there. (Aleppo may be a different story; there are reports of machinery being packed up and moved wholesale to Turkey.)
Total mobilization means that the resources available to the Syrian military have considerably increased. Figures in a report by the United Nations Relief and Works Agency (UNRWA) can be used to calculate real military spending in 2000 pounds. Expenditures have gone up from S£30.2 billion in 2011 to S£95.6 billion (at an annualized rate) in 2013. And this despite a drop in real GDP of 51% from the 2010 level!
And do not discount what Syria can produce at home. The textile industry was based in Aleppo, and Aleppo is not producing much at the moment: the headline decline in real manufacturing activity over 2010 is 88%. But Syria is producing what it needs to produce to keep the war machine moving: the same DIY techniques used by the rebels are available to the government. (By the way, click the DIY link! It is amazing.)
Will manufacturing recover? I suspect it will. During the Mexican Revolution, manufacturing output collapsed in 1914-16, when battling armies interdicted the railroads. Once the fighting settled down, output recovered rapidly. The below map shows how fighting not only divides rebel territories from government-held ones, but divides up government-held territories. Once the government establishes secure internal routes, the sector will rebound.
I will be surprised if the manufacturing sector does not start to grow rapidly, even if the fighting continues. It will not reach its previous levels, but it will recover.
There is one hard limit, however: imports. Syria needs imports of fuel, food and replacement parts. It cannot tax or print pounds for those; the government needs hard currency. In 2012, oil exports fell to 164 thousand barrels per day (see page 8) down from 385 in 2010. Production is down because many of the oil fields are either under rebel control or need to export through rebel-held territory. As a result, exports have dried up.
But the Syrian government is making do. First, it is spending down its reserves. Second, it is scrounging around for foreign resources wherever it can. Third, it is rationing imports to preserve foreign exchange. Finally, it is getting a lot of support from Russia, Iran and Venezuela. (The report at the link is worth reading. Platts, by the way, tracks tankers into Syria, although you need to pay for the data. It is a lot of tankers.)
The aid from the axis of unpleasantry — Iran, Russia and Venezuela (and to a lesser but surprising extent Angola) — is not completely free. Syria is falling into debt to pay for it. (In the Venezuelan case, it swaps crude for refined products.) But the debt is manageable. According to UNRWA, foreign debt has gone from 7% of GDP in 2010 to 17% this year. (See page 18.) That is a long way from a solvency crisis.
If import shortages or economic problems were causing trouble for the Syrian military, one would probably expect the effects to first be felt in the air force. Data on the number of airstrikes compiled by the Institute for the Study of War, however, does not support that hypothesis:
The only way in which the economy could cause the regime to collapse would be a generalized revolt against the harsh conditions of total mobilization. But that ship seems to have sailed a long time ago. Shortages may be widespread, unemployment massive, displacement horrible, and food rationed. But its ability to fight continues.