In Equation (7), external financing may take the form of (non‐debt creating) aid and grants (which enter as higher NCT� ) or direct investment and loans (which result in an increase in foreign liabilities, thus increasing ∆NFL� ).<sup>44</sup> If the foreign funds lead to an equivalent amount being spent on tradables (for example, the imports of capital goods), the current account will be in deficit, ceteris paribus.<sup>45</sup> If the foreign funds do not lead to the purchase of tradables, the current account will be in balance, ceteris paribus (see for instance Elbadawi, Kaltani and Schmidt‐Hebbel (2008) for related discussion on how the utilization of aid monies affects current account balances and exchange rates). In our simulations, ����� <u>�</u> �� ∆���� <u>�</u> where NCT� �∆NFL� �∆FF�, the inflow of foreign funds, which leads to a corresponding amount being spent on tradables. This gives us Equation (8). ∆FF� varies across the three post‐conflict scenarios as described in Table 5: beginning 2019, USD 12.5 billion per year over a 20‐year period under the optimistic scenario; USD 7 billion per year over a 20‐year period under the baseline scenario; and USD 3 billion per year over a 10‐year period under the pessimistic scenario.

�� �� ∆��� � � (8) �� �� �� Regarding �� ~~,~~ if we assume �� of 5 percent (as per the central projection of our conflict �� �� simulation), and ���� of around ‐30 percent at the end of the conflict, this would give us �� of �� �� approximately ‐25 percent.<sup>46</sup> This is about 50 percentage points below Syria’s pre‐conflict long‐term average: 23 percent (20‐year average over 1991‐2010 based on WEO data). For the post‐conflict pessimistic scenario, we calibrate the transition for Syria’s �� by 50 percentage points to 25 percent, �� in eight years, based on the experience of Lebanon. Lebanon was subject to persistent political instability during its recovery, and external assistance specific to its reconstruction program was limited, though it did receive large capital inflows attracted by high interest rates that enabled it to run current account deficits. For the optimistic scenario, we assume that Syria’s saving ratio increases by 60 percentage points to 35 percent in five years, following the timeline and change experienced by Kuwait as it recovered to its pre‐conflict saving‐to‐GDP level. Resource‐rich, high‐income Kuwait made a strong recovery after the sharp decline as its oil production capacity was quickly restored amid a comprehensive economic recovery and reconstruction program.<sup>47</sup> For the moderate scenario, we take an average of the projections for �� under the other two scenarios. See Appendix 5 for further details. �� Once we have the projection for �� for each scenario, we then split it between public and private �� investment by continuing to assume that 40 percent of total investment is public, following pre‐ conflict trends. This is consistent with the estimated relative shares of destruction between public and private capital during the conflict. In terms of the efficiency of new public investment, we keep efficiency unchanged at 0.570 under the pessimistic scenario and assume a rise from 0.570 to 0.734 by 2038 under the baseline. For the optimistic scenario, we assume a rise to the average IEI for the upper‐middle‐income group of 0.769 by 2038.

> 44 This would be the “first leg” before the money is spent and both will have counter entries reflected as an increase in foreign assets.

> 45 In either instance of financing spent on imports – transfers or loans ‐ the trade deficit is the same, though the current account deficit _including_ transfers, will differ.

> 46 This is based on the 2017 estimate of the trade balance share of GDP by ESCWA (2018).

> 47 See Sab (2014) for discussion on the conflict and recovery stories of Kuwait and Lebanon.

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