By Rohan Advani, Walid Al Nofal
November 26, 2019
المقال باللغة العربية
AMMAN — Since the outbreak of the revolution in 2011, the value of the Syrian pound (SYP) has plummeted, weakening confidence in the country’s economy. The Syrian pound, which traded at 47 SYP to the dollar at the beginning of 2011 has now exceeded 700 SYP on the black market.
The pound’s collapse has resulted in rising import costs for basic commodities, widespread currency speculation and hoarding of dollars, a foreign exchange crisis at the Syrian Central Bank, and most concerning, a deterioration in the living conditions for the country’s poorest sections of society.
At a parliamentary session in September, members of the Syrian People’s Assembly explicitly criticized the government for not doing enough to boost the economy, counter corruption and improve living conditions for Syria’s poorest. MP Bassim al-Naaemeh directed his criticism at Syrian Prime Minister, Imad Khamis, saying that the performance of the government has been weak and that economic confusion has led to an unstable exchange rate. Similarly, MP Muhammad Khair al-Akkam said the government was doing little to ensure proper tax collection in the country.
In contrast, the governor of the Central Bank of Syria, Hazem Qarfoul, described the fall in the value of the Syrian pound as part of a “systematic campaign to weaken the lira [pound] and the economy, undermine confidence in the Central Bank, and incite fear among citizens to abandon their national currency.” In a telephone conversation with the state-run Syrian News Channel, he regarded the recent depreciation of the Syrian pound as “illusory,” adding that it has “no economic rationale and basis on the ground.”
This justification, however, was roundly criticized by parliamentary members. Al-Naameh, for example, characterized the governor’s response as “inconsistent with reality.”
What’s behind the recent depreciation of the Syrian pound?
Although the value of the Syrian pound has undergone a steady decrease since 2011, the black market exchange rate plummeted this year in particular, such that government attempts to remedy the situation have largely failed.
According to David Butter, a political and economic analyst at London-based Chatham House institute, the recent depreciation in the Syria pound may have been triggered by “problems in meeting fuel imports earlier in the year,” which forced “government and private traders to look around for dollars.”
In April 2019, fuel shortages in government areas paralyzed economic activity; donkeys and horse-drawn carriages roamed the streets of Damascus while people formed day-long lines outside gas stations. This prompted private and government importers to finance fuel imports through other methods, putting further pressure on the Syrian pound.
The inability to meet fuel demand is intimately linked to Iran’s dwindling capacity to provide energy to Syria. Earlier this year, Iran stopped selling oil to the Syrian government on its “credit line” – a form of financial aid provided by Iran to Syria to purchase basic commodities – and the weight of US sanctions on Iranian oil exports has aggravated the situation. Moreover, following US pressure on countries delivering oil to Syria, importers have had to rely on more expensive smuggling routes.
Another possible explanation behind the recent depreciation of the Syrian pound is the Turkish invasion of northeast Syria in October. Dubbed “Operation Peace Spring,” the Syrian National Army (SNA) with the support of Turkish forces moved into largely Kurdish-held areas in northeast Syria, east of the Euphrates. Though not as significant as fuel shortages, Butter added that the changes in the black market exchange rate “is some kind of indication that maybe the Turkish incursion is having an effect.” However, the US decision to retain Syrian oil fields – even as the Syrian government reasserts control in certain areas – has undercut hopes of generating hard currency from future oil sales.
Another important reason for the rapid decline in the value of the Syrian pound may lie outside Syria’s borders. In neighboring Lebanon, a financial crisis is continuing to unfold, with drastic pressure mounting on the country’s currency peg with the US dollar. Following the outbreak of popular protests in mid-October in response to decades of corruption and financial plunder, Lebanese banks closed for almost two weeks with many fearing a potential run on the banks.
After opening and then closing again for a week, banks reopened on November 19 to large lines of customers seeking withdrawals. However, to avoid capital flight, the Association of Banks in Lebanon (ABL) announced that cash withdrawals would be limited to $1,000 a week.
For Syrian importers, this spells disaster. Beirut continues to be the main dollar market for Syrian importers who use the Lebanese banking system. As Lebanon’s financial health deteriorates and confronts a nation-wide dollar shortage, Syrian importers are finding it increasingly more expensive to buy dollars to finance their imports. As Butter noted, “the fact that you have foreign currency shortages in Lebanon is likely to have a knock-on effect in Syrian markets.”
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