AMMAN — Over the last year, Syria has experienced a collapse in the value of its national currency, rising inflation, and difficulties in securing foreign currency reserves, while it continues to suffer under the weight of international sanctions. But as coronavirus spreads throughout Syria, many fear that it will exacerbate the country’s pre-existing economic problems.
So far, Syria has officially reported 19 cases, 2 deaths, and 2 recoveries, although there are many indications to suggest that the number of cases is higher. The economic and public health challenges posed by the pandemic will likely aggravate Syria’s multiple crises, further testing the government’s ability to manage public emergencies.
Responding to a weakening national currency
The past two weeks have witnessed a new decline in the value of the Syrian pound (SYP), with the currency dropping to a record low of SYP 1360 to the dollar on the black market in late March. While there are several underlying structural reasons for the weakening currency, the recent decline most likely comes as a result of fears of the spread of coronavirus.
In response to the crisis, the Syrian Central Bank (SCB) eased import restrictions for state-authorized importers in order to guarantee the provision of essential goods and medical equipment. For example, the SCB announced that Syrian importers no longer have to freeze a certain amount of cash at Syrian banks when purchasing foreign currency for imports. The measure aims to ease the import process as the SCB is “eager to secure the necessary amounts of basic goods and production requirements,” the SCB said in a statement.
On March 26, the SCB also devalued its exchange rate from SYP 438 to SYP 704 for all economic transactions, with the exception of imports facilitated by the Ministry of Trade or state-authorized importers. These importers will still be able to import certain goods at the rate of SYP 438. The aim is to increase dollars through official channels, keep a lid on inflation, and alleviate downward pressure on the national currency.
As Syria Direct has previously reported, the SCB has been increasing the use of its intermediary rate of SYP 700 in recent months in a bid to keep the economy afloat. As such, the decision to devalue the pound suggests that the government is continuing this trend by closing the gap between the official exchange rate and the black market rate.
However, the SCB reduced the list of goods that banks can fund at the intermediary rate of SYP 700 from 41 to 18. In early February, the government had approved public and private banks to fund imports of 41 commodities at the intermediary rate, signaling the SCB’s willingness to use its foreign currency reserves to secure a wider variety of imports. The reversal of this decision, therefore, suggests that the SCB is more concerned about the position of its foreign currency reserves that are essential to float the currency and alleviate inflation for the most important commodities.
Rising prices as the economy grinds to a halt
As the value of the Syrian pound falls and borders close as a precautionary measure to contain the spread of coronavirus, further pressures have been placed on the economy and prices of basic commodities have been increasing.
According to a recent UN report, the prices of food staples have increased as much as 40% in different parts of the country. Following the closure of bakeries, there have also been reports of bread shortages. Activists say that citizens are risking breaking the lockdown and gathering in large crowds to purchase bread, creating further opportunities for the virus to spread.
The price of personal protective equipment has also increased throughout the country. Some reports have even noted an increase of 5000% in the price of hand sanitizers and face masks due to increased demand, hoarding, and price gouging. In response, the government has increased the mass production of hand sanitizer, medical devices, and cleaning products, but it remains unclear whether these attempts have proved successful.
Moreover, with many Syrians relying on the informal sector as their primary source of income, self-isolation and quarantines may spell economic disaster. Mais, a journalist from Damascus, told the London School of Economics (LSE) Conflict Research Programme that “only rich people can afford to self-isolate in Syria. Daily workers, taxi drivers, small shop owners cannot work from home and cannot afford to protect themselves against the virus.”
Those who have come to rely on money sent from friends and family abroad might also find it difficult to make ends meet. The largest sources of remittances for Syrians—Saudi Arabia, Turkey, Jordan and Lebanon—all have instituted similar lockdown procedures, limiting the amount of money available to be sent back home.
At approximately $1.6 billion in 2018, according to self-reported World Bank data, remittance flows constitute a significant source of income for Syrians. In fact, over the course of the conflict, the country has increased its reliance on this form of income. The pro-government al-Watan newspaper noted that remittances accounted for 19% of national revenue in 2016, up from 2% in 2011. If coronavirus-induced lockdowns continue as expected, it is likely that this safety net will further dry up.
Syria’s fatigued medical system comes under further pressure
In addition to the general economic decline, Syria’s healthcare sector may be the hardest hit from the spread of the virus and the multi-layered economic crisis.
According to a recent UN report, only 57 public hospitals (64%) are fully functioning in the country and there is a considerable shortage of trained staff. A memo published by the London School of Economics estimates that Syria has the capacity to treat approximately 6,500 COVID-19 cases using 325 Intensive Care Unit (ICU) beds equipped with ventilators.
Much of this under capacity is a direct result of the nine-year conflict. A UN report in March estimated that 70% of healthcare workers fled the country, either as migrants or refugees, since 2011. Additionally, during the course of the conflict, 595 attacks were conducted on at least 350 separate health facilities and 923 medical personnel were killed. The overwhelming majority of these attacks are believed to have been carried out by the Syrian government itself.
International sanctions, however, will also continue to stymie efforts to increase mass testing and provide basic medical relief. Although the humanitarian sector is excluded from sanctions, the sanctioning of primary inputs for use in medicine, for example, will undoubtedly put further strains on the country’s decrepit health sector.
The severe economic crisis and underfunding have also contributed to the general decline of the healthcare sector. According to Syria’s 2020 budget, less than 4% of total expenditures were allocated to the healthcare sector. The majority of these funds were distributed to the Ministry of Health and the remaining funds were directed at individual public hospitals and medical organizations.
The UN estimates that Syria will need $115 million in funding to fight against the spread of the coronavirus, although this figure is expected to increase further. So far, the WHO has received $1.25 million, UNICEF has received $2 million, and the Syria Humanitarian Fund (SHF) has $59.9 million in available funds managed by the United Nations Office for the Coordination of Humanitarian Aid (OCHA).
In response to the crisis, the Syrian Minister of Finance, Mamoun Hamdan, announced that the government is allocating SYP 100 billion ($78 million at today’s exchange rate of SYP 1285) to prevent the spread of coronavirus. It is unclear where those funds will come from, but some speculate that it will be siphoned from the investment budget or financed by issuing treasury bonds intended for the domestic banking sector.
Syrian banks put to the test
The Syrian banking sector may also come under pressure from the economic fallout of the pandemic.
On March 26, the SCB permitted a freeze on the repayment of bank loans by businesses and individuals for three months. As per the decision, the board of directors of the Savings Bank, one of Syria’s state-owned banks, announced that it would freeze installments on investment loans made during April, May, and June for a three-month period starting in July.
Last Thursday, the Popular Credit Bank, another state-owned bank, made a similar announcement regarding a freeze on loan repayments. However, both banks said that this decision would not apply to personal loans taken out by civil servants and military employees because their loan payments would be directly taken out from their salaries and transferred to the banks.
Although the Syrian banking system has witnessed an increase in its reach over the economy, the recent decision may signal a slight reversal of that trend. By freezing loan payments, banks will not be receiving a certain amount of revenue for at least three months, potentially risking a liquidity crisis in the banking sector. While this may still be a low risk, if the government intends to rely on public and private banks to purchase treasury bills, this may stretch banks to their limits.
The economic consequences of the pandemic look bleak, not only for Syria but for the global economy writ large. However, Syria’s detachment from the global economy may, in fact, help mitigate some of the worst repercussions of a global economic meltdown.
As political economist Adam Hanieh explains, heavily indebted countries of the global South are exposed “to fluctuations in the value of the US currency,” which has increased in the past month in response to the coronavirus pandemic. This means that “the burden of interest and principal repayments on $US-denominated debt has been increasing,” putting further strains on indebted countries.
Though Syria is also heavily indebted—spending more than 30% of its 2020 budget on debt servicing—its relatively isolated position in the global economy has meant that the majority of its debt is domestic and is not held in US dollars. While fluctuations in the value of the dollar have affected the value of the Syrian pound, the country is relatively protected from fluctuations in the value of its national debt.
Another recent phenomenon that may also help the country is the rapid decrease in the price of oil. For years, Syria had been struggling in the face of repeated fuel crises due to a loss of control over its oil reserves, the freezing of Iran’s credit line, and relatively high oil prices.
According to Syria Report, a specialist economic publication, Iranian supplies of crude oil to Syria have increased dramatically. This may be because Iran seeks to ship its excess supply of oil in order to increase its own production and avoid stockpiling at home. Regardless of the precise motivation, this will help steady the domestic oil market in Syria and theoretically lower the price of gas.
That being said, with global oil prices at an all-time low, Iran will be far less able to provide financial aid to Syria, especially in terms of foreign currency.
Is the worst yet to come?
Syria’s economy has dramatically deteriorated over the course of the nine-year conflict, and the past year, in particular, has witnessed a rapid decline in the value of the Syrian pound. The outbreak of the coronavirus could not come at a worse time for the majority of Syrians, especially those employed in the informal sector.
Although the value of the Syrian pound on the black market appears to have stabilized at SYP 1285 to the dollar, this may not necessarily be the best indicator of economic stability. While the SCB has taken steps to prevent the total collapse of the Syrian pound, its power is limited in assisting the Syrian economy as a whole.
Government and some private sector salaries continue to be disbursed, but it is unclear how long small to medium-sized businesses can last under a national lockdown. The prevention of travel between cities and provinces will also undoubtedly decimate economic activity based on provincial and regional trade.
Crises, however, are also moments of opportunity. Major food supply companies that continue to operate throughout the country may be able to take advantage of the situation to consolidate their power. Importers who face little restrictions may find creative ways to accumulate dollars and increase their profits. Regime-linked businessmen such as Muhammad Hamsho, Samer Dibs, and Fares Shehabi have already taken steps to create initiatives and funds to help with the relief effort, boosting their public image and reputation.
Syria’s elite may see this as a moment to capitalize on, but for ordinary Syrians, uncertainty and fears loom large.