AMMAN — Since October 2019, the Syrian pound (SYP) has been in a steep decline, driven primarily by the financial crisis unfolding in Lebanon as well as structural problems in the national economy. Today the Syrian pound (SYP) reached a historic low, trading at SYP 1,445 to the dollar on the black market. 

Undoubtedly, the coronavirus pandemic (COVID-19) and the ensuing decline in global economic activity has contributed to the collapse of the currency. In late February, before the global pandemic had forced countries to shut down non-essential activity, the Syrian pound traded at SYP 1070 to the dollar on the black market; by mid-April, this figure reached SYP 1285—a decline of approximately 20%.

The most recent decline, however, may be attributed to the recent spat between Syria’s richest businessman Rami Makhlouf and the Syrian government, in addition to the ongoing financial crisis in Lebanon.

Assad addresses the coronavirus pandemic 

In a meeting, on May 4, with the government team tasked with confronting the COVID-19 pandemic, Assad addressed, for the first time, the coronavirus, its economic repercussions, and the government’s strategy going forward. 

Assad laid out two possible paths that the country can take: maintain harsh restrictions and subsequently let the economy suffer, or do nothing and allow infections to spread. He concluded that the government will stake out a middle road, but will be flexible in its approach. If infections start to spread, it will reimpose restrictions. 

He also stressed that now is the time for citizens to take on personal measures to help confront the spread of the virus. “The state assumed these measures to protect citizens, but now, when we start openness, the biggest responsibility will be put on citizens through their daily individual behavior.” 

However, Assad devoted much of his speech to blaming trade intermediaries, monopolists and smugglers for higher prices. Vowing to crackdown on such activity, he said measures would also be put in place to bring down costs for consumers.

He noted that the current “punishments for violations were not enough” and that more strict punishments were needed. He also added that this strategy would remain insufficient without “supplying instruments for monitoring” and the “participation of local society.”

“I’m not sure how much influence can be brought to the ground given that so much of Syria’s internal trade is operated by militias and oligarchs,” David Butter, a political and economic analyst at the London-based Chatham House institute, told Syria Direct. Over the course of the civil war, Syria’s domestic trade has been dominated by a relatively newer crop of businessmen such as Samer Foz, Wassim Qattan, Muhammad Hamsho and the Qaterji brothers, among others.

Although regime supporters have repeatedly expressed criticism of these figures, often appealing to Assad himself to protect Syrians from corruption, the government has largely used this popular anger to elide responsibility without effectively challenging the power of Syria’s war profiteers. 

Nevertheless, Assad promised to increase the role and market share of the state-run Syrian Trading Establishment (STE), the primary entity responsible for selling subsidized goods. The government plans to cut out trade intermediaries by purchasing goods directly from farmers at reasonable prices and selling them to consumers at lower costs. 

“While the size of the economy is likely to shrink further in the near-term, the share of the public sector will increase,” Karam Shaar, a senior economist in New Zealand’s treasury and independent analyst focusing on Syrian economics, told Syria Direct

However, the ability of the government to lower consumer prices is doubtful, as it has struggled to ration subsidized goods through the smart card and continues to heavily rely on trade intermediaries. 

Government measures to provide economic relief

To combat the economic crisis associated with the coronavirus, the Syrian government has begun easing restrictions on commercial activity over the past few weeks. On April 18, the government agreed to open up all commercial and business activity—except restaurants and cafes—through a program that allows businesses to operate on certain days of the week.

On April 28, the government lifted the ban on travel between province centers and their suburbs but extended the ban on travel between different provinces. More recently, the Ministry of Religious Endowments allowed mosques to open for Friday prayers, starting on May 8.

Moreover, the Ministry for Internal Trade and Consumer Protection approved a plan to open markets to farmers to sell their products directly to consumers in order to lower prices. 

Other programs launched by the government to blunt the effects of the coronavirus crisis include the National Campaign for Social Emergency Response (NCSR)—an online platform to help the elderly, disabled people and workers in temporary jobs. 

In a bid to increase funds, on 21 April, the Minister of Finance, Mamoun Hamdan, ordered Syrian banks to deposit donations to the NCSR at the Ministry of Finance’s account at the Central Bank. He stressed that this would include donations from individuals and organizations both inside and outside Syria, in both Syrian pounds and foreign currency.

Tinkering with monetary policy

On May 2, the Central Bank of Syria (CBS) sent a circular allowing banks to relax precautionary measures, resume services, increase the number of employees, and return to normal working hours after Ramadan. The circular also stressed that banks and financial institutions must comply with the instructions issued by the CBS, especially with regards to import financing. 

With a weakening pound and a rise in prices of consumer products, the Syrian government is keen to find cheaper ways to import necessary goods. In fact, during Assad’s speech on May 4, he made it clear that “our most difficult internal challenge is securing basic goods, especially foodstuffs.” 

To attract further deposits of foreign currency, on May 3, the CBS announced an increase in interest rates to 3.5-5% for US dollars deposits and 1-1.5% for Euro deposits depending on the size of the deposit. 

“The regime is growing desperate to have more dollars to finance its imports of consumables to stave off public anger,” Shaar explained. “While savings interest rates are falling worldwide, Syria’s interest rates are on the rise, reflecting the widening risk-premium of lending to a failed state.” 

But according to the announcement, the decision had already been made back on February 27, meaning that this change in policy is not particularly new. “I’m speculating but this could be a nudge to attract some deposits out of Lebanon and into Syria after Lebanon defaulted on its debt, but it's all very uncertain,” said Butter. 

Most recently, on May 6, the CBS sent out a statement on its Facebook page and Telegram channel with a circular dated April 27, explaining that it had asked private banks not to distribute dividends from 2019 profits to their shareholders. It gave the option to banks to turn over 2019 profits into the next year or distribute them as additional shares to their shareholders at no cost.

According to the statement, the CBS aims “to enhance the durability of Syrian banks by improving their own funds and increasing their ability to confront local and global financial and economic challenges, in addition to raising their capabilities to support economic sectors to reduce the negative effects of the coronavirus pandemic.” 

Economic uncertainty continues unabated

While the value of the Syrian pound stabilized at SYP 1285 during April, it seems that the two videos uploaded by Makhlouf last week have restarted a precipitous decline.

Nonetheless, this rate can stabilize again, as has been the case in the past. If dollarization—the increasing use of US dollars in another country—of the economy is avoided, significant economic damage can be spared from currency stabilization, even at a lower rate.

However, one cannot deny that the progressive decline in the value of the pound does not bode well for Syria’s long-term economic prospects. Syria’s fragile tourism sector has come to a halt, much of its export earnings to Iraq and Jordan have rapidly declined, and as Lebanon moves toward “lirafication”, Syrian dollar liquidity remains poor.

Even if the Syrian government is able to strike a deal with Makhlouf or even capture all his assets, this does not necessarily guarantee economic success, let alone stability. With much of Makhlouf’s wealth stored offshore, foreign currency will be difficult to access.

As Butter put it, “putting a big demand on [Makhlouf’s] companies doesn’t guarantee that you can get hold of all that cash.”