Syrian pound nosedives, so does the economy
Damascus - The Syrian pound has collapsed against the US dollar, reaching lows unseen since the revolution-turned-civil-war started in March 2011. The plunge caused pricing discrepancies between the Central Bank of Syria and the black market, leaving citizens and merchants confused. Many shops stopped selling goods because of the volatility.
The Syrian government seemed incapable of taking measures to salvage the national currency. The best it could do was an empty statement by Prime Minister Wael al-Halqi, who blamed “merchants and manipulators” for the pound’s plunge. He had pledged many times to keep the currency stable but to no avail.
The central bank raised its pricing of the dollar to keep up with black market trades. A dollar was recently worth 442 pounds, compared to 530 on the black market. The best salary of a Syrian employee is 40,000 pounds a month — $70 per the black market rate.
Economists said the pound is expected to fall further under fruitless government economic policies and the central bank’s failure to help the currency appreciate against the dollar despite the bank’s repeated interventions.
The problem is that the bank does not have enough foreign reserves to pump large sums of dollars into the market. The market is capable of absorbing additional sums due to war conditions and would be asking for more. In return, the small quantities of dollars pumped by the central bank into the market are not enough for meeting market needs.
In an attempt to get extra dollars, the Central Bank eyed Syrian expatriates’ remittances, which it had been changing at a much lower rate than the established value of the dollar, thus discouraging many from sending money out of the country. Economists cautioned that expatriates were transferring funds to neighbouring countries to evade the Central Bank’s measures. That would deprive Syria of a source of foreign currency and fuels speculation on the black market.
Syrian Central Bank Governor Adib Mayaleh went to Havana to talk Cuban authorities into settling old debts to Syria. He signed an agreement on the matter, an official Syrian report said, estimating the amount at $158 million. The debt involved overdue payments for oil Cuba imported from Syria in 1992.
The amount of money, though relatively small, can finance some of the Syrian government’s needs, economists said. Syrian Ambassador to Moscow Riad Haddad on March 17th said his government had paid Russia all overdue instalments for arms purchases, claiming that support provided by the Russian air force to the Syrian Army in recent months was free.
Syrian President Bashar Assad refused to say how much his government paid for the Russian arms.
Haddad’s comments caused discontent among Syrians with their government for prioritising arms purchases over saving its citizens from imminent starvation.
With the pound plunging, authorities resorted to securing comfortable economic conditions for their security, military and political arms, which led to social, economic and political militarisation and the emergence of mafias benefiting from the people’s difficulties. Security and military checkpoints have been increasingly imposing kickbacks on goods passing through.
After returning from Cuba, Mayaleh tried to maintain the pound’s value by selling $150 million to exchange companies. However, after fixing the rate at 484 pounds for the dollar, within hours, the dollar was trading at 515 on the black market.
The pound’s fall raised prices of almost everything at a time a large bracket of Syrians are government employees who are paid in pounds with decreasing purchasing power.
Many food items and fuels are becoming hard to find. Unemployment has soared to 70% and unofficial estimates believe inflation to have skyrocketed to 500% — 1,000% in some cases. In areas besieged by the government or rebels, inflation has reached 4,000- 8,000%. The pound’s weakening has left 80% of Syrians below the poverty line.
The government failed to introduce pay hikes commensurate with increasing prices, despite that the majority of Syrians in the war-ravaged country are state employees. They are losing purchasing power, contributing further to the overall collapse of the country’s economy.
The government is facing harsh criticism even from inside its circles for failing to control the situation where price jumps are incommensurate with pay hikes.
The pound’s collapse is mostly caused by the country’s war and decreasing foreign reserves in government coffers. With merchants competing for any available dollars, reports show that large sums of pounds are being smuggled abroad to be exchanged with dollars.
Authorities try to rein in the black market but control is almost impossible since many Syrians, especially from the middle and upper classes, exchange their pounds for dollars in the black market or abroad.