Enab Baladi – Zeynep Masri

The Syrian Pound (SYP) has not seen a significant drop in its value, maintaining the limits it was fluctuating at, since the entry of the first package of economic sanctions against the Syrian regime under the Caesar Act into effect on 17 June. 

The value of the SYP plummeted to historic lows, exceeding SYP 3,000 to the US dollar (USD) on 8 June. Then, the SYP recorded an exchange rate of 3,000 against the US dollar on the day the first package of sanctions came into force. Then, the SYP bounced back on 15 June from its recent plummet, to reach 2,500 SYP per 1 USD, according to the website of Syrian Pound Today (a Syrian Pound tracking website.)

Unofficial analysts attributed this local-currency price stability to the fact that the Syrian regime has received foreign exchange without mentioning its source. The supporters of the Syrian government, including Omar Rahmoun, a member of the National Reconciliation Committee, and the journalist Shadi Helwa confirmed these speculations via their social media accounts, publishing photos showing large amounts of USD, next to a photo for the leader of the Syrian regime, Bashar al-Assad. 

With no official announcement of the source of this foreign currency, the question arises about how the Syrian regime was able to obtain millions of USD and how it could circumvent the sanctions aimed at isolating it economically. 

Drain on the Syrian Central Bank’s reserves 

The Syrian regime used to earn foreign currency through export sales, foreign currency remittance transfers from abroad, and net foreign investment flows, according to Muslim Talas, assistant professor of economics at Mardin University, Turkey, in an interview with Enab Baladi.

Talas said that to know the sources of foreign exchange earnings in Syria, we must understand the Balance of Payments (BOP), noting that there are three main categories of BOP: the current account, the capital account, and the official reserve account. He added that the BOP should be zero, meaning that assets (credits) and liabilities (debts) should balance, in the sense that the country does not have a deficit or a surplus.

According to the latest available statistics on the national BOP in Syria, which was issued by the “Syrian Statistical Group” for the year, 2011, Syria has a deficit in its current account of the BOP, which amounted to 9.8 billion SYP ( around196,000,000 USD), meaning that the regime consumed that amount of foreign exchange.

The current remittance account amounted to one billion and 219 million SYP (4,380,000 USD), the capital account of the BOP was one billion and 914 million SYP (821,459.227 USD).

According to the available figures, there is a current account deficit of six billion and 739 million SYP ( nearly 14,780,000), which was covered by the government of the Syrian regime via withdrawing from the reserves of the SCB, Talas said.

According to the figures currently available, issued by the “unified Arab economic report,” the Syrian trade deficit reached in 2017 5.5 billion USD, meaning that the government drained that amount of foreign currency.

According to the currently available figures issued by “the Unified Arab Economic Report,” Syria’s trade deficit reached in 2017 USD 5.5 billion. This suggests that the government spent the entire foreign currency reserves of the SCB, and thus the regime has to obtain foreign exchange through other means.

What are the other sources?

Talas believes that the private sector cannot make direct or indirect investments in Syria in the current circumstances. Thus, the investments and loans by the Iranian government could be the primary source of foreign currency for the Syrian regime alongside what is left of the old foreign currency reserves in the SCB.  

Since sanctions were imposed on Iran, in 2019, it is no longer a source of foreign currency for the Syrian regime.

However, Iran had already brought several investments into Syria, bought real estate, and obtained substantial trade concessions, according to Talas. 

 Muhammed Mousa, an economic researcher, said that in addition to the revenues from exports and money remittances from abroad, the Syrian regime depends on its allies, Russia and Iran in acquiring foreign currencies, as well as incomes of Syrian consular transactions, and the support granted to the international organizations operating in the Syrian regime-controlled areas. International organizations generate considerable amounts of foreign exchange, reaching the SCB, they change their foreign currencies to the Syrian currency to purchase products, logistical tools, or foodstuffs.

 Besides, the Syrian regime also borrows in the financial markets by selling bonds. The bonds are a promise to make the payments on certain dates and with a specific interest rate. 

The Syrian regime also gets foreign currencies from the revenues of the land, sea, and air borders, which are very few, due to the absence of tourists the weak movement of air transport and the lack of an air fleet, with Russia and Iran seizing seaports, and the ineffectiveness of land crossings, except those connecting between Syria, Lebanon and Jordan.

Mousa told Enab Baladi that the “Caesar” Act will impose a complete blockade against Syria, preventing import, export and bank transfers, which might lead to the regime’s inability to sell treasury bonds again, and the failure of one of the allied countries to lend it or the central bank in Syria.

The Iranian government stopped providing aid to the Syrian regime, including oil derivatives and foreign exchange, due to the sanctions imposed by the United States and the European Union countries, prompting it to spend what it has left in its reserves to purchase wheat and oil from Russia because Russia is no longer lending it but rather selling the regime grains for cash.  

Mousa added that Lebanon has also become unable to provide the regime with foreign exchange due to Lebanon’s monetary and financial crisis, specifically in the banking sector, “which are involved in laundering the money of the regime,” according to Mousa. 

Mousa pointed out that the areas controlled by the Syrian opposition factions are considered a “primary source” of funding for the Syrian regime. The SYP is being exported to the northern regions in Syria, and the Syrian government buys the USD, which is brought from Turkey through “great traders,” who are carrying out commercial transactions through the crossings between Turkey and the northern regions of Syria. 

Mousa believes that requiring money transfer and remittance companies and merchants to use the Turkish Lira (TL) or USD in cities of northern Syria, and to avoid dealing in the SYP “will deliver a devastating blow to the Syrian regime,” as Mousa put it. 

The SCB is also planning to obtain billions of Syrian pounds via the issuance of the certificate of deposits by eight banks.

According to a statement released by the SCB, a day after the implementation of the first package of “Caesar” sanctions, the total nominal value of certificates subscribed to was estimated at 74.3 billion SYP (around 31,888,412 USD) with a maturity of six months and an annual interest rate of 6.5 percent.

The SCB launched the first version of the certificates of deposit in SYP for the year 2020, on 9 March,  according to the standardized price auction method for traditional banks operating in Syria.

 The nominal value of the single certificate of deposit amounted to one hundred million SYP (42,918.455 USD), with a maturity of six months, starting from the settlement day specified on 25 March.

The government uses the certificates of deposit, treasury bills, and bonds, as one of the essential means of covering the financial deficit in the state’s general budget.

The bank’s move aims to withdraw excess liquidity from the Syrian pound from the markets and direct it towards the bank in order to bridge the budget deficit, in addition to preventing these funds from entering into speculation on the dollar.

The SCB also raised the price of remittances received from abroad from 700 to 1,250 SPY per USD, intending to “bridge the gap between the market price and remittance prices, thus attracting them through secure official methods,” as it put it.

The Head of the Public Debt and Securities Directorate at the SCB, Mohamed Zain El-Din, told the state-run Syrian Arab News Agency (SANA), last February, that “certificates of deposit help to control liquidity in a way that achieves the stability of the general level of prices.”