Despite pound recovery, why do prices not decrease in Syria?
Enab Baladi – Muhammed Fansa
After the dollar jumped against the Syrian pound to 7000 SYP at the end of December 2022, it fell to less than 6000 SYP at the beginning of January, such a decrease does not reflect on commodity prices that took an upward path, especially after the official exchange rate rose.
The Syrian Central Bank raised the official exchange rate for the dollar from 2,500 to 3,000 SYP and set the dollar exchange rate in the Banking and Exchange Bulletin at 4,522 instead of 3,015 SYP.
The Central Bank also raised the price of purchasing dollars to deliver remittances received from abroad in Syrian pounds to 4,500 instead of 3,000 Syrian pounds.
Meanwhile, the pound declined again during the second week of the same month, to range in value between 6,500 and 6,650 SYP, amidst the Central Bank of Syria’s pledge several times to “intervene to control the exchange rate, and take all possible means and measures to restore balance to the Syrian pound.”
According to what was monitored by Enab Baladi, the prices of basic commodities have continued to rise in varying proportions since the start of the fuel crisis at the end of November 2022, unaffected by the improvement of the Syrian pound at the beginning of 2023.
“To evade new low”
The former Minister of Economy in the regime’s government, Lamia Assi, believes that the soaring prices are not affected by the rise in the pound value.
The exchange rate affects the prices of commodities “significantly,” but it is not the only factor in determining their prices, as there are other factors that play a role in determining the price of imported or locally produced goods, she added.
According to Assi, among these factors is the availability of the material, the difficulty or costs of the import process of commodities and production requirements, and the stability of costs is an “important factor” and expectations of a rise in the exchange rate again are behind the instability of commodity prices, as it is necessary for traders and manufacturers to have confidence in the depreciation of the exchange rate for a period that may extend for months to create the decline.
Firas Shaabo, Ph.D. in financial and banking sciences, told Enab Baladi that exchange rates in Syria are usually unstable, up and down with “small rates of change.”
“What happened recently is a significant rise in exchange rates within a day, and their decline again after several days, which is what “confused” the markets and caused a problem for traders,” he added.
Shaabo identified the emergence of two symptoms after the exchange rate drop, the first of which is a “psychological” problem related to exchange rates, explaining that the flexibility of rising prices differs from the flexibility of falling prices, as traders show “resistance” towards the latter when exchange rates decline.
The second symptom relates to market forecasts and expectations of a return to the exchange rate rise, which increased merchants’ adherence to high prices, which were based on the dollar exchange rate of about 7,000 SYP, according to Shaabo.
The Syrian economist believes that there is no actual monetary authority to price materials and that the intervention of the Central Bank to stabilize the exchange rate of the Syrian pound “has no effect.”
The value of the Syrian pound declined against the US dollar by up to 100% on an annual basis during the year 2022, as the last six months of the year witnessed significant changes in the value of the pound and the depreciation of the pound against the dollar in 2022 is the largest low recorded in its history.
Local production affected
The regime’s government is trying to support local production and industrialists, with the aim of exporting products and securing a foreign currency that enhances the stability of the pound. However, the reality of deteriorating Syrian production is reflected in weak exports, as the value of Syrian exports amounted to 664 million euros at the end of 2021, while the value of the trade balance deficit amounted to about 3.33. billion euros.
Figures show that not only imported materials or products directly related to the exchange rate of the dollar were affected, but local products were also affected.
Regarding the reasons for the local product being affected, Shaabo explained that production needs fuel, transportation, manpower, and raw materials, most of which are imported, and an increase in all of the above also leads to an increase in product prices.
According to Shaabo’s vision, the Syrian product has become “out of competition” in relation to the global market, and this is what the expert attributed to its high price, the cost of transportation, the difficulty of securing raw materials, the costs of royalties on checkpoints and corruption.
Shaabo also attributed the increase in production costs and the price of the local product to the lack of government support in terms of fuel and electricity, which leads producers to high “black market” prices, and the decrease in the purchasing power of the population leads to losses for manufacturers.
The difference in exchange rates affected several productive sectors, including the pharmaceutical industry, and the Central Bank funds pharmaceutical factories from foreign exchange to import the raw materials needed for the pharmaceutical industry.
The difference between the official dollar exchange rate, set at 3,000 pounds, and the exchange rate for remittances (4,500 SYP), has led to losses for pharmaceutical companies, which are calling on the Ministry of Health to raise prices so that production would not be a losing process.
Wafaa Kishi, head of the Syrian Pharmacists Syndicate, attributed the cause of the drug crisis to the losses of the owners of drug factories that have been going on for about six months after adjusting the official exchange rate of the dollar, which was 2200 and became 4500 pounds at the beginning of this year, which led to the cessation of the production of medicines in the laboratories and the severe rationing in distribution for warehouses and similarly for pharmacies.
On 17 January, the Directorate of Pharmaceutical Affairs in the Health Ministry raised the prices of most types of pharmaceutical groups by rates that reached 80%.
The Ministry of Internal Trade and Consumer Protection issued a circular to the supply directorates in the governorates, which included a follow-up on the announcement of prices in the markets according to the deliberative invoices issued by producers, importers, and wholesalers.
It also included the adoption of these invoices as the basis for the consumer selling price according to the specified profit rates, and the circular ended the work of the price bulletin that was issued by the Ministry until further notice.
The Ministry justified the issuance of the circular by guaranteeing the availability of materials in the markets. A member of the Board of Directors of the Damascus Chamber of Commerce, Yasser Akreem, told the local al-Watan newspaper on 18 January that the largest percentage of merchants and companies “do not achieve” a profit more than the percentage of profit set for them.
He pointed out that the circular gives “comfort” to work for the merchant, who must put the price on the goods so that there are no “cases of fraud.”
Akreem expected that the manifestations of monopoly and stockpiling of goods would end after the circular and that the price drop would be an “intertwined” process, which could not take place at present in light of the lack of discipline of the exchange rate and the continued existence of problems in the “import financing” platform and the difficulty of importing.
For her part, the former Minister of Economy, Lamia Assi, stated that the liberalization of prices would have been positive if the atmosphere of competition prevailed between companies or if support for the production and import process were available to everyone without hindrance.
While in light of the level of “great monopoly and price chaos” in the markets, this circular could raise prices to higher levels, she added.
With the aim of providing materials and opening new markets, the government of the regime issued a decision allowing the import of several materials from Saudi Arabia, most notably sugar, chemicals, and petrochemicals.
The decision was based on what the Ministry of Foreign Affairs and Expatriates made clear, that there is “no political objection” to complying with the recommendation of the Economic Committee.
The expert, Shaabo, said that the solutions proposed by the regime to solve the problems of the economic situation are “useless” due to international interventions and the link between the economic solution and the political solution, pointing out that some Syrian resources are not in the hands of the regime.
With regard to the decision to liberalize the prices of materials, the economic academic believes that the decision will reflect negatively on citizens because any decision taken by the regime is in the interest of the influential class and those close to it.
They are like the “new princes,” and the problem of the Syrian economy is not in fixing or liberalizing prices but rather in the structure of the economy and the “rampant corruption” in government departments, Shaabo concludes.
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