Treasury bonds: Inadequate solution for Syria’s deficit financing

The Ministry of Finance building in Damascus - May 2023 (Facebook/Syrian Ministry of Finance)

The Ministry of Finance building in Damascus - May 2023 (Facebook/Syrian Ministry of Finance)


Enab Baladi – Muhammed Fansa

The fourth consecutive and final auction of treasury bonds for the current year in Syria did not succeed in exceeding 50% of the amount allocated for sale, which economists attributed to the fact that investing in these bonds is considered a loss in light of the ailing condition of the Syrian economy.

On November 22, the regime’s Ministry of Finance announced that 11 subscription offers were submitted for the treasury bonds so that the total value of the accepted offers reached 100 billion Syrian pounds, i.e., a coverage rate of 50% of the target issue size. The interest rates offered in these offers ranged between a minimum of 9.5% and a maximum of 11%.

As for the accepted offers, the size of the allocated bonds was set at 65.5 billion Syrian pounds, distributed among three private and government banks. The weighted rate of return for the allocated bonds reached 9.66% of the nominal value of the bond.

What are treasury bonds?

Treasury bonds are debt securities issued by the government. Essentially, you’re loaning money to the government by purchasing a bond at a predetermined interest rate. In turn, the government will pay you a fixed interest rate for a set duration of time. When the loan reaches its maturity date, you’re then repaid the bond’s face value.

These bonds are long-term (up to 30 years), and their buyers are entitled to an annual return in the form of fixed interest.

Bonds are usually used and offered for public subscription for the purpose of creating economic development and supplying revenues to the state treasury. They are called “production loans” or “development loans,” and governments may resort to them to finance their wars under the name “war loan,” as the Bank of England did, which proposed Treasury bonds for public subscription in 1693 during the war against France.

​​The US dollar is trading at 14,000 SYP according to the S-P Today website, which covers the trading rate of the Syrian pound to the dollar. At the start of the conflict in 2011, the dollar was trading at 47 pounds.

Countries usually pledge to pay the value of the interest resulting from subscribing to their treasury bonds, with a fixed interest every six months, in exchange for the commitment to pay the value of the bond on its maturity date.

This is done according to an evaluation by credit rating agencies, such as Moody’s and Standard & Poor’s, to estimate the margin of risk in the economy of the country in question and its ability to pay its obligations to creditors, which is called “credit risk.”

To finance the deficit

The former Minister of Economy, Lamia Aasi, said on her Facebook on November 24, commenting on the results of selling treasury bonds, that it is a “failed” method that the finance ministry insists on following in covering the financial deficit in the state’s general budget, noting that sales do not cover 50% of the target amount.

Aasi pointed out that most of the buyers of these bonds were state-owned banks, which indicates a clear flaw in the monetary policy, which is trying to control the inflation rate by impeding the withdrawal of cash from banks and forcing people to deposit in them, whether when selling real estate or cars.


Deficit financing refers to the methods governments use to finance their budget deficits—such as issuing bonds or printing more money. 

Investopedia website


Aasi clarified that the buyer of treasury bonds suffers a “certain loss” since the exchange rate of the Syrian pound against one dollar rose during the current year, i.e., within the maturity period of the bonds, from 3,000 Syrian pounds to 12,600 Syrian pounds, according to the exchange rate of the Central Bank of Syria, while the difference in trading is greater in the black market.

Political economy researcher Dr. Yahya al-Sayed Omar told Enab Baladi that holding four auctions for treasury bonds this year is a huge number for a modest economy like the Syrian economy, and the multiplicity of auctions indicates that they have not achieved their desired goals, which are financing the general budget deficit and reducing the percentage of liquidity in the market.

Al-Sayed Omar stated that the coverage rate for the auction, which did not exceed 50%, is “justified and expected” and is also considered high for the Syrian economy because, according to economic logic, investment in treasury bonds is “definitely a loss,” since the inflation rate exceeds the interest rate on the bills (9.66%), which justifies not subscribing to it except by public and private banks, as it is obligated by the regime’s government to subscribe.

The Central Bank of Syria has stopped announcing inflation rates on a monthly basis since September 2019, while Syria ranked fourth in the world with an inflation rate of 170% on an annual basis, after Zimbabwe, Venezuela, and Argentina.

The inflation rate issued on November 25 was according to the Hanke Panel for Measuring Economic Inflation in many countries according to specific criteria, without relying on government statistics.

The economic researcher believes that reliance on treasury bonds is of “low efficiency or even ineffective, and will not be able to achieve any real results.”

High inflation makes treasury bonds ineffective and makes them useless for investors, so they are “an incorrect tool in circumstances like these,” according to al-Sayed Omar.

Anas Ali, director of revenue at the regime’s Ministry of Finance, stated at the end of last year that the goals of offering treasury bonds in 2023 are to promote the money bills in a way that can increase individuals’ demand for it through brokerage companies, so that the number of individuals or companies sector, whether they are natural or legal individuals, have broader representation, meaning their percentage is greater in turnout for the money bill.

Ali said, “It is in our interest to have individual investors because the mass of liquidity outside the banking sector is greater than the mass within this sector, meaning expanding the investor base,” which was not achieved after purchasing the majority of these bonds from government and private banks.

Debt increase

The value of the treasury bonds offered for auction in 2022 was 600 billion pounds, while it reached 800 billion pounds this year, which indicates the need for the regime’s government to provide greater financial liquidity after the pound lost its value against the US dollar by up to 100% on an annual basis during 2022, and by a rate of 52% during the current year.

Regarding the possibility of offering treasury bonds on the Damascus Stock Exchange, the Finance Ministry said that trading of this security is available on the Damascus Stock Exchange, which gives it the advantage of liquidity, in addition to benefiting from the interest that will be granted semi-annually.

The latest trading rates last week amounted to 1.9 billion Syrian pounds, with a trading volume of about 600,000 shares. The Damascus Stock Exchange is limited to 26 listed companies, including 14 banks.

The government of the Syrian regime began offering treasury bonds and bills for subscription for the first time in 2010, and at that time conducted seven issues, which it said at the time were for the purpose of financing infrastructure projects. The decision at that time was considered a departure from the previous approach of relying on the Central Bank for internal borrowing.

Accurate financial statistics are absent from the Finance Ministry, as the latest statistics reported by the local al-Watan newspaper show that the internal public debt reached 465 billion Syrian pounds in the period between the beginning of 2020 and mid-August of the same year, which is equivalent to about 11.6% of the total general budget allocations for the year 2020, amounting to 4 trillion pounds.

The public internal debt was collected at that time through treasury bonds and certificates of deposit, which were subscribed by a number of banks allowed to participate in the auctions offered by the ministry.



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