As EU eases restrictions, Syria grapples with a liquidity crisis

Last week, the European Council announced the suspension of restrictive measures on Syria to support the country’s inclusive political transition and encourage swift economic recovery, reconstruction, and stabilisation.

The measures will facilitate business development in sectors such as energy and transport, the EC statement said, and ease financial and banking transactions required for humanitarian and reconstruction purposes. 

The announcement comes amid a sharp shortage of the local currency, the Syrian pound (SYP), that has left people like homemaker Samar Abdeen unable to access their own money. 

For the past two months, Abdeen withdrew money from her bank savings once a week. “First I was able to get a million Syrian lira [$77], but then it went down to half a million,” Abdeen told The New Arab.

“Last time, I was only allowed to withdraw SYP 200,000 ($15.5). I can do nothing with this meager amount.” 

Abdeen is one of millions of Syrians suffering from Syria’s liquidity crisis, which coincided almost immediately with the fall of Bashar Al-Assad’s regime in early December. Experts say the new administration, headed by transitional President Ahmed Al-Sharaa, confronted the country’s endemic economic crisis by pursuing a contractionary monetary policy by limiting money supplies to control inflation and strengthen the local currency. 

“But this solution plunged Syrians into even more hardship,” businessman Atef Tayfour tells TNA. Tayfour, who operates across several industries including textile, clothes manufacturing, plastics, and construction, is critical of the current economic approach. “The EU’s decision is a political game to pressure the state,” he adds.

Tayfour argues that the five banks removed from the freezing list [Industrial Bank, Popular Credit Bank, Saving Bank, Agricultural Cooperative Bank, and Syrian Arab Airlines] have minimal commercial value.

“These are marginal banks. If the European Union wanted to serve the country, they would have removed sanctions on the Commercial Bank and the Central Bank. As long as the sanctions remain on the Central Bank, the state will not benefit from anything,” he said. 

The current government’s policy of monetary tightening presents the most serious challenge, according to Tayfour.  

“A manufacturer spends capital in two areas: first on operational costs, which requires local currency provided through the export financing platform affiliated with the Central Bank of Syria. This money is used to import raw materials. The second is spent on development and requires hard currency,” he said. 

By reducing the money supply and making borrowing more expensive, this policy significantly impacts business operations, he adds.

According to a Reuters report, the Syrian pound has shown some unexpected resilience on the black market since the new leadership took over, aided by an influx of Syrians from abroad and an end to strict controls on trade in foreign currencies. The SYP currently trades at around 10,000 pounds to the US dollar, while the official foreign exchange rate remains around 13,000 pounds to the US dollar. 

Economist Mazen Dirwan, a marketing communications graduate from Northwestern University, offers additional insight. As a board member of Amana Foods, an international food company which runs the Hana processed meat factory in Syria, he explains the nuanced dynamics of the currency situation.  

“The drop in the exchange rate stems from two primary factors,” Dirwan tells TNA. “First, the caretaker government wants to portray an image of economic improvement. Second, there’s a real shortage of Syrian currency available in the central bank, which is unable to meet the increased demand.” 

In January, Syria’s new central bank governor Maysaa Sabreen indicated a strategy to avoid printing Syrian pounds, aiming to guard against a surge in inflation. However, in mid-February, the official SANA news agency reported the arrival of Syrian banknotes from Russia, printed under the previous Al-Assad regime. While the exact amount remained unspecified, a Reuters source suggested it was in the “hundreds of billions of Syrian pounds”, equivalent to tens of millions of US dollars. 

The financial landscape reveals a stark economic reality. In December, the central bank announced foreign exchange reserves of around $200 million in cash – a dramatic drop from the $17 billion estimated by the International Monetary Fund (IMF) in 2010, just before the civil war erupted. According to the World Gold Council, Syria’s gold reserves stood at 25.8 tons in June 2011, worth $2.2 billion at current market prices. 

Economic analyst and CEO of Iqtisadi platform Younes Al-Karim provides broader context: “In the past three years, liquidity leaked from the banking system due to the decline in the purchasing power of the Syrian currency.” This saw people avoiding bank deposits, reflecting diminishing confidence in the central bank, he added.

The current leadership’s policies have only deepened this confidence crisis, according to Al-Karim. Illogical currency pricing and giving foreign exchange companies free market control led to speculation. “Exchange brokers made quick profits, but the money never returned to the central bank,” he notes. 

In response, Syrians have developed creative survival strategies. Abdeen now pays bills for acquaintances and relatives through her bank account, who then reimburse her in cash. Others sell dollars at rates higher than the black market, transferring Syrian pounds electronically while receiving the dollars in cash. 

While these individual solutions provide temporary relief, Al-Karim believes more comprehensive measures are necessary. “The central bank must be more transparent about the volume of available funds and have a clear plan,” he argues. One potential solution involves reversing the ban on USD trading, with basic commodities and state services priced in Syrian pounds, while allowing dollars in real estate and other sectors. 

Tayfour advocates for a more radical approach. “The open market is just a slogan because, currently, Syria lacks the main elements of an open market which are liquidity, deposits, withdrawals, and open trade,” he said.

Tayfour points to the sudden opening of imports into Syria, including smuggled goods, which he believes must be carefully controlled. 

The minimal export capacity means Syria faces a significant trade deficit, exacerbated by the liquidity crunch and decreased production.

Dirwan highlights a nuanced impact of the import strategy: “Two types of products entered Syria from Turkey – previously prohibited high-quality products with no local alternatives, and very low-quality products that have local alternatives. While the first type enriched the market, the second type was a blow to local manufacturers.” 

“While the European Council’s suspension of restrictive measures offers a potential path forward, the road to economic recovery remains complex and challenging,” said Dirwan. 

Mawada Bahah is an independent Syrian journalist with bylines in local, regional and international outlets

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