The Decline of the Syrian Pound: Causes and Consequences

In Focus | The Decline of the Syrian Pound: Causes and Consequences

On November 19, the price of the Syrian Pound reached 2850 Syrian Pound per US Dollar in the Damascus market, a remarkable increase after the partial stability it enjoyed during the past two months, at about 2,500 Syrian Pound per US Dollar.

This decrease is due to several reasons, some are long standing while others are emergent. It is possible to refer to the most prominent reasons that resulted in this recent change in price, including:

1- Closing the illegal border crossings to Lebanon and Iraq

Since May 2020, a campaign has been ongoing to close illegal crossings in Iraq and Lebanon, based on demands from the United States of America. Initial estimates indicate that dozens of crossings were closed and almost everything was transported using them including fuel, flour and even large amounts of US Dollar coming from Lebanese markets. Although some of these crossings continue to function, increased controls over them have affected their activity and the quantities of merchandise transported. In early November 2020, the president of the Syrian regime indicated in a meeting with some professionals in Aleppo indicated that the situation in Lebanon has had a significant impact on the Syrian economy.

2- High budget deficit

In early November, the People’s Assembly publicly discussed the 2021 budget. Based on this discussion, it emerged that the government was unable to secure the necessary resources for the 2020 budget causing a deficit greater than expected and the government was unable to secure it. The budget deficit situation indicates that the government lacks the tools necessary to secure funds except by printing more currency which will weaken the Pound in the future.

3- Pressure on merchants and businessmen

During a meeting between the Syrian regime Minister of Finance and businessmen in mid-November, he stressed that those who their taxes will not be pursued by the government in accordance with the money laundering law. This law had raised fears that the government will impose additional taxes on this group to finance the budget in a manner similar to what happened to Rami Makhlouf whose wealth was confiscated following a similar dispute.

Our information indicates that there is a strong demand from merchants and businessmen to buy gold savings, mainly pounds and ounces. Since the beginning of November, the daily quantities of gold sold in the Damascus markets increased from less than one kilogram to three kilograms in comparison to October. This increase indicates a rising fear concerning the Syrian Pound and a widespread lack of desire to hold on to the pound.

It is expected that the Syrian Pounds will witness a further increase until the end of 2020, to reach more than 3000 Syrian Pounds. It is believed that the previous factors alongside the Syrian Central Bank buying US Dollars in Syrian pounds from money exchange offices and banks to finance its operations will result in increased pressure on prices than previously witnessed.

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