Syrian Pound: Causes of Stability and Forecasts

By Fuad Abdulaziz

(Eqtsad)- Many Syrians are asking about the status of their Syrian Pound after a year of stability against the U.S. Dollar after it has witnessed significant declines compared to 2016. The Syrian Pound exceeded the 600 Pound barrier in 2016 against the Dollar before returning and fluctuated at around 500 Pounds for over a year.

The main questions being posed are: What is the maximum the Pound will rise against the Dollar? And is it possible for the Pound to return to the 2014 price when it was between 250-300 Pounds against the Dollar?

The answer to these two questions can be easily deduced from the statements of Imad Khamis, the regime’s former Prime Minister, who accused the former al-Halqi government of wasting 14 billion US Dollars from the state reserve of hard foreign currencies from 2013 to 2016. The statement explains the massive decrease in the value of the Pound during that period and indicates that the decline was natural rather than psychological as the regime repeatedly claimed.

Based on the statement, the state was consuming its own reserves during the three years of the al-Halqi government, which ultimately led to the Syrian Pound losing its monetary value against foreign currencies. Also 14 billion US Dollars constitutes more than 70% of the Syrian state’s cash reserve as the Governor of the Central Bank had announced that the state cash reserve was at 17 billion US Dollars in early in 2012. This figure indicates that the remaining balance of cash reserve if Khamis’ statements are true, is only 3 billion US Dollars. The Syrian state’s debt exceeds 10 billion US Dollars other than internal public debt which has not yet been publicized but according to Eqtsad’s estimations will reach over 10 billion US Dollars.

As such what are the chances the Syrian Pound will improve further after a year of stability? To be more precise, what do regime officials mean when they say that the coming months will witness greater improvements and what is the desired level of these improvements.

Regime officials are trying to suggest that the Syrian Pound has improved over the past period due to increased production, not the procedures and policies implemented by the former Central Bank, including their policy of pumping currency into the market. However, any observer of the currency fluctuations knows that the regime’s claims are contradictory as it was exactly when pumping the markets stopped that the Syrian Pound stabilized.

The regime is also promoting the idea that its armies’ recent victories and the regime regaining control over certain territories has improved the exchange rate.

The claim is both unconvincing and economically false because the regime has increased its expenditures by taking control of new territories without increasing its productivity. In this regard, we refer to the oil and gas producing areas, as these areas are not yet productive and have not provided the state treasury with any returns. The Minister of Oil recently announced that the production of oil rose from 10,000 to 16,000 barrels per day. This increase is negligible given the Minister also announced that the bill for supporting oil derivatives is still at one billion Pounds daily.

The various information leads us to conclude that the Syrian Pound will remain around 500 Pounds against the Dollar and will not witness a significant rise until at least mid-2018. The volatility of the Pound will also remain around 10 Pounds only, so the most the Syrian Pound will decrease against the Dollar is to 490 Syrian Pounds. Even this decrease is dependent on a significant increase in production and the regime not initiating any reconstruction operations.

The reconstruction process alone requires new accounts which may not be in favor of the Syrian Pound and which may lead to further decline given the regime does not as yet have any funds to finance these projects. Undertaking any reconstruction projects requires the regime take out more loans or issue treasury bonds which will increase the size of the internal and external debt.