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Syria's suffocating economic reality

Value of its currency continues to drop, entire establishments are closing down and businessmen are moving out

Image Credit: Dana A. Shams ©Gulf News
Gulf News

A few days back, it was officially announced that unemployment in Syria had reached 35.8 per cent. The real number, of course, is probably much higher. The official announcement was noteworthy, given that until recently, Syrian officialdom insisted that the unemployment rate stood at no more than 11 per cent. The new figure is alarming, especially given that Syria has to provide jobs for 300,000 fresh university graduates in 2012.

That of course has become close to impossible as all state-run projects have come to a grinding halt and major businesses in the private sector, like hotels, restaurants, and service-related companies have closed down, hit hard by the Syrian uprising. Those that remain operational have cut their costs to bare minimum or slashed their employees’ wages by up to 50 per cent. It is no surprise that Syrian youth, who are the crux of the anti-regime demonstrations, are living through their biggest nightmare: jobless, penniless and angry.

Young Syrians who managed to keep their jobs despite the massive layoffs are now complaining that their income has lost 50 per cent of its value, thanks to the devaluation of the Syrian pound, which hit 100 pounds to the dollar this month —its lowest point ever. A government employee who used to make 20,000 pounds (Dh 1,259 equivalent to $400 just one year ago) now suddenly finds himself making $200 a month. Thanks to gross inflation, the purchasing power of 20,000 pounds has dropped to comically low levels. Fearing for their lifetime savings, ordinary Syrians are frantically trying to convert their money into dollars on the black market. This will undoubtedly further devalue the currency.

So will political developments if Russia further distances itself from the Syrian government, for example, or if Kofi Annan announces the failure in his Syria mission. Trying to combat the slump, the Central Bank of Syria recently intervened, injecting the market with plenty of US dollars in order to bring down their value and raise that of the Syrian pound. Last summer the Central Bank forced private and public banks to raise the interest rate on Syrian deposits up to 11 per cent in order to maintain Syrian money at banks. That legislation only scared clients even further, who did the exact opposite and quickly rushed to convert their money into dollars. There are limits, however, to how often the Central Bank can do that in the weeks ahead, given that its coffers are also suffering from lack of revenue.

Despite rosy promises of an impressive reserve of $18 billion the Syrian government is clearly going through one of its most gripping economic depressions ever. Revenue from the oil sector, for example, which used to be in US dollars and was once the backbone of the state’s income, is now suffocating thanks to EU sanctions on Syrian oil exports to Europe. Until 2011 the EU used to import up to 95 per cent of Syrian oil. The second source, surplus from state-run public sectors, is also suffering. Those that did generate surpluses, like telecommunications, tobacco and banking, were few to start with even before the uprising began in March 2011. Many agencies can simply no longer provide a surplus because surplus comes from revenue, and all of them are losing money because of inefficiency and corruption. In different circumstances, the government would have raised new taxes to bridge the gap, but that is clearly off the table because that would further infuriate the already furious Syrian Street.

The government committed itself to an unplanned 30 per cent salary increase in March 2011, thinking that this would help curb public anger. It didn’t, and meanwhile state revenue dropped rather dramatically. Now authorities are stuck with a commitment to salaries that they are finding a hard time providing. Salaries paid by the state to the public sector, after all, amount to over 235 billion pounds, according to the Ministry of Finance, with around 30 billion pounds in pensions. If it delays making those payments, it automatically converts these state-employees and pensioners into opponents of the government. Rumour has it that in places like Homs and Idlib there is already a big delay in paying public sector salaries.

Additionally, the socialist state was once the main subsidiser of basic commodities like heating fuel and gasoline, for example. Two years ago it lifted the fuel subsidy, increasing its price by a dramatic 300 per cent, whereas today, it no longer has sources to purchase gasoline — also thanks to sanctions. That explains why last January, in a pre-emptive move to ration its gasoline reserve, the government raised the price of gasoline by 25 per cent. Fuel (mazout) which sold at 16 pounds a litre, disappeared from the Syrian market during the harsh 2011-12 winter because much of it was being used for the tanks spread on all four corners of the country. As a result, it began to sell on the black market for 25-30 pounds a litre, causing entire households to spend the winter in darkness and shivers.

The value of the Syrian pound continues to drop, entire establishments are closing down, heavyweight businessmen are packing their belongings and moving out, and Syria’s finest and brightest young talents are leaving the country, seeking employment in Europe and the Arabian Gulf. For all practical purposes, not a single one of these gripping economic problems seems on its way to being solved in the second half of 2012. On the contrary, they are increasing by the day with the state apparently incapable of bringing any of them to a halt, spelling out economic disaster for Syria. This harsh economic reality, more so than the demonstrators, the Annan mission or the Arab League initiative, is the biggest threat yet to the Syrian regime. 

Sami Moubayed is a university professor, historian, and editor-in-chief of Forward Magazine in Syria.