Syria: An Economy Aching to Cope with an Ongoing War

On the ground, Syrian government forces took back the historic city of Palmyra in March after it was seized by IS militants back in May 2015. On the diplomatic front, the Geneva peace talks were anything but smooth with delays, suspensions and a precarious ceasefire.

On the economic front, a war-ridden Syria is a fertile land for exorbitant pricing and loose controls. In an attempt to crackdown on price manipulations, the Minister of Internal Trade and Consumer Protection issued a decision compelling all internal trade directories to extend the period of price-reductions and to schedule field tours, especially to monitor footwear and clothing stores, to audit bills and take punitive actions against stores exploiting consumers.

In the same line of thought, the Ministry of Internal Trade and Consumer Protection sought to impose a unified price for sugar in the markets of Lattakia. The price of one kilogram of sugar surged to 300 SYP which compelled the Ministry to intervene by setting the maximum price at 260 SYP and at 250 SYP for sugar sold in bulk.

When it comes to the oil sector, it has been hardly hit by the war. The Syrian light and heavy crude oil is unavailable and the imported oil is not sufficient for the Homs and Banias refineries to operate and meet local demand. According to the Ministry of Oil and Mineral Wealth, the total direct and indirect losses of the oil sector amounted to $52B since the start of the conflict and up to the year 2015.

 Syria: An Economy Aching to Cope with an Ongoing War

 Syria: An Economy Aching to Cope with an Ongoing War

Syria is forced to resort to foreign companies to supply its two oil refineries. Newly released information reveals that Syria signed two contracts back in 2015 one with a Lebanese company “Jico Offshore” and the other with a Russian company “Transnational”. The contracts’ duration is one year and it states that the two refineries will use up 135,000 metric tons per month provided by the cited companies.

With key trade industries being hit by the war and by sanctions, Syria relies heavily on the support of its Russian ally. According to an agreement between the Russian and Syrian customs, all Syrian exporting companies benefit from a 25% customs reduction. Customs revenues at the Port of Tartous amounted to 33.6 billion SYP in 2015 up from 26.8 billion SYP in 2014.

In the first quarter of 2016, 600 import licenses with a value of 179 billion SYP were granted and mainly revolved around the following products: tea, rice, medicine, fertilizers, pesticides, vegetable oils, tuna cans, yellow corn, wood, paper, surgical needles, sesame, electric generators, engines and used spare parts, granite, wheat and plastic pipes. The top import sources were Iran, China, Russia, South Korea, Spain, Sri Lanka, Argentina, Thailand, Malaysia, Italy, Ukraine, Nigeria and India. In 2015, 2,466 import licenses were granted with a value of 103 billion SYP. 

To control the import activity and in order to protect local production, the Ministry of Economy and Trade issued a decision according to which no imported item can enter the country unless accompanied by a copy of its import license. However, the granting of import licenses is quite opaque and receiving one is still burdensome for importers. It takes one month to receive a license, three other months after that for the license to take effect. For industrial importers, the import license takes effect six months after it is granted.

Given the length of the process, importers seem to be forgoing some rules issued by the Ministry of Economy and Foreign Trade and the Syrian Central Bank. The Ministry of Economy and Foreign Trade issued decision #703 that splits up imported goods into two distinct lists: List A includes basic necessity goods and List B involves complementary goods. Importers of items from List A must deposit in SYP 50% of the value of imports at the Central Bank on the condition that the imports’ license’s value is 100,000 euros and above while importers of items from List B must deposit 100% of the imports’ value at the Central Bank. Since the deposits must be made before the granting of the license, importers are trying to work around the rule to get their license faster.

The deposit rules were designed to ease pressure on the Syrian pound. The Syrian’s pound value reached 218.9 Syrian pounds to the dollar, faring slightly better than 219.65 Syrian pounds to the dollar in December 2015 but deteriorating from 211.4 Syrian pounds to the dollar in March 2015.

The government’s fiscal revenues are surely eroded as a result of the war. No budget data was released for 2016 but figures were released for the investment budget of the Damascus governorate. Estimates of investment projects indicate a 775 million SYP allocation for schools, 3.13 billion SYP for roads, 100 million SYP for health, 750 million SYP for sewage, 282 million SYP for solid waste, 272 million SYP for a clean and protected environment, 2.4 billion SYP for emergency projects and 415 million SYP for administration expenses.

The deterioration of the Syrian Pound made it more crucial to boost demand for the currency but it also increased the costs for resident banks. Public banks sent a request to the central bank asking for permission to raise interest rates on deposits in Syrian pound. The banks also assured that any upward adjustment in interest rates will be in line with the rule issued by the Council of Money and Credit last year which stipulates that banks can move interest rates between 10% – 20% for long term deposits. The Industrial Bank already increased interest rates by 2% on all of its loan products. The rates on the current account will be 13%, 12.5% for short-term loans, 13.5% for medium-term loans and 14% for long term loans.

The Public Credit Bank (PCB), which only resumed its lending activity in December 2015, made some adjustments in order to cope with rising costs. The PCB adjusted the commissions charged from customers and exchange companies making transfers in SYP. The commission for inter-branch transfers is 0.75 per 1,000 with a minimum amount of 300 SYP while the commission for transfers between resident banks is 0.51 per 1,000 also with a minimum of 300 SYP. The PCB announced that it granted 12,035 loans in Q1 2016 with a value exceeding 3 billion SYP and that it opened two new branches in Quneitra and Hama. The Central Bank is now studying the raising of the loan ceiling from 300,000 SYP to 500,000 SYP for civilians and 600,000 SYP for the military.

The Real Estate Bank of Syria also resumed its lending activity after it has been halted for three years. In February, the bank launched its durable goods loan targeting the tranche of the population with limited income and that would like to acquire electronic and home appliances but cannot afford to pay for them in cash.

By limited income individuals, the Real Estate Bank (REB) is referring to government officials whose salaries are domiciled at the REB. The loan also only covers goods produced locally, can only be granted with the presence of a guarantor, cannot exceed 300,000 SYP, carries a maximum duration of three years and an interest rate of 13%. The loan’s monthly payments are capped at 40% of each of the guarantor’s and the debtor’s monthly salaries.

The weighted index of the Damascus Securities Exchange (DWX) closed at 1,440.13 points, up by 17.29% from points the previous quarter.  On average, 96,000 shares were traded with a value of 12 million SYP per session. The top gainers throughout the quarter were the Saudi International Islamic Bank, Cham Bank, Qatar National Bank Syria, Al Baraka Bank Syria and Al Aqeelah Takaful Insurance. The top losers were International for Trade and Finance, Syria Gulf Bank, Arope Syria and Bank Audi Syria. 


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