The Syrian administration has taken bold steps in an attempt to revitalise its beleaguered economy by simultaneously doubling the salaries in the public sector and curbing fuel subsidies. These declarations were promptly communicated after the Syrian pound plummeted to a historic low against the US dollar in the unofficial exchange arena.
This drop in the currency’s value has exacerbated hyperinflation, plunging a staggering 90% of Syrians below the poverty threshold. Recent economic pressures have led to infrequent demonstrations, even in areas traditionally supportive of the government.
Since the onset of civil unrest in 2011, following President Bashar al-Assad’s aggressive response to nonviolent calls for democratic reforms, Syria has been grievously impacted. The resultant civil conflict has claimed the lives of over half a million citizens.
Current figures suggest that a significant 70% of Syrians, equating to over 15 million people, are in dire need of humanitarian aid, with 12.1 million facing food scarcity.
Wednesday saw the introduction of presidential mandates, proclaiming a sweeping 100% salary and pension increment for public sector workers, armed forces members, and government affiliates. This marks the initial salary augmentation since December 2021.
These directives also formalised the standard minimum monthly wage, setting it at 185,940 Syrian pounds. This translates to £17.09 when converted at the official exchange rate, but is much lower when pegged to the prevailing unofficial rate. To contextualise, at the war’s commencement, the Syrian pound’s exchange rate to the dollar stood at 47:1.
Based on data from May, this adjusted wage would hardly suffice to purchase even one-third of the essential monthly groceries for a typical family of five, as per the World Food Programme’s estimates. Moreover, it would barely cover a mere tenth of a similar family’s most basic household expenses.
As inflation soars, vulnerable families grapple with escalating bills. The minimum household spend, according to the WFP, has surged by 62% since May 2022 and an astonishing 159% since September 2021.
In an accompanying overnight announcement, Syria’s commerce department publicised a complete withdrawal of petrol subsidies and a semi-withdrawal of fuel oil subsidies, effectively hiking the cost of both commodities.
The Prime Minister, Hussein Arnous, expressed last year that reductions in fuel subsidies would serve to alleviate the budget deficit and aid in stabilising the Syrian pound, benefiting impoverished families. Yet, financial experts highlight that the government’s inability to uphold these subsidies and indicate that the raise in public sector wages may inadvertently spur further inflation and currency depreciation. This could potentially nullify any economic advantages in the coming months.
Government officials attribute the grave economic plight and the struggles of everyday Syrians to the stringent US sanctions instated in 2019, which zero in on entities extending support to Assad’s regime. The US maintains that these measures exempt humanitarian assistance.
At the recent Saudi-China Business Forum in Beijing, entities from Saudi Arabia and China endorsed multiple housing and infrastructure contracts, highlighting the strengthening bond between the two nations.
The forum, chaired by Saudi Arabia’s Minister for Municipal, Rural Affairs and Housing, Majid bin Abdullah Al-Hogail, primarily concentrated on investment possibilities between the two nations in areas such as urban infrastructure, housing, real estate development, and financing. During the event, Al-Hogail extended an invitation to Chinese companies to engage in Saudi Arabia’s burgeoning real estate market.
According to the Saudi Press Agency, a total of 12 agreements related to infrastructure development and financing were signed during this event, with the total value exceeding £1 billion ($1.33 billion). Although the specifics of the entities involved have not been disclosed, it has been confirmed by the Saudi Ministry for Municipal, Rural Affairs and Housing that Al-Hogail interacted with representatives from the Chinese state-backed investment powerhouse, CITIC. Their discussion centred on construction opportunities in Saudi Arabia and the potential adoption of “green housing technology,” as detailed in a press statement released on Tuesday.
The bigger picture: Ties between Saudi Arabia and China are evidently deepening. Earlier in March, China played a pivotal role in brokering the pact that saw the restoration of diplomatic relations between Saudi Arabia and Iran.
Moreover, economically, Saudi Arabia hosted the Arab-China Business Conference in June, which generated deals surpassing £7 billion ($10 billion). Just last month, Saudi Aramco procured a stake worth £2.5 billion ($3.4 billion) in the Chinese petrochemical entity, Rongsheng Petrochemical Co. Ltd.
In 2022, it’s noteworthy to mention that Saudi Arabia was China’s primary supplier of oil.
The Iraqi dinar has plummeted against the US dollar this week after the United States imposed sanctions on 14 Iraqi private banks, barring them from conducting transactions in dollars.
The sanctions come amidst Iraq’s ongoing struggle to stabilise its currency as it relies heavily on imports priced in dollars. The dinar dipped from 1,470 to 1,580 against the greenback in the past two days, sparking chaos in markets and angry protests outside Iraq’s central bank headquarters in Baghdad.
Representatives of the sanctioned banks denied wrongdoing and appealed to the Iraqi government to intervene on their behalf. “We call on the brothers at the Iraqi government to use all available means to undo the damage which occurred to us specifically, and to the Iraqi banking sector in general,” banker Haider Al Shamma said in a statement on behalf of the 14 banks.
He warned the sanctions could deter foreign investment and have far-reaching impacts beyond the banks themselves. “Forcing sanctions on a third of the Iraqi private banks from conducting dollar transactions will have negative consequences not only on the value of the Iraqi dinar against the US dollar, but it will have a very big impact on foreign investments,” he said.
The US Treasury’s Office of Foreign Assets Control (OFAC) determined the banks were complicit in facilitating suspect dollar transfers to Iran last year, hence the punitive measures. But Mr Al Shamma insisted the banks were apolitical entities focused on finance, saying, “Our banks have nothing to do with political tensions but are independent financial institutions.”
Iraq’s central bank said affected banks could still conduct transactions using Iraqi dinars or other non-dollar currencies. But dollars remain crucial for Iraq’s largely import-driven economy.
The volatility is the latest chapter in Iraq’s ongoing currency crisis that has led to price hikes on consumer goods and sparked street protests demanding solutions.
Iraq has struggled to stabilise the dinar since late 2021 when the US Federal Reserve tightened procedures for international dollar transfers, rejecting or delaying many requests from Iraq. The Fed remains concerned dollars are being funnelled through Iraq’s currency auction to Iran, Syria and Lebanon – countries facing US sanctions.
The US has blacklisted Iraqi banks it accused of money laundering or suspicious transactions. But the Iraqi government blames Washington for the currency chaos and the resulting economic impacts.
Despite a series of measures aimed at containing public anger, the central bank has failed to control the exchange rate declines.
The latest sanctions on the 14 private banks represent another hurdle, likely feeding further dinar instability. With more volatility ahead, ordinary Iraqis continue bearing the brunt of external political tensions beyond their control.
Image Credit: Levi Meir Clancy / Unsplash
The Syrian pound has sunk to an unprecedented low, hovering close to 10,000 against the dollar, fuelling concerns over skyrocketing inflation in the conflict-ridden nation.
The exchange rate plunged to 9,750 liras to the dollar before a slight recovery on Friday morning, as reported by the currency-tracking website “Syria Pound Today”. This drastic devaluation of the pound, triggered by prolonged conflict, Western sanctions and a financial meltdown in Lebanon, presents a significant escalation in Syria’s economic crisis.
Since late 2022, the lira has undergone significant depreciation, leading the Central Bank of Syria to adjust the official exchange rate in February in an attempt to narrow the disparity with the black market rates.
Prior to the outbreak of the civil war in 2011, the lira was trading at approximately 46 against the dollar. In a bid to manage the economic crisis, the central bank devalued the lira against major currencies on Thursday by about 200 liras per dollar and 205.31 liras against the euro.
The bank said the move aimed to facilitate cash exchanges and the purchase of foreign transfers, whether sourced from Syrian expatriates or international transfer networks.
Ali Al Shami, a financial analyst in Damascus, linked the spike in the dollar and euro to a slump in remittance values during the Muslim holiday of Eid Al Adha. He told Al Araby Al Jadeed that money flowing into Syria from expatriate remittances had halved compared to three months prior, during Eid Al Fitr.
The depreciating lira and rising dollar prices have resulted in a sharp decline in average wages in government-held regions, falling to approximately $10 per month. Meanwhile, commodity prices have soared, including significant increases in oil derivatives.
In response to the rising costs, Syria’s Ministry of Internal Trade and Consumer Protection has increased the price of octane 95 petrol by 1,000 Syrian pounds, making it 8,600 liras per litre, marking the third price hike in only four months.
As local media speculates about potential salary increases in the public sector, mass resignations have swept across public sector roles due to the government’s inability to raise wages. Poverty and food insecurity continue to afflict Syria at devastating levels, with the World Health Organisation estimating that 60% of the population – over 12 million people – are experiencing food insecurity.
Regions under the Syrian regime are facing a grave economic crisis, characterised by oil derivative shortages, a staggering 90% poverty rate, stalled production and industry, and limited electricity availability.
The latest shock to the Syrian economy follows the introduction of new 5,000-lira banknotes into circulation on 20 June by the central bank.
Image Credit: Hosein Charbaghi / Unsplash
In a shocking move, the Iraqi government announced a prohibition on conducting personal and business transactions in US dollars last Sunday, causing a stir amongst those seeking to make substantial purchases. This development symbolises a potential shift in the Middle East’s currency preference, which has, for decades, favoured the US dollar.
Big-ticket purchases such as homes and cars have traditionally been made using dollars in Iraq, owing to the continual depreciation of the dinar. However, stringent regulations from US authorities on the influx of dollars, ostensibly driven by concerns over illicit funds reaching sanctioned Iran, have led to significant volatility in the value of the Iraqi dinar. This dollar drought was the catalyst for Iraq’s recent embargo on dollar transactions.
Iraq isn’t alone in its reconsideration of the dollar’s dominance. Saudi Arabia has expressed openness to trading oil in currencies other than the dollar, including the euro and the yuan, while the United Arab Emirates is considering transactions with India using the Indian rupee.
On a broader scale, several Middle Eastern countries, including Egypt, Saudi Arabia, UAE, Algeria, and Bahrain, have expressed interest in joining the BRICS alliance — Brazil, Russia, India, China, and South Africa — which plans to discuss the introduction of a new currency for cross-border trade at an upcoming meeting in June.
While these developments have triggered alarmist headlines around the world, many experts believe that the transition away from the US dollar is a slower process than the media portrays, particularly in the Middle East. Although statements hinting at a potential shift have been made by several Middle East nations, experts, including Hasan Alhasan of the International Institute for Strategic Studies, emphasise that a de-pegging of Middle Eastern currencies from the US dollar would be the real indication of a significant shift.
Daniel McDowell, a political science professor at Syracuse University, suggests that while the dollar’s supremacy may eventually wane, much of the current rhetoric is symbolic and the imminent change is likely to be marginal and slow. He further noted that the threats to use other currencies by Middle Eastern countries are likely influenced by the conflict in Ukraine and the use of financial sanctions.
Echoing this sentiment, Maria Demertzis, a senior fellow at Bruegel, an economic think tank, stated that the shift away from the US dollar might continue as long as sanctions persist. However, she underscored the complexity of replacing the settlement infrastructure underpinned by the dollar-driven system, hinting at an intricate and drawn-out process.
With the US and Europe’s recent actions of freezing Russian central bank reserve assets, central banks have been transformed into weapons, potentially causing harm to the international financial system. In response, countries in the Middle East are reportedly preparing for a more multipolar global world, with a keen interest in manoeuvring within and outside dollarised zones.
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