Syria Brief: Economic Crisis – January 2022
Living conditions reached a new low point for most Syrians in December, as inflation surged relentlessly and new austerity measures were introduced, including the reduction of electricity provision to three hours a day. With public desperation and pressure intensifying, the regime raised public sector wages, minimum wage, and retiree benefits, though increases fall far short of counteracting the soaring cost of living. Anger is also high among the business community, as growing numbers of manufacturers and industrialists choose to shut down operations rather than be subjected to the predatory practices of war profiteers linked to the regime. Between the onerous fees placed on businessmen and the dominance of the Syrian narcotics trade, which has begun to cause friction at international border crossings, the Syrian economy now resembles a mafia state. Furthermore, the scale of last year’s disastrous wheat planting season is also becoming increasingly apparent, with the specter of hunger looking inevitable in the year ahead without swift and massive intervention.
- Exchange rate: The unofficial exchange rate held relatively steady over the past month at around 3,550 SYP to the US dollar, occasionally reaching up to 3,600 for purchasing dollars. However, even this unofficial exchange rate is mostly used for inter-personal transactions or receiving remittances from abroad. For other business transactions seeking to convert large amounts of Syrian pounds to dollars – for example, income from the sale of property, the buying price for dollars being demanded in much higher.
– Shortages: Wheat and grain production shortfalls in Syria are expected to worsen in 2022 as a result of climate change, rising input costs and poor quality seeds for the current planting season. A UN report published in December, estimated that the wheat shortfall in regime-controlled areas, after accounting for local production, humanitarian food assistance and imports, is still 1.6 million tons. With shortages and subsidy cuts, there is growing fear of widespread hunger as many Syrians pushed into poverty will not be able to access or afford this basic staple.
– SDF competition: The Self-Administration in the northeast has moved to systematically restrict the direct sale of locally-grown wheat to the regime’s grain authority. This stems from a need to secure enough wheat for consumption in Self-Administration areas, while access to wheat also serves as a bargaining chip in negotiations with the regime. Furthermore, farmers in Hasakah, the country’s most productive grain-growing region, receive more equitable purchase prices from the Self-Administration than from the regime, and thus prefer to sell locally. If crop yields collapse as expected in regime-controlled regions, tensions over a reduced yield in Hasakah could produce new and unpredictable conflicts in the coming months between the two sides.
Regime Economic Mitigation Measures
- Public sector:
– Wage increases: Last month, the Assad regime issued Decree No. 29, which ordered a 30% net salary increase for public sector employees in the coming year, raising the average public salary to 140,000 SYP, or $40 US dollars per month (16.12). The order also increases the benefits paid to retirees by up to 25% of net salaries, and raises the minimum wage in Syria to 92,970 SYP, or $27 US dollars.
– Gasoline offsets: The decree was long expected by observers, and is being paid for largely on the back of a gasoline price hike announced last month (11.12). The price is set to rise by 700 SYP per liter to 1,100 SYP, securing close to $40 million US dollars monthly and generating the revenue to cover the increase in salaries.
– Falling purchasing power: The public sector wage increase comes as runaway inflation is rendering more basic staples inaccessible to ordinary Syrians. The average price of commodities across the board has leapt by 40% in just the past six months. While higher wages will provide a degree of immediate relief, the medium term effect will likely further depreciate the value of the Syrian pound against the US dollar and drive inflation further.
– Reduced service: The regime has increased the rationing of electricity across its territory, slashing the availability of electricity to just three hours per day. By doing so, the regime is seeking to preserve its already limited fuel supply, while also discouraging people from running up high bills they are unable to pay through relying on electric heaters during the winter months. At no point since 2011 has the electricity situation been so dire in regime-controlled areas. Additionally, electricity costs per unit leapt by 450% from October to November, with the public utilities company PEEGT adopting an aggressive policy of immediately disconnecting users for late payment.
– Effects on industry: The slashing of electricity subsidies has already contributed to the recent closures of dozens of factories and medium-sized businesses across Syria. While intended as a cost saving measure, this policy is therefore likely in the medium term to eliminate important revenue sources for the regime and the broader Syrian economy, greatly offsetting any short-term monetary benefits for the government.
- Medicine: For the second time in six months, the regime has hiked drug prices by 30% across the board. This follows a similar move last summer, and means drug prices are up 69% since the start of 2021. Due to the devaluing exchange rate, manufacturers are still operating at a loss due to the high cost of imported raw materials, and many pharmacies are illegally selling drugs far above state-mandated prices inside stores.