Syria to Ration Imports to Rein in Soaring Foreign Exchange Rates
By: Ziad Ghosn
Published Tuesday, February 24, 2015
After three years of intervention by the central bank to sell foreign currency on the domestic market, the Syrian government has decided to back up its intervention with economic measures, rationing non-urgent imports to rein in the increasing drop in the exchange rate of the Syrian pound.
Damascus — Barely hours after the Syrian government declared that it would be implementing new measures to control the exchange rate of the Syrian pound, the exchange rate of the US dollar soared on the black market, nearly hitting 254 Syrian pounds. This was seen as a preemptive move by speculators, intending, according to observers, to head off any positive results from the new measures and to impose a new level for the exchange rate on the central bank, as has happened before.
Despite the decline in the dollar’s exchange rate, at the beginning of the week, to 240 pounds, the situation remains risky given the volatility of the exchange rate over the past two years.
The government identifies three fundamental reasons for the recent rise in the dollar exchange rate against the pound:
1- Pressure from importers of petroleum products on the currency market over a very short period of time. In this context, the government says the value of the oil purchased by the private sector was about $15 million.
2- Speculation on the pound exchange rate for profit or for political reasons related to the regional attitudes on the Syrian crisis.
3- Rumors spread by some websites and social media pages about the exchange rate.
The government’s new measures, however, will not go beyond three conventional steps that have been implemented in the past: rationing imports to reduce pressure on the foreign currency black market; continuing central bank intervention to sell foreign currency; and prosecuting websites and social media pages involved in rumor-mongering. Some of these measures were already implemented in the past few days.
But how much can import rationing really help reduce the dollar exchange rate in the local market?
Dr. Ali Kanaan, banking expert and professor at Damascus University, believes it unlikely that rationing imports would have a big effect in reducing the dollar exchange rate. He said, “The majority of Syrian imports are foodstuffs and perishable goods, while imports of luxury goods, which can be dispensed with, are small and limited,” adding that the crisis was enough to automatically “ration imports.”
Data from the General Customs Directorate indicates that Syria imported goods worth $6 billion calculated on the basis of the current official exchange rate for the pound (1,300 billion Syrian pounds), which is equivalent to $16.4 million per day. Foodstuffs were the bulk of the imports, particularly fresh vegetables, tea, and sugar.
The Ministry of Economy and Foreign Trade seems optimistic that the measure related to imports would achieve positive results. The ministry says that import licenses decreased in number by 30 percent since the dollar rate rose, but did not specify which types of goods were affected by the measures, and only said the goods in question “can be done without in principle.”
Member of the Federation of Syrian Exporters Iyad Mohammed supports rationing luxury goods. However, he wants this to be linked to measures by the central bank that would help stabilize the exchange rate in earnest, which in his opinion will increase the state’s share of export foreign currency revenues and meet part of the country’s needs.
In this regard, Mohammed talks about an equation similar to the policy implemented in the 1980s and 1990s of linking imports to exports. The new equation is based on refraining from interfering in imports of basic goods and raw materials, while the import of non-essential or luxury goods would become linked to foreign currency brought in through exports.
In the end, everyone agrees the solution is fiscal, supported by some economic measures. Economist Dr. Hayan Salman sums up the issue by arguing for the need to set and fix the exchange rate used in imports by the central bank. Professor Ali Kanaan, meanwhile, argues the solution requires two steps, first for public and private banks to finance imports, and second, to invest incoming financial flows, worth $7 to $8 million, in financing imports, instead of selling the currency to the public via exchangers and companies, before they make their way to the black market.
This article is an edited translation from the Arabic Edition.
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