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Cracks Widen in Syrian Economy

BEIRUT, Jan 24 2012 (IPS) - As the Syrian uprising enters its tenth month, the country’s economy is suffering. Since last March, the Syrian government has been cracking down on pro-democracy protests, and the once peaceful uprising has morphed into a full-blown armed rebellion in areas such as Homs, Hama and Jabal al-Zawiya.

“The situation is extremely difficult to assess,” Damascus-based economist Jihad Yazigi, author of the Syria Report, tells IPS on phone. The report published by the Middle East Information and Communication Agency (MEICA) headquartered in Paris is one of the leading sources of information on the Syrian economy.

However, international rating agency Moody’s decision to downgrade neighbouring Lebanon’s banking sector outlook from stable to negative earlier this month was partly motivated by the deteriorating situation in Syria and other regional hotspots. It cited Lebanese banks’ asset and loan exposures to Syria and other countries witnessing unrest.

Syria’s economy is already showing signs of severe strain. While the IMF predicted a 2 percent contraction, Business Monitor International estimated it at 9.6 percent, a figure that Yazigi says might be even higher, around 15 percent.

The number of tourists visiting Syria declined by 64 percent since last March, according to figures published by the Ministry of Tourism. Additional pressures were added by renewed sanctions, particularly on the oil sector. “The EU was the main purchaser of Syrian oil, and the country is now trying to find new clients,” Nassib Ghobril, head economist at Lebanon’s Byblos Bank, which also operates in Syria, tells IPS.

Syria’s oil production was 385,000 barrels per day in 2010, 99 percent of which was sent to Europe. Oil Minister Sufian Allaw said last week that Syria had suffered a loss of more than 2 billion dollars since last September as a result of its inability to export crude oil and petroleum products.

There are now three-hour daily power cuts in capital Damascus, which has remained relatively unscathed by the wave of protests. In certain areas outside Damascus, cuts exceed eight hours, according to local residents.

The crisis is taking a toll on the financial sector. The Syrian Pound has lost nearly 50 percent of its value against the dollar as a result of capital flight, falling from 47 to 71 Egyptian pounds to the dollar. This has translated into a 20 percent inflation rate, estimates Yazigi, although it is officially listed at 3.38 percent as of September 2011, according to the Syrian Central Bureau of statistics .

Officials have tried to stem a run on banks by adding transaction fees to dollar withdrawals, raising interest rates on deposits and restricting purchase of foreign currencies. In November, as a result of the sanctions, Banque Saudi Fransi, a Saudi lender part-owned by Credit Agricole SA, announced it was selling its 27 percent stake in Bemo Saudi Fransi, Syria, citing financial risks.

The total assets of Syrian banks currently amount to 44 billion dollars and are divided among the 14 private and six state-owned banks, according to Ghobril.

“At the retail banking level, some indebted clients who were initially delaying payments are now starting to default,” says a professional in the banking sector who has worked with Syrian banks, and asked that his name not be printed for professional reasons. “Banks have a limited margin of freedom. It’s very difficult to claim back laptops and cars.”

Pressures are also increasing at the corporate lending level, adds the source, as more companies have requested extensions on their loans, in the form of overdrafts, discounted bills and letters of credit.

A recent post in Syria Comment, a blog by political scientist Joshua Landis, also raised the possibility that state banks could eventually default on payments to the private banking system.

“The million dollar question is how long the government can meet its budgetary requirements, estimated around 21 billion dollars a year,” says the banker. Before the crisis, the Central Bank’s foreign reserves were 18 billion dollars, according to official data. Some experts estimate reserves to be around 11 billion dollars today.

As fiscal pressures increase, it is left with no option but to print bills, a measure that will lead to further inflation, says the editor of the Syria Report.

The Central Bank has not published figures since last May, which renders projections on the economic future of Syria uncertain. Much will depend on how much monetary support the Assad regime is receiving from its allies, namely Iraq and Iran.