Further Syrian currency devaluation 'can be avoided' with stable transitional government

Syrian pound has plummeted in value since fall of the Assad regime

The Syrian pound is likely to face volatility in the short term, say analysts. AP

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While the Syrian pound crashed after the fall of president Bashar Al Assad’s regime, further declines can be arrested if the country gets a stable transitional government, analysts have said.

The fall of Damascus ended the five-decade rule of the Assad family when rebels took control of the capital on Sunday. The rebels, led by Hayat Tahrir Al Sham, have placed the civil administration under the supervision of Mohammad Al Jalali, the last prime minister who served under Mr Al Assad.

The Syrian pound, which plummeted on Sunday, had recovered slightly on Monday. The selling price of the dollar in Aleppo reached 18,000 Syrian pounds on Monday, while the buying price was 17,000, according to the SP Today website. The selling price of the dollar in Damascus reached 17,000 Syrian pounds, with 16,000 as the buying price.

The fall of the dictatorial regime led to the Syrian pound “trading at unprecedented lows, reflecting political instability, loss of investor confidence and economic paralysis”, said Naeem Aslam, chief investment officer at Zaye Capital Markets.

“The currency’s collapse is exacerbating hyperinflation, widespread poverty and humanitarian crises while deterring foreign investment and reconstruction,” he told The National.

“To prevent further devaluation, Syria needs a stable transitional government, international financial assistance, prudent monetary policies like unified exchange rates, and diversification of its economy to reduce reliance on imports."

A political reshuffle of this amplitude will increase currency volatility in the short run, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The medium, long-term outlook [for the pound] depends on the country’s ability to form a strong government and to support reconstruction,” she told The National. "In the foreseeable future, restoration of oil exports could help improve the financial situation."

Scott Livermore, Oxford Economics’ chief economist for the Middle East and North Africa, stressed that it was hard to predict what lies ahead for the Syrian pound "as there is so much uncertainty".

“It seems unlikely the outlook for the currency shifts meaningfully in the near term," he said. "The political transition will likely be fraught with risks, given rival factions and sources of financing are uncertain. We really need to see how the post-Assad Syria is shaping up.”

The Syrian pound has been depreciating steadily since 2011 due to the civil war, sanctions and various political developments. The official exchange rate of the Syrian pound declined 270-fold against the US dollar between 2011 and 2023, reaching 12,562 to a dollar, the World Bank said.

Since 2020, the Syrian pound has lost more than 90 per cent of its value against the US dollar in the parallel market. In 2023 alone, the average market price of the Syrian pound recorded a 141 per cent depreciation against the US dollar. Throughout last year, the Central Bank of Syria devalued the official exchange rate several times, although it remained consistently below the prevailing market rate.

A worsening economic situation and the imposition of new US sanctions in mid-2020 that encouraged capital flight and reduced remittances have further fuelled the depreciation.

According to Vijay Valecha, chief investment officer at Century Financial, while the pound has seen “substantial depreciation” since the start of the civil war in Syria, it could regain some ground with the end of the Assad regime.

Recovery is likely, “especially as more Syrian expats are planning to return and [they] could step in to rebuild the broken economy ... therefore, the Syrian pound could appreciate once the new government takes place”, he said.

The Central Bank of Syria will have an immense task to stabilise the currency “by implementing regulatory reforms” to control liquidity within the market and prevent a spread between the black market and banks.

“Additionally, the government will need to work on diversifying the country’s income by attracting more foreign investment,” Mr Valecha said.

Before the war started, Syria’s economy relied on tourism, transit trade returns, agricultural products and earnings of Syrian expats.

“Once the new government settles, the Syrian real estate and construction sector could blossom as neighbouring countries are ready to step in and help the new government rebuild the broken infrastructure,” Mr Valecha said. “In the longer term, the Syrian government will have to work on bringing back tourists to the country, which will provide a hard currency stream income to Syria.”