From bad to worse

executive summary

The rapid depreciation of the Syrian pound since mid-October 2019 has strained the beleaguered economy of Syria and greatly diminished the already tenuous purchasing power of many Syrians. This report analyzes how business owners and workers respond to rapid currency depreciation, and quantifies the relationship between the daily wage rate of unskilled workers and the price of essential items across the zones of control in Syria during a period of rapid and uncontrolled depreciation of the pound from October 2019 to October 2020. Using the same data, predictions have been made on wage rates and food affordability across all Syrian zones of control for Q1 2021.

The gap between market prices and wage rate increases is the underlying issue decreasing individuals’ purchasing power, with multiple factors contributing to a growing disparity between the two. The combination of high price inflation and insufficient wage increases has led to a decrease in affordability of essential items in all the zones of control, except Self-Administration areas. Affordability decreased the most in Syrian government-held areas, and diminishing daily wage rates in Turkish-controlled areas has rendered essential items significantly less affordable. Counter to this, the increase in affordability of essential items in Self-Administration areas are mainly attributed to continuing fuel subsidies and higher wage rates, likely the result of positive spillovers from a public-sector wage increase. According to HAT’s statistical price prediction models outlined in this paper, the affordability of essential items will decrease in Self-Administration, opposition-controlled, and Turkish-controlled areas throughout Q1, while remaining constant in Syrian government–held areas.

In response, Syrians have employed food and income coping strategies, which are similar across zones of control. This has included buying smaller quantities of goods, buying cheaper or lower-quality foods, buying food with money normally used to purchase other items or luxury goods, skipping meals, cutting meat from their diet, borrowing money, and selling non-productive assets. The rank-order prevalence of adopted coping strategies were markedly similar among the zones of control in northern Syria.

It is estimated that essential items will continue to become less affordable across different zones of control as the Syrian pound continues to depreciate; therefore, humanitarian interventions should be considered to address increasing household food insecurity, as well as protection issues arising from certain food and income coping mechanisms.

INTRODUCTION

The Syrian economy has suffered significantly since the onset of conflict in 2011. Gross domestic product in 2020 sits at just one third of its pre-conflict level in 2010, while both internal and external economic shocks have further undermined domestic trade, financial markets and export markets. Internally, the country’s two main sectors, agriculture and oil, have been hugely affected by the protracted conflict and its impact on extraction, production and national and international trade. The agricultural sector is largely unproductive, with damaged irrigation systems, trade routes and a lack of access to primary production inputs, while Syria’s major oil producing regions in the northeast are now under the control of the Self-Administration.

Externally, economic sanctions imposed on the country by the EU and USA have decimated the export market and foreign investment opportunities, while the neighboring financial crisis in Lebanon has strangled financial systems dependent on the Lebanese banking and financial sectors. More recently, the global outbreak of COVID-19 has significantly decreased prospects for economic growth as the secondary impact of preventative measures of lockdown, curfews and movement restrictions have further limited internal economic activity and trade.

One of the major effects of Syria’s failing economy has been the depreciation of the Syrian pound (SYP). From the beginning of the conflict in 2011 to the end of March 2020, the exchange rate fell from 47 SYP per USD to 1,360 SYP per USD, representing a 96.5% decline in value. On 8 June 2020, the pound reached a record low of 3,175 SYP per USD, coinciding with the implementation of the Caesar Act sanctions in Syrian government-held areas. Additionally, in a single week in December 2020, the pound further devalued to 2,778 SYP per USD on the black market, demonstrating again its instability. The most significant period of depreciation occurred, when the pound fell 277% from 632 to 2,380 SYP per USD from October 2019 to October 2020 (as shown in Figure 1), categorized within this report as the ‘rapid depreciation period’.

For communities within Syria, the declining value of the pound has been compounded by increasing levels of inflation of basic food, sanitation and medical items, as well as increased resource scarcity. Internal agricultural production has also been negatively affected, through difficulties in importing basic production inputs, machinery and supplies. This places further concerns of resource scarcity and food insecurity on an economy already struggling with high levels of inflation.

While not the sole cause, this was largely triggered by the financial crisis in neighboring Lebanon, which essentially froze an estimated $30 billion worth of Syrian owned financial assets in Lebanese financial institutions. Additionally, while the currency depreciation began to accelerate in October 2019, preventative measures against the COVID-19 pandemic, implemented in March 2020, then also further crippled local businesses via shutdowns and limitations to working hours. These restrictions began while the pound was rapidly depreciating, which lowered household income while its value declined. According to the World Food Program (WFP), the economic limitations imposed by COVID-19 restrictions led to a 9.5% increase in the price of a basic food basket in March, 16% in April, and 11% in May. Further hardship was endured as a result of restricted access to markets, delayed store restocking, and an inability to access remittances; in addition, traders have reduced the number of people they extended credit to avoid payment defaults. A range of additional factors including poor monetary policy decisions, the global economic effects of COVID-19, the economic effects of international sanctions, as well as a general deterioration of internal production have all assisted in depressing the Syrian pound.

This quantitatively-focused report measures the affordability of food items as the price of a food item relative to the local wage rate, and calculates differences in affordability before and during the current economic crisis across Syria. The predicted affordability of essential items was estimated by applying historical price and wage data to a machine learning model, which statistically identified patterns and used those trends to extrapolate prices and wages over the next four months, into Q1 2021 (with a 90% confidence interval). The quantitative findings are supported by 31 key informant interviews (KIIs) conducted across all zones of control for additional insight into how business owners, teachers, doctors, and general workers have coped with the financial challenges caused by the recent economic crisis.

The results indicate that, on average, the typical unskilled worker in Syria must work an additional two and a half weeks to purchase a basket of essential goods at the same relative cost as they did before the rapid depreciation period; however, affordability dynamics vary by zone of control. In response, many households have adopted food and income coping mechanisms to compensate for their diminished purchasing power.

of control

This report focuses on the four main zones of control, dynamically defined according to the boundaries as they change over time. Specifically, the zones of control are defined according to mid-month boundaries, obtained from liveuamap.com. Monthly data is matched with the mid-month zone of control to ensure the accurate zone of control boundaries over time.

The main zones of control are as follows:

• Syrian government: Areas controlled by the Syrian government in Damascus, headed by Bashar al-Assad, the Syrian president.

• Self-Administration: Areas in the northeast of the country under the governance of the Self-Administration, initially gained with support from the US-backed International Coalition during operation Inherent Resolve in the fight against ISIS.

• Opposition-controlled: Areas in the northwest of the country under armed opposition control, largely Idleb and small areas in neighboring governorates. The primary armed opposition group in power has been Hay’at Tahrir al-Sham (HTS) and its political branch, the Syrian Salvation Government (SSG). Smaller armed opposition groups also exist in the area.

• Turkish-controlled: Areas bordering Turkey in northern Aleppo, Ar-Raqqa, and, Al-Hasakeh governorates under the control of the Turkish-backed Syrian Interim Government (SIG), including territory gained during operations Euphrates Shield (Aug 2016 - Mar 2017) and Peace Spring (Oct - Nov 2019), as well as areas under the control of Turkish-backed forces, namely the Syrian National Army.