Syria’s new central bank head faces 'monumental task' with economy in turmoil

Reining in inflation and stabilising currency will be immediate priorities for Maysaa Sabrine, analysts say

A man sells spices in the Medhat Pasha market in the old part of the capital Damascus. Syrian economy is in turmoil following several years of conflict. AFP

Syria’s new central bank head faces critical challenges as the country’s economy remains in turmoil following years of conflict and mismanagement.

Stabilising the currency and reining in inflation will be top priorities for Maysaa Sabrine who, on Tuesday, was appointed the first woman to head Syria’s top financial institution by the new regime, which took control of the country after ousting former president Bashar Al Assad, analysts have said.

Ms Sabrine, a long-serving official at the Central Bank of Syria, was previously its deputy governor, and replaces Mohammed Issam Hazime, who was appointed the central bank governor in 2021 by Mr Al Assad.

“The task ahead for the Syrian central bank governor is monumental,” Rania Gule, senior market analyst at XS.com, told The National.

“Stabilising the Syrian pound and curbing inflation are necessary first steps, but these alone cannot rebuild an economy fragmented by years of conflict and isolation. A comprehensive approach that combines short-term stabilisation measures with long-term structural reforms is essential," she said.

The Syrian economy has been devastated by the civil war, with the UN estimating cumulative losses at more than $440 billion in the first eight years of the conflict, which include physical damage and economic losses.

The country's economy is projected to contract by 1.5 per cent for 2024, extending the 1.2 per cent decline in 2023, a World Bank report said in May. According to official statistics, Syria’s GDP shrank by 54 per cent between 2010 and 2021. The impact of the conflict could be much larger, the World Bank said.

The Syrian pound had been depreciating steadily amid the conflict and economic woes, driving up the cost of living and making basic goods unaffordable for many Syrians.

The official exchange rate of the Syrian pound declined 270-fold against the US dollar between 2011 and 2023, reaching 12,562 pounds to a dollar, according to the World Bank.

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.

It, however, strengthened in recent days amid regime change and due to the influx of expatriates carrying foreign currency into the country.

As of December 31, the exchange rate for the Syrian pound against the US dollar was 13,200.

Syria is also facing several other challenges. These include crippling economic sanctions imposed by the US and other western powers after Mr Al Assad cracked down against protests against him in 2011 as well as a weak banking system, lower foreign exchange reserves and continued geopolitical tensions that is dampening business activity in the Levant nation.

Syria's foreign currency reserves had dwindled from about $18 billion before the civil war in 2011 to about $200 million, Reuters reported last month, citing sources.

"The banking system is fragile, with low levels of liquidity and high non-performing loans," Firas Shaboo, an economist and researcher based in Istanbul, said, adding that "revitalising the sector to restore lending capabilities and public trust" will be a priority for the new governor.

Integrating informal sectors into a formal economy to boost tax revenue as well as rebuilding confidence in the central bank and the financial institutions after years of mismanagement and corruption should also be the top priorities for the new central bank chief, Mr Shaboo said.

Comprehensive fiscal and monetary co-ordination to reduce high levels of public debt and consistent budget deficits should also be prioritised by the bank to support growth, he added.

Another area of focus should be to remove Syria from the list of "jurisdictions under increased monitoring” or the “grey list” of the Financial Action Task Force against money-laundering and terrorism financing to attract more investment into the country.

In June 2014, the FATF indicated that Syria “had substantially addressed its AML/CFT action plan at a technical level, including by criminalising terrorist financing and establishing procedures for freezing terrorist assets.

The FATF, however, has been unable to conduct an on-site visit to confirm whether the process of implementing the required AML/CFT reforms and actions has begun and is being sustained, said Nassib Ghobril, chief economist and head of the economic research and analysis department at Byblos Bank Group.

"The Central Bank will have to play a leading role in implementing the measures to remove Syria from the grey list," Mr Ghobril said, while stressing on the need to reconstitute the bank and create an independent financial institution to boost its competence.

"It is unclear if the existing laws stipulate explicitly the independence of the CBS, but given the need to draft new laws or upgrade existing ones, the independence of the CBS needs to be enshrined into law and respected and applied in practice," he added.

The establishment of rule of law and drafting a new constitution will also help institutions like the Central Bank to function effectively and direct economic policies, according to Mahdi Ghodsi, an economist at the Vienna Institute for International Economic Studies.

Waiting three more years for such a constitution will neither help the government nor institutions like the Central Bank to function effectively, he said.

Earlier this week, Syria's de facto leader Ahmad Al Shara told Al Arabiya that Syria would not hold elections for another four years, and that it may not ratify a constitution for three years.

"Governance reforms that focus on inclusivity, human rights and a commitment to democracy could encourage foreign powers to lift the crippling sanctions on Syria," Mr Ghodsi told The National.

"Pragmatic reforms in this direction could also lead to entities like HTS [Hayat Tahrir Al Sham, the group Mr Al Shara leads] being removed from sanction/terrorist lists. Only then would Syrian institutions and the government have a real chance to direct policies that could help the economy recover and embark on a path of inclusive and sustainable development," he said.