MESOPOTAMIA NEWS BACKGROUNDER : How do raising salaries and wages prolong Syria’s economic crisis?
Enab Baladi – Zeinab Masri 12 Oct 2020 – For nearly a decade, the Syrian people have been suffering from severe economic hardship, and those living in the areas controlled by the Syrian regime are waiting for decisions from the new government—which was appointed at the end of last August—that would help them overcome their distress and improve living conditions.
Civil servants, in particular, after many demands, are waiting for the Syrian government’s fulfillment of its promises to raise their monthly salaries and wages. Despite the salaries’ high numbers, they are insufficient.
The high rates of inflation in Syria have prompted citizens to demand an increase in their salaries because there is a sharp decline in the real value of Syrian people’s cash income, living standards, and purchasing power.
Syrian Prime Minister Hussein Arnous said, during a session of the People’s Assembly on 24 September, that the government priorities included seven points affecting the citizen’s daily life.
Priorities on paper
The new Syrian government’s priorities include, according to Arnous, “strengthening the elements of national steadfastness, improving living conditions, securing basic commodities, stabilizing prices, providing oil products, gas, and electricity, addressing the drinking water problem, providing medicine and addressing the COVID-19 pandemic.”
According to various social groups and categories, the prime minister promised the continuity of work to increase salaries and wages, depending on the availability of resources. Furthermore, he added that the government will reconsider the income tax on wages and salaries, and reform the tax system, affirming that the salary increase will be “word and deed.”
The United Nations (UN) warned that there would be an unprecedented hunger crisis in Syria. Adding to that, the United Nations World Food Program (WFP) documented that food prices have increased 20-fold since 2011. Nearly nine million Syrians are now food insecure. Yet, citizens in areas controlled by the Syrian regime noticed an increase in basic items’ prices, which coincided with the new government announcing its promises about raising salaries.
Invitation to inflation
Usually, the increase in salaries and wages pushes citizens up a rung on the ladder of living and enhances individuals’ well-fare in the country. However, the salaries’ increase in Syria is a call to inflation and high prices, according to Dr. Osama al-Qadi, the president of the Syrian Economic Task Force (SETF).
In an interview with Enab Baladi, al-Qadi said that the Syrian government always demands to lower prices, not to raise salaries, due to the high prices resulting from the lack of resources, lack of fuel supplies, and their high prices on the black market, and the need to transport and ship goods and workers. In addition, there is a spike in raw material prices because they become more costly.
This general increase in prices will lead to large inflation just like before, according to al-Qadi, because there is now “pent-up” inflation in Syria. This inflation is suppressed by the security tools of the Central Bank of Syria (CBS) with their reflection on the price of the Syrian Pound (SYP).
Al-Qadi added that anyone can realize that the SYP’s stability against the US dollar is abnormal. He believes that the SYP is forcibly stabilized by the security forces through closing currency exchange shops, imprisoning foreign exchange brokers and money transfer agents, and freezing economic activity. The so-called stabilization of the SYP has not led to a decline in prices or improved living standards.
He pointed out that the economic situation in Syria is hurtling towards “a catastrophe and famine.” This can only be resolved with real economic tools under certain conditions and mechanisms to support peaceful political solutions and completely end the Syrian issue. He noted that all other decisions are worthless “makeup.”
Economic researcher Manaf Quman talked about the profound relationship between salary increase and inflation, as it was based on printing banknotes without productivity coverage or hard currency reserves.
Quman told Enab Baladi that the pay increases will raise prices “dramatically” because the amount of Syrian currency circulating in the market does not match or cannot be compared with the production quantity.
According to the researcher, basically, there is a fundamental gap between production and societal needs. He emphasized that the Syrian regime “encroaches” on rising salaries and wages and printing more Syrian banknotes and paper money to cover the widening fiscal deficit and offset the production shortfalls. However, this encroachment will deepen that gap and lead to a continuous decrease in the citizens’ purchasing power, Quman said.
Amidst the absence of price regulations and market control, promises to raise salaries are absolutely useless, according to Quman. The pay rise will not alleviate the citizens’ suffering or solve the country’s economic dilemma.
This is because the Syrian regime pays the price for its failure to correct problems that have always burdened Syria’s economy and citizens. The regime has only this mechanism available in its hands; otherwise, it must submit to international decisions and initiate a political transition process, and this does not exist in its dictionary.
“Unfair decision” to private-sector employees
Raising public sector employees’ salaries affects the fair distribution of income in countries because the high prices and the increase in inflation rates negatively affect citizens who are not state employees but private-sector employees. Dr. Osama al-Qadi said that only one-third of the workforce in Syria, numbering now more than five million employees, works in the public sector, and the other two-thirds work in the private sector, in both its organized and unorganized forms, even before 2011. This means that raising salaries only target one-third of the Syrian workforce, which is approximately one million and 600 thousand workers. This will create inequality and “injustice” for over three and a half million private-sector workers.
New year budget’s allocation
On 27 September, the Syrian regime’s Supreme Council for Economic and Social Planning put forward the initial appropriations for the draft state budget for the fiscal year 2021, which amounted to 8,500 billion SYP in operating budget and investment budget. (1 USD equals 2,300 SYP).
The Minister of Finance, Kinan Yaghi, said that public expenditures in the 2021 budget are distributed over current expenditures (salaries, wages, compensation of employees) of about seven trillion SYP, and 1,500 billion SYP on investment spending. Furthermore, social support allocations reached 3,500 billion SYP, distributed on subsidies of flour and fuel products.
According to the US dollar exchange rate set by the CBS, the Syrian government budget is 6.8 billion US dollars, while the budget is about 3.8 billion US dollars, according to the exchange rate on the black market.
The exchange rate of the US dollar is 2,245 SYP on 30 September, according to the website of Syrian Pound Today (a Syrian Pound tracking website).
Al-Iqtisadi —a local website focused on financial news, quoted economic researcher Rasha Sirob as saying that even though seven trillion Syrian pounds are allocated as current funds, there is no anticipated increase in salaries in the draft budget for the new fiscal year.
The increase in current funds does not indicate that it is likely to increase salaries and wages because it is the inclusion of the increase in salaries at the end of 2019 in the 2021 budget, which was supposed to be included in the 2020 budget, according to what the website quoted from the researcher.
Researcher Manaf Quman said that the Syrian regime has increased salaries several times over the past years, and knows very well that any increase in salaries will be followed by an increase in prices. However, the Syrian regime is unable to deal with the growing crisis. Therefore, he resorts to using this trick to evade its entitlements.
Salaries and wages allocations are among the state’ss mandatory allocations, which cannot be delayed even if there are financial difficulties.
The increase in salaries affects the state’s ability to provide more services. Thus, the decline in government services volume may be partly a result of higher wages and salaries.
The increase also raises the state’s long-term financial obligations, due to the difficulty of reducing salaries when revenues decline. The state may have to withdraw from its financial reserves to deal with future financial obligations.