Syria first bond issue – A first round win for the Ministry of Finance

Syria first bond issue – A first round win for the Ministry of Finance
By Ehsani
For Syria Comment
December 14, 2010

After three years of speculation, the Syrian ministry of Finance has finally concluded its first bond sale this Monday.  As an initial step, one Billion Syrian pounds ($21 million) in both 3 and 6 month maturities were auctioned. Although the amounts are relatively small, the auction was twice oversubscribed. In other words, buyers were prepared to buy twice what the amount that was on offer. The early talk was that the Ministry was looking to sell the 3 month bills at 1% and the 6 month maturity at 1.15%. The official auction results were out today. From the standpoint of the government, it was a resounding success:

The 3 months bill auction had bids totaling SYP 2.8 billion (one billion was for sale). The lowest bid was at 0.2% while the highest was 2.5%. Four bidders were the lucky ones who were able to lend to the government for 3 months at 0.4%

The 6 months bill auction had bids totaling SYP 2.1 billion (also one billion was for sale). The lowest bid was at 0.5% while the highest was 3%. Again, four bidders were the lucky ones. Clearly, those hoping to lend (buy the bills) at 2.5% and 3% did not have a chance.

Why is this important?

Syria aims to attract as much as $55 billion in foreign direct investment over the next five years. The country also needs to finance projects ranging from power generation to new ports and other infrastructure. The powerful ministry of finance is in charge of appropriating the funding requirements for a number of these projects as well as the general budget. The runaway population growth and the extensive subsidies program (though the trend has slowed of late) will make it hard for the state to meet its future obligations. This is of course made harder by a weak tax collection framework.

Most governments use bond issuance to plug the hole between revenues and expenditures. The temptation to borrow rather than tax or cut spending is irresistible for most governments. The recent sovereign bond crisis in Europe is a prime example.

Syria of course is rather unique in having both very little foreign and domestic debt. The minister of finance is known to be a proponent of this strategy for both political and economic reasons.

The powerful Mr. Mohammed Al Hussein only agreed to sell bonds if the borrowing rate was low enough. That he was able to secure a rate as low as 0.4% is truly remarkable. How did he achieve that?

By offering only $21 million at the beginning, he wanted to make sure that the auction will be fully subscribed. It was oversubscribed. It was picked with the full knowledge that the local commercial banks are flush with liquidity and therefore had few alternatives to invest the deposits on the liabilities side of their balance sheet. The Syrian banks cannot find enough worthy borrowers to lend all their deposits too. As a result, they have been forced to deposit their surplus funds at the Central Bank, which pays zero interest. While their loan assets have been growing, they still fall short of their deposit (liability) growth. It was this dynamic that the ministry of finance spotted as an opportunity. By paying anything above zero, it offered the banks a better option than the Central Bank and zero percent. The Minister, therefore, figured that he could pay as low as 0.4% and still end up successfully selling his bonds to the banks.

The role of the state owned banks:

While we don’t know the identity of the four bidders, it is safe to assume that the state owned banks may well have been the lucky winners. These institutions are flush with deposits also earning zero at the central bank. By bidding in these auctions, the ministry of finance (an arm of the government) was able to effectively borrow from another arm of the government (state owned bank) at very low rates.

Most government bond rates work as a benchmark for other rates in the economy. The 3 month government rate in most countries is usually close to the central bank policy rate. The banks set their prime lending rates generally around 3-4 percent over their cost of funds. That rate in the case of most Syrian banks is about 3.5%. In other words, the banks pay a blended rate of around 3.5% to attract deposits (many are in checking deposits earning zero interest). In order to make a profit while they provision for bad credit and write-offs, the banks end up lending to their customers at around 8-9%. The reason the margins are around 5.5% versus the 3-4% common in other countries is because Syrian banks don’t have enough products that earn fee income. The other reason is because Syrians have never enjoyed a local bond market to invest in profitably. This is why most Syrian banks were eager to see a local government bond market develop. The thinking was that they could invest their ample liquidity in such instruments and add to their bottom line.

In order to have profited from this new bond market, the banks needed to earn a rate in excess of their cost of funds or at least close to it. What they are asked to do instead here is to lend to the Syrian government at 0.4%-0.6% while they pay their own depositors an average rate of 3.5%. Similarly, while a Syrian corporate customer may have to pay as high as 8-9% to get a loan, the Syrian government ends up paying as little as 0.4%-0.6% to borrow for 3 and 6 months.

This situation is likely to prove unsustainable for many reasons:

While the government is able to sell $21 million at 0.4% for 3 months, would the private banks be willing to participate when the amounts become larger? Will these auctions end up being bid by the state owned banks who are either morally persuaded to participate or decide to make a financial decision that the private banks would not make.

Moreover, when it comes to selling 5 years bonds, for example, what are the chances that the private banks will be willing to part with their funds at such paltry rates as sovereign credit risk increases with such maturities?

The Syrian government would only be interested in tapping the bond market in big size (to fund infrastructure etc) if it can incur very little interest costs. While this is understandable (every borrower wants to pay as little as possible), investors generally demand a risk premium and an adequate return on capital. As the bonds get longer in maturity and larger in size, private banks will continue to question the current rate structure. Expanding the buyer base beyond the banks will also be a problem. Individuals will shun this market. They can get 5.5-6.0% on their time deposits at the local banks. Why would they decide to lend to the Syrian government for so much less? This means that a secondary market for these bonds is unlikely to develop; there will be few buyers and sellers.

For the moment, however, the ministry of finance has seemingly scored a win over the banks. It has cleverly identified that 0.5% is greater than zero. The banks can either choose to leave their funds at the central bank and earn zero or they could instead lend them to the Ministry of finance and get 0.5%. For the moment at least, the score is 1-0 in favor of the ministry, but how long can the Ministry of Finance enjoy such low borrowing rates thanks to Syria’s peculiar financial markets

Comments (34)

Milli Schmidt said:

This is indeed an extraordinary development, thank you very much for the post. As you identify, the whole process however is indicative of Syria’s incredibly distorted financial market and the huge excess liquidity in the country (my personal theory on this, btw, is that a good part of this liquidity is linked to the US invasion of Iraq – which would have first led to a massive capital flight out of Iraq and then subsequently to a massive inflow due to foreign companies/US ‘aid’ money – of which again, an amount would have gone to Syria – resulting in enormous inflationary pressure).

As long as Syria can’t attract proper bricks-and-mortar FDI and its own citizens are too risk-averse/face too many hurdles to invest in their own country, such bond issues may raise some capital from time to time but not change much.

Nevertheless, very interesting, at least signals some initiative from the Finance Ministry.

December 14th, 2010, 10:16 am


majedkhaldoon said:

Because these bonds are SAFE,and short term,this program will be successful,and will be repeated

December 14th, 2010, 1:21 pm


Norman said:


Help me with this one , Why do the banks in Syria continue to attract deposits by paying 3.5% while are not able to find good worthy borrowers to lend so they are putting their money in the central bank making 0%,wouldn’t be more reasonable to pay less for deposits ,

The second question i have is , are foreign governments and brokerages allowed to participate and would bonds being held by foreign nationals affect the Syrian political decision ,

December 14th, 2010, 9:35 pm


EHSANI2 said:


The monetary policy committee determines the range that the commercial banks pay. They give a rate and ask that banks stay plus or minus two percent from that. That rate is higher than 3.5%. I believe that it is close to 5%. But many people also leave money in checking accounts that earn no interest (the banks love such customers). This is why I came up with 3.5% which is a combination of paying 5% and zero to a wide range of depositors. They can of course find borrowers but the credit risk that they have to assume could be too excessive for prudent banking practices. The banks are still small and new. I doubt that they are in a position to make many risky loans or investments.

As to your second question, only Syrian banks are allowed to bid so far. No foreign institutions can.

December 14th, 2010, 9:51 pm


Norman said:

Ehsani ,
Thank you

December 14th, 2010, 11:13 pm


Alex said:,31542,2036101,00.html

Five Reasons to Visit Aleppo: Silk Road Splendor
By Gail Simmons Thursday, Dec. 09, 2010

Ride through time Stretching for several kilometers, Aleppo’s ancient suq offers a trip into the city’s past
Bryan Denton / Corbis

In distant times, it flourished as one of the western extremities of the ancient Silk Road before being ransacked by Mongols and devastated by earthquakes. These days, however, the northern Syrian city of Aleppo is acquiring a renewed appreciation of its monumental past, sprucing up its historic Citadel and medina with the help of the Aga Khan Trust for Culture. Other aspects of this ancient city’s allure — like the heady mix of cultures from Kurdish to Armenian and Circassian — have never changed. Here are five Aleppo essentials.

1 The Suq
Aleppo has the longest covered suq in the Middle East, a teeming stretch of alleyways connecting mosques, inns and hammams. To wander through this clamorous labyrinth is to tread back in time, as you weave between donkey-hauled carts, coppersmiths at work and perfumers mixing vials of heady fragrance. You can easily lose yourself for an entire day, but don’t leave without buying a bar of the famous Aleppo soap, handmade from olive and bay-leaf oils. Vendors abound throughout the suq. (See 50 essential travel tips.)

2 The Citadel
Towering over the old town, the Citadel is one of the medieval wonders of the Levant, as the countries of the eastern Mediterranean used to be called. Set on a natural mound and reached by a vast arched bridge, the castle’s streets, mosques, palace and baths form a city within a city: a refuge for Aleppans in times of past danger. Until recently a traffic-choked road ran around the mound; now the Citadel’s moat and ramparts have been cleaned, and the ring road replaced with a boulevard lined with pavement cafés.

3 Basilica of St. Simeon Stylites
Christians believe that the 5th century mystic St. Simeon lived for 39 years atop a stone column on a hill near Aleppo, attracting devotees from around the Christian world. When he died, four Byzantine-style basilicas were built at the site to accommodate pilgrims. These now lie in picturesque ruins, overgrown with local pines, though you can still see the remains of Simeon’s column and enjoy sweeping views over the surrounding country. Take a taxi from Aleppo — the ride lasts for around an hour — and top off your visit with a glass of freshly squeezed pomegranate juice at the nearby café.

4 Whirling Dervishes
Aleppo’s dervishes belong to the mystical Sufi sect of Islam, which originated in Turkey. Dressed in long, flowing skirts and conical hats, and accompanied by chanting and the strains of an oud, or Arabic lute, dervishes use a characteristic whirling dance to enter an altered state and so, they hope, a closer communion with the divine. You can see dervish performances at the restored (but not operational) 14th century psychiatric hospital of Bimaristan Arghan (itself worthy of a visit), or in restaurants like those at the Dar Zamaria hotel, tel: (963-21) 363 6100.

5 The Bar of the Baron Hotel
It was once possible to shoot game from the terrace of the Baron Hotel, tel: (963-21) 211 0880. These days, however, this 1909 grande dame is surrounded by Aleppo’s suburbs. But step inside and it seems as though nothing has changed since the days when Agatha Christie, Charles Lindbergh and Theodore Roosevelt stayed there. Admire Lawrence of Arabia’s unpaid bill and the old Orient Express posters, then sink into a sagging leather armchair and order an old-fashioned cocktail.

December 14th, 2010, 11:56 pm


Majhool said:

this is great news. finally some common sense in how the government functions.

thank you Ehsani for the post

December 15th, 2010, 2:56 am


EIU said:

I liked the ambiguity of the headline, Ehsani. The “victory” was both in the sense that the issue was successful in getting bids and in the sense that it was a poke in the eye of the central bank and the private banks through being so minimalist in size and margin.

As you no doubt recall, the central bank did some pilot issues that were much bigger in 2008 and sold 91-day bonds at 4%, which was an accurate reflection of the market. By putting ceilings of 1% (91 days) and 1.15% (182 days) on the bills the finance ministry was delivering a strong anti-market message to the private banks. The irrational obsession with avoiding debt is also evident in the statement that the bills will not be used for general financing and will be focused on electricity project finance. The entire bill programme is only US$108m, which will not go very far in buying power equipment.

Another victory for Mr Hussein seems to be the excision of any reference to VAT in the new five-year plan.

December 15th, 2010, 5:23 am


Milli Schmidt said:

Thanks EUI for this elaboration. I have a question on the relationship between the central bank and the finance ministry, given the implications of your post. Is the idea that the finance ministry uses the money raised from the bond exclusively for its own budget? Is it therefore the sole guarantor of these bonds? This seems very confusing – do finance ministry and central bank therefore appear as two separate, sovereign bond issuers?


December 15th, 2010, 7:47 am


EHSANI2 said:

Milli Schmidt,

In most countries, it is the treasury (as an arm of the government) that issues sovereign bonds on behalf on the country. The central bank does not. In the case of the U.S. for example, it is the treasury department that issues the bonds and not the Federal Reserve. The credit risk that investors take is that of the finance ministry (representing the Syrian government).


The central Bank did borrow on behalf the government recently for the purpose of purchasing a shipment of grains. I believe that the rate was 3.5% per year. I don’t believe that the central bank is necessarily keen to do so. The bond issues by the Finance Ministry will relieve the Central Bank from continuing to add to its liabilities by becoming the borrowing arm for the government. The central Bank ought to be independent of the government and just act as a lender of last resort in addition to setting monetary policy and regulating the banking system. To me, the most interesting part of this bond issue is the involvement of the state banks in the bidding process. In its simplest form, (assuming that the state banks were the ones that bought the bills), this ends up having a government entity (state banks) lend to another government entity (Finance ministry) at rates that are lower than prevailing market rates. The state banks of course have no private investors (stock holders) that would balk at such a transaction. The private banks have to answer to both their independent boards as well as their stock holders. This is why they ended up bidding as high as 2.5%-3.0% which of course they never got.

December 15th, 2010, 8:59 am


EHSANI2 said:

It is indeed confirmed now that all of the buyers were state owned banks

December 15th, 2010, 9:12 am


syrianBanker said:

The ‘losing’ private banks are very happy that this auction has finally taken place. It will constitute a step towards greater transparency of government accounts, including the practices of public banks. If we assume that the rate is reflective of risk, then deposit rates need to go down by at least 200 bps and we are sure to witness a sharp decline in rates within the new year. If the government knows that the rate is below the risk, then any participating bank will be subsidizing the state treasury on the account of the bank’s own shareholders. I don’t believe that banks should do this, unless their shareholder is also their borrower – as is the case with public banks. For the longer term even such practice is sustainable as the public banks will have a combination of less liquidity to lend coupled with the higher transparency discussed above. This should invariably drive the rate to a market position.

December 15th, 2010, 9:26 am


EHSANI2 said:

According to Mr. Derhally of Bloomberg, Lebanon just sold 1.5 trillion Lebanese pounds ($1 billion) of seven year bonds, its longest maturity for domestic borrowing. The securities had a coupon rate of 7.9% and mature in 2017. This was an attempt by the government to shift the financing of the deficit and the composition of the public debt from foreign currencies to Lebanese pounds.

December 15th, 2010, 9:35 am


EHSANI2 said:


This is one “loss” that the private banks should and am sure are happy to have suffered. If I were a shareholder of your bank or a Board member, I would sure question the wisdom of your decision making process had you “won”.

The ministry of Finance wants to borrow at the cheapest possible rate. That is understandable. The powerful Minister ought to use his influence to lower rates for all borrowers including the private sector. Surely, a private company borrowing at 8-9% while the government borrows at 0.4%-0.6% is rather extraordinary. Something has to give. The problem with taking deposit rates down by at least 2 percent of course is what happens to the Syrian Pound as depositors shift their preference to Lebanese pounds in neighboring Lebanon.

December 15th, 2010, 9:58 am


Joshua said:

Wonderful discussion. I am learning a lot about finance in Syria. It makes me optimistic. Nothing will attract foreign investors to Syria more than their ability to see the government issuing debt in a normal and routine fashion. That debt needs to be rated by international agencies. So long as Syria refused to open a bond market, few foreign firms would be likely to have confidence in the Syrian financial system. Perhaps it is comparable to the problem I would face in getting a loan from an America bank if I didn’t own a credit card and have a credit history or official credit rating? How otherwise would bankers know if I was a good credit risk?

One of the first things my Syrian wife did on becoming an American was to open her own bank account (separate from mine) and get her own credit card in order to build up a credit history. Otherwise, she would never be able to get student loans or act independently. So long as the world cannot see how Syria behaves as a borrower, foreign companies and investors are right to stay away. The mere fact that the financial arm of the Syrian government has been unwilling or unable to issue debt
said a lot about the nature of finance and government in Syria. The fact that the Ministry of Finance can borrow at rates that are so low also says something.

Dear Syrianbanker, Ehsani, and EIU, can I ask you to speculate on how long it will take the treasury rate to rise to market levels?

December 15th, 2010, 10:18 am



Dear EHsani2,

I fully agree. My question to you all is the following: there seems to be a clear conflict of interest between the Central Bank’s needs to have rational monetary policies and establish a term structure of interest rates that makes sense and the borrowing strategies of the powerful ministry of Finance. Who should be the arbiter of such a conflict given that you have non-market participants in the form of public banks with an obligation to listen to their shareholders?

December 15th, 2010, 10:18 am


Masrafi said:

If I have to guess, the ministry of finance will only issue bonds or treasury bills if the rate is super low. Otherwise, they will borrow from the central bank or the state owned banks. This is not a rational open market so don’t expext rate to rise to what a rational person would consider a market level any time soon. I just hope those brave bankers who bid 2.5% and 3% are ready to take some heat.

December 15th, 2010, 11:04 am


EIU said:

In answer to your question, Joshua, at the current rate of progress it will take a long time for a mature domestic debt market to emerge. However, the finance ministry has indicated in its 2011 budget statement that it envisages the overall fiscal deficit to average 5.7% of GDP over the life of the 2011-15 five-year plan, which rightly includes aggressive targets for investment. The development of a healthy T-bill market that private banks will be interested in buying into will be vital to sustain deficits of this size. The T-bill law provides a lot of latitude as it sets a ceiling of 80% of GDP for total public debt, which is now only 34% of GDP according to EIU estimates.

December 15th, 2010, 11:33 am


EHSANI2 said:


Do we have full accounting of the role of the state owned banks when it comes to the overall deficit/debt numbers?


The Finance Ministry is essentially arbitraging away two issues:

1- That state banks can bid for these auctions
2- More importantly, that the velocity of money is very low in the economy. In other words, the deposits that the banks enjoy are not being turned into loans fast enough. I believe that the reason of course is not only the scarcity of credit worthy borrowers but a weaker than potential economy. Had the economy been growing at double the current rate, credit demand would have been stronger and the potential returns on investments that this debt would service would have also been more attractive. Sub-par real economic growth means that the banks will not grow their risk adjusted assets at the same speed at their liabilities (deposits). In a weak economic growth environment, potential entrepreneurs or existing businesses may opt to park their money at the bank for 6% rather than borrow at 8-9% to start or expand a business when the economy is not exhibiting the 8-9% growth that has been targeted.

I know that everyone wants faster growth. The trick is how to achieve it. That of course is a whole other discussion.

Dr. Landis,

I think that once the maturities extend to 5 years and increase in size, it will be more difficult for the state banks to invest the larger sums and longer maturities at paltry rates. In the end, the public sector enterprises would presumably want to grow and invest by borrowing directly from these banks at such rates. Will the Ministry of Finance instruct the state banks not to fund the growth plan of a government owned factory at say 5% and instead have them buy a 5 year bond issued by him for a yield of 2.0-2.5%?

December 15th, 2010, 12:28 pm


EIU said:

Ehsani — No we don’t (but a very good point).

December 15th, 2010, 12:59 pm


Off the Wall said:

I am speechless at the depth of knowledge and discussion taking place. Thanks to all posters. I am managing to follow despite of my ignorance and that speaks volumes in attesting to your ability to “teach”. While I understand that the Minister is considered a fiscal conservative by all means when it comes to public dept, one must also recognize that sovereign dept can lead to undue interferences if the lenders were private foreign banks. For short term maturity loans, such risk is not high when the borrowed amount is a small one used to finance an emergent need (e.g., machinery, grains, or probably even a small short-term infrastructure project requiring liquidity). However, isn’t Mr. Hussain’s conservatism good when viewed as avoiding long-term maturity bonds, which are rife with significant uncertainties (staring from climate conditions and not ending with projected tax revenue or market movement), especially on the borrowers’ side. My question, what would be a reasonable maximum term for public bonds?

December 15th, 2010, 1:40 pm


norman said:

The yeild of 3 month US T bond is only .12% so the Syrian bond is market level , Isn’t that the case ?

December 15th, 2010, 1:45 pm



Off the Wall,

My view is that the Government is covering it’s financial needs already by borrowing from the Central Bank and the public debt fund. This gives the Minister a great deal of flexibility in repayment but it means that it will cost the tax payer much more in terms of financial discipline as these loans are not transparently granted and given to mostly defunct public sector institutions. The discipline comes when the loans are granted on market terms, often by private banks and international lenders.

Dr. Landis,

I believe that the market for treasuries will probably develop earlier than we may expect. The local media is already covering (positively) the t bills issue. EHsani is correct that the Ministry won this round and the private banks are lucky not to have lent. The reasons is simply what Off the Wall hinted at: the public sector is reluctant to be seen as aiding the private banks, who are currently the most successful sector in the country. The fact that they didn’t win an allocation at this price is a victory for both parties. I wonder whether it will last: will some of these banks succumb and bid @ 20 bps next time ?

December 15th, 2010, 1:57 pm


EHSANI2 said:


The 3m bills in the U.S. are at 0.12% because the official overnight rate set by the Federal Reserve is around the same range (0-0.25). The 3m bill rate in the U.S. is not inconsistent with other market interest rates. The bank deposit for one year at a US commercial bank is not at 6% as it is in Syria. The cost of funds for banks is essentially the Federal Reserve overnight rate that the banks borrow and lend to each other at. It is around 0.18%. The rate structure in the U.S. reflects a low inflation rate (1.1%) and the low Federal Reserve rate is an attempt to fight a recession and a housing market that has lost nearly 30% of its value. The issue is not the 0.4% in an absolute sense but its distance from other market interest rates (deposit and loan rates).


Clearly, you can still write an excellent note despite what you call your “ignorance” of the subject. I wish I can say the same about myself when I discuss issues that I am ignorant of.

First, people regard the reliance on short term funding as risky. This is because you have to rely on your ability to “roll over” the debt every time it matures. The longer term financing avoids such a risk. From a liquidity standpoint, therefore, most prefer longer term financing. But this comfort in borrowing long term comes at a price. The lender of course assumes more risk and demands a higher “risk premium”. This is why a borrower ends up paying more for longer dated maturities. A related issue of course is matching your borrowing to what you are financing. If the borrowing is to finance a long term power generating plan, borrowing short term exposes you to asset-liability mismatch. The U.S. government for example borrows from 4 week bills to 30 year bonds. The average maturity on the debt is around 3-5 years.


The Central Bank must not be in the business of lending to the government. The question I asked EIU about the state owned banks also brings into focus the need for transparently consolidating all the different arms of government accounting under one balance sheet.

December 15th, 2010, 2:27 pm


Colleen said:

Thanks for the interesting post. Isn’t the concept of interest haram in Islam? Have there been any objections to the issuance on religious grounds?

December 15th, 2010, 4:12 pm



Dear Ehsani and Syrianbanker (nice to read this name, long overdue)
First, many thanks for the answers. I tend to agree with EHSANI on the central bank issue. Somehow, I have a gut feeling that borrowing from central banks with great flexibility in payment is connected to increasing inflation. I can not put my finger on the precise relationship, but given that this would put money in the public sphere without discipline and at very low rate, makes it tantamount to printing money without backing, thus inflation and in the end, while it may cost less to borrow from the central bank, it may effectively cost more in the sense that the government will have to borrow more to do less. Does that make any sense to either of you?

Would it be correct to use the example of payday loans as analogous to short term bonds ( roll over). I guess my error was assuming that the bond will be paid from income generated during the maturity period using other revenue streams not necessarily connected to the project being financed. Service projects may fall under this category, which is ok by me. But if the government is borrowing to continue operating defunct , yield less public companies, as seems to be the case, then I believe, this is a waste of both capital, and whatever low yield the central bank gets back.

December 15th, 2010, 9:58 pm


Norman said:

With the Syrian pound exchange to the dollar being stable and might be even gaining against the Dollar , how do you explain the high inflation in Syria and the high interest rate that is paid by the banks and with these high interest rates why would people buy Syrian Treasuries paying 0.1 % ,

I wonder if These 3 months Treasury bonds might be just a way for Syria to test the waters before further bond offering , intermediate and long ,

December 15th, 2010, 11:05 pm


Nate Robinson | Hot Music Shop said:

[…] Syria Comment » Archives » Syria first bond issue – A first round … […]

December 16th, 2010, 1:31 am


EHSANI2 said:

On Monday, they will auction one billion SYP in each of the 1, 3 and 5 year maturities. The yield is not to exceed 1.5%, 2.0% and 2.5% respectively.

I believe that the high inflation rate in the country is due to rising global commodity and food prices. More importantly, it is a major one off realignment as previously subsidized and controlled prices are allowed to transact closer to global and regional market prices. The inflation in Syria is not due to excessive demand stemming say from excessive credit growth.

The high rates structure is primarily to support the SYP. If the rates were to say drop by 2-3%, depositors will move to Lebanon. The rate structure in Lebanon has a bearing on the one in Syria to a certain extent. Moreover, if the SYP rates were to drop close to those on Dollar deposits, people are likely to prefer holding Dollar deposits instead. The fat premium available in SYP deposits now is the main incentive to hold as much in local currency deposits.

December 16th, 2010, 10:57 am


norman said:

Thanks Ehasani,
That is a clear explanation ,

December 16th, 2010, 11:19 am


afraid from said:

well,very interesting stuff indeed, if anything it has confirmed how ignorant iam in economic terms, but not in how to economise?
Could anyone tell me what is the inflation rate in Syria now, it would also be useful to know ( the size of the black market)in the countery .
I have recently bought a small flat & wanted to furnish it to retire peacefully back in my country, having spent most of my productive years abroad. Guess what chaps: i was astonished how much cheaper ,London Super markets are compared to the shops over there, that is inclding olive oil too.
For a simlpe, non sophisticated person like me, moderinising & expanding the Tax system is an absolute must, & is long overdue, but more importantely is a controlled & gradual libration of the economy, dont we all know even in Democracies, all state controlled economies are doomed to failure?

December 16th, 2010, 3:00 pm


Norman said:

The original URL of this page is:

[December 16, 2010]

Syria: Gearing up for IT

(Daily News Egypt Via Acquire Media NewsEdge) Although tourists might head straight to Souk Al-Hamidiyya, in fact, one of the biggest souks in Damascus these days is unquestionably Souk Al-Bahsa. It might lack the former’s picturesque charm, but here you’ll find talented young merchants selling software and hardware at knock-down prices. In many ways Souk Al-Bahsa is a testament to the vitality of the Syrian Information Technology (IT) sector.

The IT sector has huge potential in Syria. Internet usage has mushroomed over the past few years. The population is young, increasingly well-educated, urbanised and these days – thanks to the economic reform process – slowly becoming more affluent. On the downside, however, the industry suffers from over-regulation of the telecoms sector that impedes growth, as do sanctions and consequently a high rate of piracy.

Internet penetration rates remain relatively low. According to Internet World Stats, there were 3,935,000 Internet users as of June 2010, a 17.7 percent penetration rate. Figures from the Syrian Telecommunications Establishment (STE) put the figure much lower, at 744,000, or 3.68 percent, at the end of 2008, but this number represented the number of subscribers, rather than users. As with many other emerging markets, both IT and telecoms in Syria remain primarily a value-driven industry, with profits to be made through high volume, rather than high-spending individuals.

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Subscription is still mostly by diAl-up, and here the quality of the landline network hinders the sector. Landlines remain a monopoly of the STE, which hitherto combined the functions of an operator and a regulator.

However, under Law 18 of 2010, which was issued in June, the STE will be split into a regulator, the Telecommunications Supervisory Authority, and an operator, the Syrian Telecommunications Company. Although the landline monopoly will remain for the time being, the impact of the new regulatory environment, which is being introduced in anticipation of the award of a third mobile licence, should help to improve standards.

The STE now has cheaper access to the international gateway, and since 2009 has reduced its broadband tariffs in response. These are now calculated either by volume of download or at a flat rate allowing unlimited downloading. In 2009 monthly tariffs ranged between a 1,450 SP ($31) to 2,300 SP ($50) flat rate depending on connection speed, or from 900 SP ($20) to 1,200 ($26) according to download volume, with extra downloading charged at 200 SP per extra GB. Also commencing in 2009, third-generation (3G) technology has been available through the two mobile operators, Syriatel and South Africa-based MTN.

Although initially each firm was limited to 12,000 subscribers each, anecdotal evidence suggests take up has been very good. There is also increasing interest in mobile Internet, although certain devices (such as Blackberry) do not function in Syria due to sanctions.

US sanctions do damage the Syrian IT sector, with basic programs such as Microsoft and Oracle unobtainable legally. Since almost all big IT firms globally are US-based, this means many local IT firms rely on the government for business, with industry insiders estimating that 80 percent of business is accounted for by government spending. A culture of using IT is not yet widespread in Syria, with the private sector often the first to introduce new initiatives.

Syria’s large informal sector acts as a further brake on private IT development. Syria still has relatively few large private firms, although the opening of private banks and insurance companies over the past five years is starting to change this. E-commerce remains in its infancy, mostly limited to e-banking. Syria continues to be a largely cash culture, and as with elsewhere, many consumers have been reluctant to trust Internet banking. Moreover, buying over the Internet is requires a bank account and credit/debit card – which a majority of Syrians still do not have.

Small family firms, which may operate on the margins of legality and often at a very low technological level, do not see IT as indispensable to their operations. This is not to say that the informal sector is an entirely bad thing – software piracy allows Syrian consumers access to programs that would otherwise be unavailable due to sanctions. Over the long run however, a lack of copyright protection hurts local Syrian programmers, and IT specialists regularly cite it as one area where better regulation is necessary.

Historically, the public sector has accounted for the bulk of the Syrian economy, and the sector is still not as adept as it might be at adopting IT solutions. Given the IT industry’s dependence on government contracts, an improvement in the management of public IT systems could provide a big boost. Syria is slowly starting to introduce e-government, with certain services now available online. Another area of potential is digital content in Arabic. Although Arabic speakers account for 5 percent of the world population, Arabic content on the Internet is less than 1 percent.

Syria has historically played a leading role in the Arabisation of modern terminology, and in 2009, the country played host to the first National Conference on Arab Digital Content. The inventiveness of Souk Al-Bahsa’s young software engineers is testament to the vitality of the IT sector even in the face of a challenging environment. As obstacles and restriction are removed, the sector is likely to respond to new opportunities well.

(c) 2009 Daily NewsEgypt Provided by an company

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December 16th, 2010, 6:43 pm


Contrarian said:

Hello Everyone,

I was wondering if someone knows if the banks in syria have to mark to market the bonds they hold on their books. This is not as important for the 3m and 6m ones but it becomes more tricky for the longer dated ones especially as most of you except rates to creep up with further issuance. This will mean that the price of the old ones will have to come down.

Will there be a secondary market for these bonds? Will it be on the DSE as it is supposed to be the market place for both stocks and bonds and hence the name Damascus Securities Exchange (as oppoesed to Damascus Stock Exchange). I won’t dare asking if short selling is permitted!!!

Are there still “shahadat al istithmar”? What rate do they pay? I recall these being similar to dsicount bonds in the UK.

Finally, is it possible now that central and other publicly owned banks will start charging a higher interest rate to lend to the treasury and force its hand?

December 17th, 2010, 7:59 am


EHSANI2 said:

The banks in Syria will certainly use “held to maturity” accounting like most banks do in developed countries today.

In theory, the DSE will be a place where a secondary market for bonds can transact. Unless the price on these bonds change (higher yields and lower prices), I doubt that the private banks would be interested. When I asked a senior banker based in Damascus about what rates would entice him in the 5-years sector I was told that he would want to see something close to 5%. On Monday, the auction will take place. The MOF has capped those rates at 2.5% so clearly these bonds are almost twice as expensive as what this particular banker would want to pay for it.

Let us see what the Monday 1, 4 and 5 years bonds bring. It will be interesting to watch if the buyers are again only the state owned banks.

December 17th, 2010, 6:58 pm


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