Policy Paper Summary
Economic Policy Unit – Progress Center for Policies – Damascus, December 2025
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Concise Analytical Summary:
During 2025, the Syrian economy recorded an apparent improvement in price indicators and the exchange rate of the Syrian pound. This improvement was driven primarily by non-recurring transitional shocks—such as liquidity shortages, customs adjustments, partial sanctions relief, and subdued domestic demand—rather than by genuine improvement in macroeconomic fundamentals. This resulted in a temporary deflationary phase, accompanied by a nominal increase in purchasing power following wage hikes. However, these gains remain fragile due to weak domestic production, a distorted balance of payments, and the state’s narrow fiscal base.
Starting in the second half of 2025, signs of trend reversal began to emerge, with rising living costs driven by a combination of cost-push inflation factors—such as drought, subsidy reductions, and higher costs of imported inputs—and latent demand inflation likely to erupt with any improvement in liquidity or release of deferred consumption. Exchange rate stability remains fragile, relying more on monetary restrictions and confidence than on sustainable real inflows. Consequently, any easing of controls or external shock could trigger a new inflationary wave, especially amid mounting fiscal pressure on the public budget.
Key Recommendations and Takeaways for Economic Decision-Makers:
1. Avoid borrowing and monetary expansion in the absence of productive growth:
Any fiscal or monetary expansion not backed by real growth in domestic supply or sustainable external inflows will directly fuel inflation, undermine exchange rate stability, and impose high social and economic costs.
2. Manage liquidity rather than expand it:
At this stage, the priority is not to increase the money supply but to manage it strictly, preventing suppressed demand from turning into a sudden inflationary shock beyond the economy’s limited productive capacity.
3. Link wages and subsidies to productivity and available resources:
Any additional wage or subsidy increases should be gradual, targeted, and conditional on the economy’s actual capacity to absorb them without triggering demand-driven inflation.
4. Protect the exchange rate through non-monetary tools:
Monetary stability should be reinforced by improving remittance channels, supporting agricultural and service exports, and reducing the cost of productive imports—rather than through direct monetary injections.
5. Focus on containing cost inflation:
Supporting agriculture and energy, mitigating drought impacts, and securing key production inputs represent the first line of defense against a new inflationary wave that would be difficult to contain later.
6. Statistical transparency as a public policy tool:
The absence of updated and reliable data on inflation, prices, and liquidity significantly increases the risk of policy error. Regular and transparent data publication is a prerequisite for effective economic policymaking.
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Executive Conclusion:
• The Syrian economy faces the risk of shifting from fragile price stability to accelerating inflation if the nature of the apparent recovery is misjudged.
• Resorting to borrowing or money printing without real expansion in production and resources would transform a manageable living-cost crisis into a comprehensive monetary crisis that would be difficult to contain.
• The safest path lies in disciplined monetary and fiscal policy, intelligent liquidity management, and a decisive focus on the supply side as essential conditions to avert a new inflationary wave that threatens economic and social stability.
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Annex 1
Recommendation Addressed to the Ministry of Finance and the Central Bank of Syria
Issued by Taqaddum Consulting Center – Damascus
Executive Summary:
Early-Warning Indicators for Inflation in the Syrian Economy
In light of fragile economic recovery and the absence of updated inflation data, there is a pressing need to adopt a simplified early-warning indicator system that enables policymakers to detect the shift from temporary price stability to accelerating inflation before it becomes entrenched. This proposal is based on monitoring a limited set of measurable indicators reflecting monetary pressures, exchange rate behavior, cost-of-living trends, and latent demand in the economy.
The framework rests on four main pillars:
1. Monetary and fiscal indicators: money supply growth, liquidity gaps, deficit financing.
2. Exchange rate indicators: widening price gaps, short-term volatility.
3. Cost-of-living indicators: minimum expenditure basket, food and energy prices.
4. Latent demand indicators: consumer imports, rents, stockpiling behavior.
Crossing defined thresholds in a critical number of these indicators would trigger graduated responses—from enhanced monitoring to coordinated monetary and fiscal intervention—before pressures escalate into a broad inflationary wave with high social costs.
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Accordingly, Taqaddum Consulting Center recommends:
1. Establishing a joint inflation early-warning framework:
Create a technical coordination unit between the Ministry of Finance and the Central Bank of Syria to monitor early-warning indicators monthly and submit concise reports to decision-makers.
2. Linking fiscal and monetary decisions to clear quantitative indicators:
Adopt predefined indicator thresholds as a prerequisite for decisions on spending increases, wage adjustments, or easing monetary controls.
3. Preventing uncovered fiscal and monetary expansion:
Refrain from borrowing or money creation unless indicators remain within safe ranges and are accompanied by tangible improvements in production or external inflows.
4. Policy coordination instead of conflict:
Align fiscal policy (spending, subsidies, wages) with monetary policy (liquidity, exchange rate) to prevent pressure spillovers between the two.
5. Enhancing statistical transparency:
Regular publication of price, liquidity, and exchange rate indicators—even in simplified form—to reduce inflation expectations and strengthen confidence in public policy.
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Executive Summary of the Recommendation:
Adopting an inflation early-warning system is not an additional administrative burden, but rather a low-cost preventive tool that enables a shift from crisis management after the fact to proactive risk management. In the current Syrian context, this approach represents a core condition for preserving price stability and preventing fragile recovery from deteriorating into a deeper monetary crisis.
