Posted Sep 30, 2022 11:15 AM
Under pressure from the International Monetary Fund (IMF), Lebanon is finally taking a few steps towards crucial reforms. Last week, a team from the international institution visiting the country sounded the alarm, considering that the progress of the reforms that Beirut has undertaken to carry out in April in exchange for a support plan “ remained very slow. Mired in one of the worst economic crises in the world for a century, Lebanon however desperately needs this assistance of some 3 billion dollars.
Monday, i.e. five days after the communicated of the IMF, Parliament has adopted a budget for 2022… only three months before the year ends! The text provides for the tripling of the salaries of civil servants and the pensions of retired civil servants. This vote, and now “the preparation and approval of a credible 2023 budget”, are part of the “preconditions” required by the IMF for the aid plan.
Two days later, the Minister of Finance announced in a brief press release that the official exchange rate would be changed for the first time since 1997: it will be raised to 15,000 pounds to the dollar from 1er november. Until now, the rate had remained fixed at 1,507 pounds. Even though since the outbreak of the crisis three years ago, the Lebanese pound has lost 95% of its value. On the black market, the exchange rate is around 38,000 pounds to the dollar.
Multiple exchange rates
This decision is “a first step” towards the unification of the multiple exchange rates in force in Lebanon, the ministry said. Again, this is one of the requirements of the IMF, for which the existence of several exchange rates “causes significant distortions of economic activity, undermines public sector operations and creates opportunities for corruption and rent-seeking, leading to undue pressure on central bank foreign exchange reserves”.
To understand the reasons for the coexistence of these exchange rates, we have to go back a little, after the outbreak of the economic crisis. “From 2020, the Banque du Liban issued circulars to set different exchange rates depending on the purpose: withdrawing bank deposits, settling a mortgage, buying dollars on the central bank’s electronic platform, paying customs duties…”, explains Nassib Ghobril, Chief Economist at Byblos Bank Group.
Bank withdrawals in dollars thus forced savers to give up about 80% of the value of the funds withdrawn. In addition, the difficulties encountered by customers in withdrawing money from their accounts have led to some spectacular robberies of their own bank.
“The IMF would have preferred a liberalization of the official exchange rate and the elimination of all the others,” continues Nassib Ghobril. But the Lebanese authorities have decided to go slower because it will have an impact on the capital of savers, banks, private companies…”
Risk of a power vacuum
Why was the exchange rate set at 15,000 pounds to the dollar? How long will he stay at this level? Above all, what about other exchange rates? “It is not clear at all, regrets the economist. Everyone wonders what the impact of this decision will be. »
The country is trying, at the same time, to move forward politically: the parliament tried in vain on Thursday to elect a new President of the Republic to succeed Michel Aoun, 87, whose mandate ends at the end of October . The ex-general had been elected at the end of the 46th attempt of the Parliament, after two years of vacancy of power… The deep divisions within the Assembly raise fears that Lebanon will find itself again without a president for months, this which would further undermine the confidence of creditors.
