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Monday, Nov 28, 2022

Lebanon Steps Back from Plan to Slash Official Exchange Rate

Lebanon Steps Back from Plan to Slash Official Exchange Rate

Lebanon has stepped back from plans to slash its 25-year-old official exchange rate with one closer to the market rate, ministerial and political sources said Thursday, amid fears of a backlash from the public.
Caretaker Finance Minister Youssef Khalil told Reuters on Sept. 28 the state would re-peg the dollar from 1,507 to 15,000 pounds in a step towards unifying the varied exchange rates that have emerged since the country entered an economic crisis in 2019.

Khalil had initially said the switch would occur on Nov. 1, but his ministry later said it would depend upon parliament approving a financial recovery plan, which it has still not done.

"Political disagreements stopped the move. No one in the country wants to bear responsibility for it," a finance ministry source told Reuters on Thursday.

The source said that caretaker premier Najib Mikati was unwilling to greenlight the peg change until Hezbollah and Amal were on board. A source from Mikati's office confirmed the prime minister's reluctance to move without those parties' buy-in.

"It would be hard to implement this now," a source from one of the Shiite parties told Reuters.

On Thursday, the lira was trading on the parallel market at a rate of 37,500 pounds to the US dollar and on the Central Bank's exchange platform 30,100, while the official peg remained at 1,507.

Byblos Bank's chief economist Nassib Ghobril said a new peg would have "far-reaching" effects on the economy and should be coordinated with Lebanon's Central Bank and the IMF.

"Its impact would affect the balance sheets of banks, of the recapitalization process, of loan repayments, of the private sector and of regular citizens – in addition to the impact on inflation and on prices," Ghobril told Reuters.
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