Crisis-hit Lebanon to devalue currency: central bank official

Agence France-Presse

Posted at Sep 29 2022 01:16 AM

Lebanese depositors queue as they wait to withdraw money from a Fransabank branch in Beirut, Lebanon, September 26, 2022. Lebanese banks partially re-opened after a week of closure due to security concerns. Wael Hamzeh, EPA-EFE
Lebanese depositors queue as they wait to withdraw money from a Fransabank branch in Beirut, Lebanon, September 26, 2022. Lebanese banks partially re-opened after a week of closure due to security concerns. Wael Hamzeh, EPA-EFE

Lebanon will weaken its official exchange rate for the first time in more than two decades, a central bank official said, as part of efforts to tackle a crippling financial crisis.

The exchange rate has been officially pegged at 1,507 Lebanese pounds to the dollar since 1997, but will drop to 15,000 to the greenback at the end of October, the official told AFP on condition of anonymity. 

With the Lebanese pound trading at beyond 38,000 to the dollar on the black market – close to a record low – analysts are skeptical that this step could stabilize a currency that has been in free-fall for three years. 

It has lost more than 95 percent of its value on the black market since the 2019 onset of Lebanon's financial crisis, branded by the World Bank as one of the planet's worst in modern times. 

The decision to devalue the peg follows a visit last week by a delegation from the International Monetary Fund, which is pressing Lebanon to implement reforms to unlock billions of dollars in loans. 

The unification of the country's several exchange rates and the establishment of a credible and transparent monetary and exchange rate system are among the IMF's demands. 

However, analysts noted that a devaluation to 15,000 to the dollar was still far short of that needed to create a unified exchange rate.

"In effect, by declaring a new rate, we add to the multiplicity of rates that already exist," said economist Nasser Saidi.

Parliament this week approved an overdue 2022 draft budget, a move also requested by the IMF.

One of the exchange rates listed in the budget relies on the value of 15,000 Lebanese pounds to the dollar. 

Lebanon is under IMF pressure to implement a raft of reforms before the term of President Michel Aoun expires at the end of October, economy minister Amin Salam has told AFP. 

With no consensus around a replacement for Aoun, who was named in 2016 after a more than two-year vacuum, the process of selecting a new of head state could face delays the country can ill afford.

Lebanon's worst-ever economic crisis has seen poverty rates climb to reach more than 80 percent of the population, according to the United Nations.

Food prices, meanwhile, have increased by 2,000 percent since 2019, the World Food Program says.

Saidi, a former minister and vice governor of the central bank, said the new exchange rate could compound financial woes.

"For ordinary people this means additional inflation (and) an increase in prices accordingly," he told AFP.

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