Lebanon’s socio-economic crisis is deepening after the local currency further depreciated on Saturday to reach a historic low of 12,400 Lebanese pounds to the US dollar, losing 85 percent of its initial pre-crisis and official rate value, which is still at 1,507 Lebanese pounds to the US dollar.
A parallel market for the Lebanese pound emerged last summer for the first time since it was pegged against the US dollar at a rate of 1,507 in 1997.
Deputy head of MENA and Europe at the World Economic Forum Maroun Kairouz said that the underlying cause or the structural cause of the currency collapse is basically a big deficit in the balance of payments, “there are more foreign currency outputs than inputs and the economy is ground to a complete hold.”
“However, there are amplifying causes. The lira has lost its value as a ‘store of value’. The Lebanese are in a mass conversion of their reserves from Lebanese Lira to US dollars to maintain their savings. The second amplifying cause is the failure to form a government on one side and the failure to act for a period of over a year and a half since the beginning of the crisis, which is unprecedented in recent history,” Kairouz added.
Kairouz added that it is important to note that some politicians have focused on imports while lambasting the Lebanese for their consumption style.
“There are over 130 countries in the world that have higher import to GDP ratios than Lebanon. The real problem is that we export too little, not only goods but services. Cutting down on imports is not a solution. It will just make people hungrier,” Kairouz added.
Kairouz added that making predictions is not always accurate and could be a ‘fool’s game’, but a freefall may be witnessed in the absence of serious policy measures.
“We have seen failed attempts to deal with the crisis, banning applications or arresting money exchange are really a mockery of serious policymaking, real reforms need to include a serious agreement with the International Monetary Fund, it is our right as a member. This is the first needed step to restore trust in our economic system, people lost trust in the system, and that is why the currency is collapsing,” Kairouz added.
Lebanon has been facing political and economic uncertainty since October of 2019 after the resignation Saad Hariri following a series of nationwide anti-government protests.
Prime Minister Hassan Diab’s cabinet has stayed on in a caretaker capacity until a new cabinet is formed. But prime minister-designate Saad al-Hariri, nominated in October of 2020, is at loggerheads with President Michel Aoun and has been unable to form a new government.
The local currency has been plummeting for over a year. Politicians have disagreed on a plan that would allow international aid from the World Bank, International Monetary Fund, and other foreign donors.
Meanwhile, Lebanon has been witnessing increased power outages as the Central Bank delays payments for government-backed fuel subsidies due to depletion of reserves in foreign currency.
The country’s public debt is $92 billion, equivalent to 170 percent of GDP, one of the world's highest levels.