The rescue plan approved by the Lebanese government to pull the country out of its worst economic and financial crisis in decades is based on an exchange rate of 3,500 Lebanese lira to the US dollar, an official source told Reuters Thursday.
This would mark official recognition that the peg of 1,507.5 pounds that has been in place since 1997 is no longer sustainable. For months, the peg has gradually slipped, and now it’s begun spiraling, reaching 4,000 lira to the dollar on the parallel market.
In a televised speech Thursday evening, Prime Minister Hassan Diab said that the stability of the Lebanese pound was “an illusion.”
The national currency has been under immense pressure for months as the country’s dollar reserves dwindled. Exchange dealers went on strike in protest at the pound’s freefall and at the arrest of some of their colleagues.
Cabinet ministers unanimously approved the long-awaited economic rescue plan Thursday, which aims to implement “long awaited reforms to the state administration, financial policy, the financial sector, the Central Bank and the balance of payments over a five year period,” according to Diab.
“Congratulations to the Lebanese people on the roadmap for handling public finances. I can say we are on the right path to pulling Lebanon out of its deep crisis,” the prime minister said.
The prime minister said that among the reforms outlined in the plan are an overhaul of the electricity sector, which costs the treasury approximately $2 billion per year, and the recovery of wasted public money.
A draft version of the plan, dated April 28, said that the tax reform and improved spending efficiency would aim to rebalance the government budget.
The plan will be used to apply to an International Monetary Fund program for financial assistance, something that is widely considered Lebanon’s only way to secure much-needed financing.
“In the first phase,” the government will request $10 billion from the IMF, Diab said.
This would be in addition to the more than $11 billion dollars in soft loans and grants pledged by the international community at the CEDRE conference in April 2018, on the condition of a series of reforms, including those in the electricity sector, that successive governments have so far failed to enact.
Top US diplomat David Schenker Wednesday said Lebanon would have to make these reforms urgently to attract international assistance.
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