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Journalist Ali Nour wrote on the Asas Media website:
So far it is unclear what alternative mechanisms the government will use to support vital commodities, while the Central Bank of Lebanon is depleting all its usable foreign exchange reserves. However, it is true that these mechanisms will not be able to count on the reserves of the Banque du Liban to provide dollars directly to import these goods, which will mean that the demand for dollars to import them will automatically go to the parallel exchange market, or what is known as the black market, which will be the prelude to the launch. It unleashed crazy inflation as a result of a further collapse of the exchange rate.
Ultimately, this evolution can raise the demand for the dollar on the black market to three times its current value, which, according to serious banking sources, will mean the possibility that the dollar exchange rate on the black market will exceed the level of 21 thousand pounds against the dollar in the first wave of rise in the exchange rate, after raising the support directly.
For all these reasons, the Lebanese market is expected to witness a wave of unprecedented and excessive inflation as a result of the intersection of two factors at the same time: firstly, the price of subsidized raw materials has risen after the Central Bank stopped supporting imports from reserves, and secondly, the exchange rate rose after the new pressure on the demand for the dollar. This will result in an insane rise in the prices of all imported goods. Knowing that the alternative support mechanisms that the government can resort to, and if it rationalizes the subsidy by targeting certain groups, it will not be able to intervene to control the prices of imported goods in general in the market, because the government does not have reserves in dollars that can be used to support imports.
To know the impact of these developments, it is enough to go back to the Lebanese customs figures, according to which Lebanon imported in the first six months of this year about $ 1.5 billion in all types of fuel, and around $ 550 million in drugs, medical equipment and supplies, and more than $ 77 million in wheat. In conclusion, it can be said that the Banque du Liban directly paid 2.13 billion dollars from its reserves to import the three vital commodities during the first half of the year, while it is expected that this huge volume of demand for dollars will be transferred to the parallel market after a bank stopped providing these dollars directly. Of your precautions.
In addition, during the first half of the year, Lebanon also imported about $ 1.12 billion of other food (excluding wheat), which was financed in recent months through the food basket supported by the Central Bank, depending on the type exchange online platform. Taking into account that the Banque du Liban used for this purpose the dollars it obtained from the transfers received through the money transfer companies, in exchange for paying the value of these transfers in pounds to their recipients. After canceling the decision to pay the value of the transfers in LBP, and with the reserve reaching its minimum level and the inability of the Bank of Lebanon to use it to support the import of these materials, it is expected that the demand for the dollar to import These materials to the parallel market also move, after the Banque du Liban stopped supporting this type of Import.
If we add the value of these products that were included in the food basket to the value of the three vital basic products (wheat, fuel and medicines) that the BDL used to sustain with its reserves, the total of subsidized goods that Lebanon imported in the first half of the year and that the BDL will stop supporting entirely. In the coming months, around $ 3.25 billion, which will represent a sudden and unprecedented pressure on the exchange rate in the parallel market.
In addition to all these factors, it is expected that some of the repercussions of the port bombing will represent an additional factor of pressure on the exchange rate and consequently on inflation rates in the markets. In practice, restoration and repair operations are expected to put pressure on the purchase of dollars in the parallel market, especially since these operations involve a large volume of imports of construction materials. Note that insurance companies tend to compensate affected people in Lebanese pounds in the event that it is proven that the history of the attack is not related to an act of sabotage or intentional terrorist, and they have informed the companies they hire. with them to be invoiced in Lebanese pounds exclusively.
In practice, government sources familiar with discussions on the exchange rate issue and alternative support mechanisms report that government options are very limited. The continuation of the subsidy according to the dollar delivery mechanisms for import, as it used to be, has become impossible since the Banque du Liban informed the government of a decisive position regarding its inability to infringe the remaining reserves they represent. banks’ mandatory reserves. Regarding the search for alternative sources of dollars to support imports, it is impossible after the government received a decisive position from the IMF and the World Bank in terms of providing some support during the next stage before the agreement on an integrated loan program. Taking into account that all donors were clear about their unwillingness to grant loans or direct donations to the Lebanese state before completing the understanding with the IMF. This was clearly demonstrated at the recent donor conference, whose aid was limited to humanitarian support directed at non-governmental organizations.
Consequently, the government will not have many options, with the exception of delivering vouchers of direct support to the neediest families, and financing the process by printing the local currency, as the government is doing today to finance all its operations, which will represent more pressure on the exchange rate and market rates, and more upward. In the proportion of citizens who slip below the poverty line.
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