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Inflation hits sharp rises in light of the financial crisis (Hussein Baydoun)
Lebanon’s Central Bank Governor Riad Salameh said the bank cannot sustain support for commodities for more than two months and the state must develop a plan in light of the worsening financial crisis.
Salameh added that the central bank will be obliged to hand over state accounts as part of any criminal audit, but handing over local bank accounts requires amending the law.
Since last year, Lebanon has witnessed an unprecedented financial collapse and has defaulted on its huge debts. The local currency collapsed, the banking sector was paralyzed and inflation rose sharply, registering an annual increase of 136.8%, during last October, according to official data.
As foreign dollar flows dried up, the central bank used dwindling reserves to provide foreign exchange to finance essential imports of fuel, wheat, and medicines.
In recent months, a climate of anxiety over the imminent end of subsidies and fear of increasing hunger has prevailed in the country, in a country where half the population is poor.
Late on Tuesday night, Reuters quoted Salameh as saying in an interview with the Arab satellite channel: “We have the possibility to remain supported for two months … The Bank of Lebanon today ensures everything the state needs. … all funds for electricity, water, fuel, medicine, wheat and communications. ” .
He added that lawmakers would meet this week to begin crafting a plan. Regarding subsidies, he continued, “Is there nothing in the country other than the Bank of Lebanon? This question should be addressed to those responsible for the country.”
Foreign donors have called for criminal scrutiny of the central bank, among top reforms, before helping Lebanon emerge from a crisis that has its roots in decades of waste and corruption.
And scrutiny is a basic requirement of the International Monetary Fund, whose talks with the interim government have been suspended due to the failure to implement reforms to counter corruption and waste.
But Alvarez & Marsal, which specializes in turnaround consulting, announced last November that it was withdrawing from criminal scrutiny because it had not received the necessary information to complete the task. Some Lebanese officials accused the central bank of using bank secrecy laws to justify withholding information.
Salameh said that the central bank will seek to reorganize and sell Lebanese banks that cannot increase their capital by 20% before the deadline set for this at the end of February 2021, otherwise they will have to exit the market by granting their shares to the central bank. .
In the Lebanon Economic Monitor report, released yesterday, the World Bank expected Lebanon to suffer a “hard and prolonged recession” and record an economic contraction of 19.2% by the end of this year 2020, criticizing the Lebanese authorities for the “deliberate absence of effective measures” to end the economic crisis.
The bank said poverty is likely to continue to worsen, with more than half the population becoming poorer by 2021, while the debt-to-GDP ratio is expected to reach 194 percent, up from 171 percent at the end of 2019.
The crises coincide with the closing of doors to Beirut to receive financial support from funding organizations and donor countries, because until today a new government has not been formed and reform measures have not been taken.
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