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The Central Bank of Lebanon is considering reducing the level of mandatory foreign exchange reserves to continue supporting commodities.
An informed official source said on Wednesday that the Central Bank of Lebanon is studying reducing the level of mandatory foreign exchange reserves to continue supporting basic imports next year as already low reserves decline.
The source added to Reuters that Central Bank Governor Riad Salameh met with concerned ministers in the interim government on Tuesday, and one of the options under consideration was to reduce the mandatory reserve ratio from 15% to about 12%. or 10%.
The source added that foreign exchange reserves currently stand at about $ 17.9 billion, leaving just $ 800 million to support imports of fuel, wheat and medicine through the end of this year.
On August 27, Salameh estimated foreign exchange reserves at $ 19.5 billion and mandatory reserves at $ 17.5 billion.
Currency increase plan
“We need a plan starting in 2021 … and there will be several meetings … and one of the options before us is to reduce the booking ratio from 15% to about 12% or 10%, along with streamlining the spending on subsidies … but no decision has been made yet, “the source said.
Lebanon is grappling with the weight of its accumulated debt and facing its worst crisis since the civil war that broke out between 1975 and 1990 that undermined the currency and led to a massive rise in prices.
Many government officials blamed the governor of the Central Bank of Lebanon for the deterioration of the exchange rate of the pound against the dollar, as a result of the monetary policies he adopted in recent years, while Salameh’s response was that he “financed the been but didn’t spend the money. “
No progress was made in talks to form a new government following the resignation of the current government last August, following a massive explosion in the port of Beirut.
Many Lebanese have fallen into poverty and are increasingly dependent on subsidized food.
Risks of cutting subsidies
The subsidy cuts threaten to stoke public anger in a country devastated by protests when the financial crisis erupted in October 2019.
The International Support Group for Lebanon, which includes the five permanent members of the United Nations Security Council, issued a statement Wednesday, calling for the formation of a government capable of implementing reforms and calling on the provisional government and parliament to act to ease financial hardship.
With dollar flows stopped, the central bank provides hard currency for imports of fuel, wheat and drugs at the official rate of 1507.5 Lebanese pounds per dollar, which is much lower than the retail price, which today exceeds the 8 thousand pounds.
The source said that some staples have already been removed from the subsidized food basket.
He continued: The meetings will discuss the possibility of raising fuel prices, adding that imports of necessary medical equipment and drugs will continue.
Aoun’s Message
Yesterday, the President of the Lebanese Republic, Michel Aoun, sent a letter to Parliament urging it to cooperate to achieve the criminal financial audit.
Aoun’s message came after the specialist company withdrew last week because it did not obtain enough documents from the Central Bank, which is armed with the bank secrecy law.
In his message, Aoun said: “Cooperate with the executive authority to allow the state to carry out forensic accounting audits of the Bank of Lebanon accounts, and withdraw the audits of all public facilities in the state to achieve reform. and desired aid programs. “
He stressed that “the criminal audit is necessary so that Lebanon does not become one of the failed countries in the eyes of the international community, and the continued refraining from delivering documents to the audit firm caused its inability to start its mission and then terminate the contract. “
He described the company’s withdrawal as a setback, saying: “What happened was a serious setback for the logic of the State, the interests of the Lebanese people, and the forensic accounting audit became a prerequisite for the State’s negotiation with the International Monetary Fund, and the loss of confidence in the State and its authorities and institutions will not be limited to the interior, but will become a necessity for the international community. “
He stressed that “the reform is an integral whole and synonymous with political stability and security, and I will not settle for succumbing to any pressure to abandon it or reduce its demands.”
Since 2019, Lebanon has witnessed an economic collapse and a crisis that is open to all possibilities, with the value of the lira collapsing to an unprecedented level, while the state in March did not pay its external debts.
Although the government started negotiations with the International Monetary Fund, it came back and stopped after a dispute between Lebanese negotiators representing the government and the Bank of Lebanon over their estimates of losses.
Local banks have frozen depositors’ dollar savings and largely blocked transfers abroad through informal capital controls since late last year due to the crisis that led to the default on sovereign debt.
