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Beirut / Hassan Darwish / Anatolia
The decline of the alcoholic currency
Inflation rose to historic levels
Acute shortage of abundant foreign exchange
Between a currency crash, rising inflation to record levels, and a severe shortage of foreign exchange abundance, Lebanon is nearing the end of a year that is considered the worst since the civil war, if not the worst at all.
Although it is difficult for the economic crises to return to their normal course, the political class has not been able to form a government four months ago, succeeding the government of Hassan Diab, who resigned last August after a major explosion in the port of Beirut.
And on October 22, Lebanese President Michel Aoun appointed Saad Hariri to form the new government, following apologies from his predecessor, Mustafa Adib, for the failure of his mission to form it.
From the end of 2019, the signs of the economic crisis began to crystallize in Lebanon, prompting some depositors to withdraw their money from banks or transfer them out of Lebanon.
As a result, the shortage of foreign exchange, particularly the dollar in banks, began to appear clearly in the markets, so the Lebanese welcomed 2020 with a set of banking decisions related to the end of withdrawals in dollars, and a circular of the Banque du Liban to open credits in dollars for the importation of fuel, wheat and medicines.
And since most raw materials are imported from abroad, which means that their price must be paid in US dollars, the so-called “black market” has emerged; Which registered large gaps between its prices and the official market price.
** The fall in the value of the lira
The Lebanese pound lost 78 percent of its value in 2020; After a dollar equaled 1,500 pounds, this year it reached 9,000 pounds on the black market.
Since last June, the Banque du Liban announced the launch of an electronic platform as part of the efforts to unify the price of the dollar in the parallel market.
Since then, the foreign exchange market has included three rates per dollar, the first is the official rate of the Central Bank of Lebanon of 1507 per dollar and one, and the second is the price of an electronic platform for banking operations and ranges between 3000 and 3900 pounds.
While the third price is that of the black market, which reached 9,000 in recent months, and today ranges between 8,000 and 8,600 pounds per dollar.
** Reservation mandatory
The mandatory reserve ratio for banks in Lebanon is 15% of total deposits, and is higher than in neighboring countries like Jordan 5% and Palestine 9%.
The legal reserve is the money that the banks that operate in the local market place with the central bank as liquidity that protects them from any risk, and its value increases with the high volume of deposits in the banking sector.
Lebanon threatens to implement a reduction in the mandatory reserve and to use the liquidity resulting from the reduction in the domestic market, or to transfer it to pay the bill for foreign imports.
On the other hand, Lebanon has faced an accelerated decline in foreign exchange reserves since October 2019, with the country’s growing need for foreign exchange and its availability of local currency, amid a sharp drop in the exchange rate of the lira and as a result of depositors withdrawing their money.
It is estimated that foreign reserves currently do not exceed $ 15 billion, down from the average of $ 30 billion in 2019, while the country maintains gold reserves, at 286 tons, according to data from the World Gold Council.
Despite assurances from the Governor of the Central Bank of Lebanon, Riad Salameh, that it is not possible to reduce the mandatory reserve ratio, the Central Bank is considering, according to observers, reducing this level from 15 to 12 percent or 10 percent. cent, to continue subsidizing basic materials.
** Consumption of Lebanon
According to the Banque du Liban balance sheet, the bank’s foreign currency assets decreased this year by 32 percent compared to mid-November 2019.
The reason for this decline, according to the same report, is due to the fact that the Central Bank financed the importation of fuels, flour, medicines, support for a food basket and the injection of the dollar into the exchange market.
Figures from the Lebanese Institute for Market Studies (private) indicate that the Central Bank’s losses amounted to $ 40 billion, 20 of which were between 2018 and 2020.
According to data from the International Monetary Fund, gross domestic product, which reached $ 53 billion in 2019, is expected to decline in an unprecedented way to $ 18 billion by the end of 2020.
As for the country’s public debt, at the end of September 2020, it reached around $ 95 billion, according to international data figures (a private company).
Inflation
According to the Central Department of Statistics of the Presidency of the Council of Ministers, the consumer price index rose this year by 136.80 percent last November, on an annual basis.
This indicator gives an overview of the evolution of the prices of goods and services consumed by households, and indicates a strong increase in the prices of imported and domestic goods, due to the fall in the currency and the transfer of differentials exchange rate to the final consumer.
** Forensic audit
In an attempt to find out the cause of the collapse and reveal those responsible, the Lebanese government agreed last July to open a criminal audit of the Central Bank’s accounts and commissioned an international company, “Álvarez y Marsal” for the most part.
The financial forensic audit usually relies on some financial cases, with the aim of finding documents or information to prosecute those suspected of financial manipulation or waste, as these documents are presented in court.
Financial forensic audit is a basic requirement of international donors and the International Monetary Fund to help Lebanon emerge from financial collapse.
Last November, the company “Álvarez y Misal” announced its apology for the forensic audit of the accounts of the Central Bank of Lebanon, due to the lack of sufficient data from the Central Bank.
The decision was a setback for Lebanon, where the audit is one of the main demands of foreign donors to help the country weather the financial crisis.
Lebanon has adopted a bank secrecy law since 1956, which prohibits the disclosure of “bank secrecy” to any party, be it judicial, administrative or financial, except in some cases. This law has been a motive to attract capital from Arab and foreign countries.
Unemployment
The entire economic crisis has affected the Lebanese citizen, from the high price to the loss of job opportunities and high unemployment rates.
The only restaurant and nightclub sector has seen, until last November, the closure of 265 establishments, according to the “Syndicate of Owners of Restaurant, Café, Cabaret and Pastry of Lebanon”.
Information International (a private company) expects the number of unemployed in Lebanon to be one million by the end of 2020, or 65 percent.
And this census, which was released in May, indicated that this number “remains verifiable unless everyone takes quick practical steps to correct it,” which in reality did not happen.
** Protests
Because of everything Lebanon witnessed in 2020, and still is, citizens moved throughout the year with protests of demand.
Public conductors, hired teachers, the General Workers’ Union and other union bodies mobilized with sit-ins and strikes that included most Lebanese regions from north to south.
Several groups of citizens participated in these positions, denouncing the difficult living conditions, the fall of the lira against the dollar and the resulting burdens such as the high prices of basic materials and fees.
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