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Al Ain News
Thursday 10/22/2020 10:15 AM Abu Dhabi time
The average exchange rate of the dollar against the Lebanese pound decreased slightly, during the trading session on Thursday morning, between 7,380 and 7,450 Lebanese pounds per dollar, in the parallel market (black), while the price stabilized in banks and exchange houses.
Lebanon’s economy is contracting by 25%, according to the International Monetary Fund.
There is still no government in Lebanon tackling the country’s worst crisis since the civil war that took place between 1975 and 1990 at least, as the competing political blocs cannot agree on the division of power.
At the same time, cash reserves dwindled to a dangerous degree, the pound collapsed, and there was no longer enough liquidity to clean up the effects of the destruction of people and property in the Beirut port bombing on August 4.
The United Nations says 55% of the population lives below the poverty line, while Beirut-based research firm InfoPro says that a third of private sector workers have lost their jobs.
Exchange rates
The Union of Money Changers in Lebanon maintained the exchange rate of the dollar against the Lebanese pound with a variable range between buying at 3850 pounds and selling at 3900 at the most.
The price of the dollar in banks.
The Central Bank of Lebanon has also set the dollar exchange rate at 1507.5 pounds, and this price only applies to imports of fuel, medicine and wheat, and the banks have set a price of 3,850 pounds per dollar, at withdraw the dollar to small depositors.
A financial collapse of an unprecedented scale in Lebanon has raised concerns about stability in a country facing multiple crises.
The problems facing Lebanon have been exacerbated by political chaos, the Covid-19 pandemic and the huge explosion that destroyed the port of Beirut, killing some 200 people and leaving billions of dollars in damage.
After months of bickering, politicians are now heading to elect a prime minister on Thursday to form a new government that should kick off an economic recovery and bring in foreign aid.
The economic crisis, sparked by decades of government waste and corruption, erupted last fall in light of low capital flows and protests across the country. For a year, the currency has crashed and banks are paralyzed as prices rise and layoffs continue.
Increase in poverty
Last May, the United Nations estimated that the number of people living in poverty, or on less than $ 14 a day, in Lebanon had doubled last year and reached 55%. Within this category, the number of people considered to be in extreme poverty has tripled, constituting around a quarter of the population.
The United Nations hopes that more people will fall into poverty, further widening one of the largest wealth gaps in the region. More Lebanese were threatened by inflation and after the port explosion.
Inflation increased
The collapse of the Lebanese pound pushed inflation to 120.3 percent year-on-year in August. Consumer prices have risen in a country that relies heavily on imports but produces few goods.
Layoffs and company closings
InfoPro, a Beirut-based research firm that surveyed companies three times in the past 12 months, concluded that a third of all private sector jobs had been cut. The total number of unemployed was 550,000, or 30 percent of the workforce of 1.8 million.
And that was last June, before the port explosion, which affected hundreds of companies. The explosion caused the loss of at least 100,000 jobs in the tourism sector, which has long been one of the main employment sectors and one of the mainstays of the economy.
The collapse of the currency and exchange rates varied
The scarcity of the US dollar has increased on the black market, which is one of the most important sources of liquidity during the crisis.
The official exchange rate of the Lebanese pound has remained at 1507.5 against the dollar since 1997. However, the dollar is now only available for imports of basic products, namely wheat, fuel and medicine.
Banks, which have reduced cash withdrawals and avoided spending foreign exchange, have paid depositors with dollar accounts in Lebanese pounds at an exchange rate of 3,900.
But the value of the pound on the street has fallen by 80%.
Damage caused by the Beirut explosion
The World Bank said last August that the Beirut port explosion caused between $ 3.8 billion and $ 4.6 billion in damage. He also estimated the size of the damage to the economy between $ 2.9 billion and $ 3.5 billion.
After the explosion, Lebanon’s external financial needs for the next four years rose to more than $ 30 billion, compared to around $ 24 billion, according to some estimates. Foreign donors have assured that they will not provide aid to a country that is not implementing reforms.
Drowning in debt
Lebanon announced earlier this year that it was defaulting on its huge hard currency debts, citing dangerously low reserves.
Public debt rose sharply from 131% of GDP in 2012 to around 176% at the end of 2019, one of the highest in the world.
The government spent about 50% of its income in 2019 just to pay interest.
Total public debt expanded to $ 94.3 billion last August, according to data from the Lebanese Association of Banks, and international bonds account for a third of the debt burden.
The banks and the government of Lebanon blamed each other for the crisis. Lebanese banks are the government’s largest creditor and the largest shareholder entity with international bondholders. Lebanese banks hold 28% of the debt instruments denominated in Lebanese pounds, worth $ 59 billion, while the Central Bank owns 60%.
