Lebanon faces difficulties in uniting exchange rate before external financing
The IMF called for a transparent monetary system
Tuesday – 18 Ramadan 1443 AH – 19 April 2022 AD Issue No. [
Riad Salameh, Governor of the Banque du Liban (Central Bank) (Reuters)
Beirut: Ali Zeineddine
The Lebanese Government avoids, until further notice, the disclosure of its orientations related to the unification of the lira exchange rate and the mechanisms that will be adopted to achieve the goal of establishing a new monetary system based on transparency and credibility within the path of financial recovery, which is at the heart of the rescue plan it is intended to submit to the Management of the International Monetary Fund soon in its final formulation, with the aim of reaching the maturity of the conclusion of a $ 3 billion financing program agreement for a period of 4 years.
A concerned financial official believes that the issue of the association of the exchange rate represents the biggest obstacle within the package of procedural and legislative conditions requested by the fund team. Any price of the pound does not affect the restructuring of the components of the balance of payments and current account transactions for imports and exports, but directly affects the fragile balances of earnings in the public and private sectors programmed under the current official. price of 1515 pounds per dollar, and affects the two blocks of savings and existing loans at the banks.
It is expected, according to the official with whom Asharq Al-Awsat contacted, that the parameters of the required monetary system will become clear according to what the executive will decide on the distribution of the burdens of the financial gap amounting to about $ 73 billion . , with the probability that it will exceed the level of $ 75 billion as a cost to delay the preparation of the plan. Also based on a set of emergency financial bills that the government successively refers to Parliament, in particular the laws on capital controls and transfers (Capital controls), the proposed amendments to the Banking Secrecy Act, the restructuring of the Central Bank and the banking sector, as well as banks subject to audits and accounting by independent international companies.
Under this scenario, and in view of the shrinking of the Central Bank’s hard currency reserves to around $ 11 billion, which limits its control over monetary exchange, the signals in the financial sector are strengthened that a safe exit from the dilemma of multiple exchange rates will not be easy before implementing the promised rescue plan. It depends on the cooperation of the relevant political and monetary authorities, and on the availability of relative internal stability shortly after the parliamentary elections scheduled for the middle of next month. , and in which effectively translate the promises of the Presidents of the Republic, the House of Representatives and the Council of Ministers to prioritize support for the necessary structural reforms. Thus, the promised legal basics, including the current year’s budget bill, form the legal reference for the financial sector at the stage of rescue and recovery.
Without sufficient capacity to manage liquidity control and the reference price that can be adopted by the targeted flotation mechanism that requires the intervention of the Central Bank to combat speculation and limit the expansion of margins, pending the signing of the financing agreement with the IMF, the government , by the Ministry of Finance and the Monetary Authority, is unable to make Decisive decisions on the monetary issue, says the financial official. But he says that, with the approval of the fund’s experts, it is possible to rely on the “exchange” platform managed by the Central Bank as a transition station to reach the stage of soaring the exchange rate of the lira , which coincides with the beginning of the receipt of financing payments by the international institution.
While the Governor of the Banque du Liban, Riad Salameh, confirmed that the agreement with the Fund is a positive event, and will contribute to the unification of the exchange rate, he stressed the need to meet the conditions set by the Fund. set in the agreement. , at the level of experts, with Lebanon to obtain the approval of the Executive Council for a medium-term financing program. It is known that the Fund’s mission singled out the Banque du Liban on condition that it “unites the exchange rates for authorized current account transactions, which are critical to promoting economic activity, restoring external credibility and feasibility, and supporting through implementation will be. of official capital control. ”
Since the beginning of this year, the monetary platform has helped to restore the relative balance in the money exchange markets within price margins that mimic the threshold of 22 thousand pounds per dollar, but at the same time it causes a continuous drain on part of the mandatory investment in deposits without achieving monetary stability, even if temporarily, as it did not address the problems of the plurality of exchange rates, nor the whole monetary exchange in the markets and by the exchange companies taking place at prices that exceed the threshold of 25 thousand pounds per dollar.
The financial official points out that the dilemma of the multiplicity of exchange rates spreads through the monetary transaction system. This will be manifested by an increase in the severity of life imbalances and purchasing power, with the state on track to adopt a new customs dollar price that is likely to be in line with the trading price on the Central Bank platform, and a restructuring of the cost of public services such as communications, electricity, water, property fees and others at rates ranging between 3 and 5 times the current official price. .
On the other hand, the capabilities of the state, and with it the private sector, appear to be very limited to cover the expansion of revenue shortfalls. In fact, the sharp rise in fuel prices due to the rise in global oil prices and its automatic reflection on the cost of supplying electricity from private generators has ensured that all emergency cash assistance paid to employees in the form of monthly assistance equals half the salary or increases in transport allowances.
At the same time, depositors in banks suffer from multiple exchange rates for their dollar accounts, which make up about 80 percent of total deposits. Beneficiaries of Circular No. 161 receive $ 800 per month, equally divided between $ 400 in cash (banknotes) and the same in lira at a price of 12 000 lire per dollar. Thus, about 50 per cent of the cash hook is deducted in pounds, in addition to the transfer of half the amount due for exchange via magnetic cards, which is no longer accepted at most outlets.
For those who do not benefit from the circular or who want to obtain additional liquidity, the ceilings of monthly withdrawals generally range from 5 to 8 million pounds per month, at a price of 8,000 pounds per dollar, ie a deduction of up to 68 percent according to the prevailing market price. Note that the partial success achieved by the Central Bank in limiting the expansion of the money supply in pounds, which shrank to about 36 trillion pounds after crossing the 45 trillion pound threshold, on the other hand the scarcity of paper liquidity caused. in the local currency and the increase in interest rates on its exchange with checks.