Lebanon is headed for a “shocking” price of the dollar … and the next one is “worse”

A new exchange rate may be added to the “basket of dollar prices” in Lebanon, revealed by the Minister of Finance in the interim government, Youssef Al-Khalil, causing a shock to the Lebanese as it related to the official exchange rate, “which will rise from 1,507.5 pounds to 15,000 pounds” before falling and switching. This increase is the government’s rescue plan.

In a statement, the Lebanese Ministry of Finance explained: “After it became urgent to correct the repercussions of the sharp deterioration in the exchange rate and its pluralism on public finances, to reduce the deficit and ensure financial stability, and since continuing with the financial and monetary recovery plan and the promotion of the economy requires the unification of the exchange rate, therefore it is an inevitable corrective measure to stop working against the US dollar exchange rate on the basis of 1507 LBP.

She indicated that “as a first step towards the gradual unification of the exchange rate, it was agreed between the Ministry of Finance and the Central Bank to adopt a rate of 15,000 Lebanese pounds for every US dollar, in in accordance with the provisions of articles 75 and 83 of the Monetary and Credit Law, as well as all other regulatory and implementing texts issued by the Banque du Liban.” “This procedure will be implemented from November 1, 2022,” she said.

The Ministry of Finance responded and explained that “the change in the exchange rate of the Lebanese pound against the US dollar will take place in two steps, the first at the level of the customs dollar and the second at the level of the official exchange rate. to be approved in collaboration with the Central Bank, which is considered a necessary step to unify the exchange rate,” stressing that “This will be subject to the approval of the recovery plan he is working on, which will accompany that step. “

After 25 years of the stability of the official price of the dollar in Lebanon, it can rise tenfold at the same time, while the exchange rate of the dollar began to rise gradually on the black market three years ago, until it reached the threshold of 39,000 pounds , and before easing the impact of what was announced by the head of a caretaker government, Najib Mikati, in the budget approval session last Monday, said that the customs dollar will rise to 15 pounds, until the news of the increase of the official exchange rate has fallen. on the Lebanese like a thunderbolt.

Two reasons for the government’s move

One of the wonders of Lebanon, the circulation of various prices for the dollar, including the official exchange rate, the price of the “exchange” platform, which amounts to 30,000 pounds, the black market dollar exchange rate, which reaches the threshold of 39,000 pounds, the price of bank withdrawals for dollar deposits, amounting to 8,000 pounds, and the dollar Customs duty fixed at 15 thousand pounds.

The first reason prompting the Lebanese government to increase the official exchange rate to the dollar, according to economist Mounir Younes, is to increase treasury income for several reasons, especially the fulfillment of the promises it made to public sector employees made to increase their salaries, from here it started with the so-called customs dollar, that is to say the increase of the fee When importing it varies from 1,507 lire to 15,000 lire.

As for the second reason, Yunus tells Al-Hurra, it is “to meet one of the conditions of the International Monetary Fund by unifying exchange rates, on the platform price, ie 30 thousand pounds, and therefore the price set by the government is established. is only a first phase, as it is likely to rise in the coming year.” Either to the price of the platform or just below.”

The economic expert pointed to the confusion of the Minister of Finance, who initially spoke of the increase in the dollar price to 15,000 pounds being linked to the official dollar price, before retracting it, stressing that what was meant was the customs dollar is, to be approved as an official price along with the recovery plan.

MP Ibrahim Kanaan today confirmed that the finance minister’s announcement to unify the exchange rate in the budget is wrong, explaining in his tweet via “Twitter” that “the budget did not accept an exchange rate of 15,000, but rather the government relied on the customs dollar at 15,000 after a loss that lasted 6 months Unfortunately the government continues its shameful confusion and pours its impotence into people’s pockets, this is what we were warned against and confronted from the first moment , and we will continue.

The economic researcher, Professor Jassem Ajaga, also confirmed that “two reasons push the Lebanese government to increase the official price of the dollar, the first of which is a partial fulfillment of one of the demands of the International Monetary Fund represented in the liberalization of the exchange rate of the dollar, and the second reason is to ensure imports for the public treasury after the large deficit in the 2022 budget.”

Ajaqa explains to Al-Hurra that “the International Monetary Fund emphasizes the need for Lebanon to deal realistically with the losses it has suffered, in addition to the depreciation of the Lebanese pound, especially on the black market. Therefore, one of its conditions is to to agree to the three billion dollar aid plan for Lebanon over four years, which liberalizes the exchange rate of the lira, meaning that the central bank will not interfere in determining it by buying and selling the dollar. ‘s first step was to raise his official price to 15,000 liras, since he could not fully liberate it at once because citizens were unable to bear it.

He added, “In the 2022 budget, spending has been significantly increased, amounting to 40 billion pounds, the bulk of which is allocated to public sector salaries and wages, and this is up to three billion pounds a month, without any resource is. for it, which constitutes a disaster that exceeds the disaster of approving the rank series. And salaries in 2017, hence the government saw that increasing the official exchange rate would ensure an additional resource for the state treasury. “

In his tweet to him via “Twitter”, representative Michel Daher considered that “to change the official exchange rate to 15,000 pounds is to force the banks to either increase their capital or force them to restructure, and this will prompt the depositor to transfer his balances. from dollars to pounds at the new price to buy the cash dollar. Which will lead to huge discounts on lira checks and an unprecedented rise in the price of the dollar.”

Yunus, in turn, emphasizes the need for the increase in the dollar exchange rate to withdraw from the banking sector, which means that it is not permissible for the depositor to continue to withdraw his money from banks at a dollar rate of 8,000 pounds and 12,000 pounds, while the official exchange rate of the dollar is 15,000 pounds, this The issue is related to the Bank of Lebanon, which is responsible for clarifying it in the coming days.”

next “worst”

At a time when 82% of Lebanon’s population lives in multidimensional poverty, with the country recording the highest levels of inflation in the prices of commodities and food in the world according to ESCWA, what awaits the Lebanese with the rise in the officials and used price of the dollar is a new, more difficult phase than they have experienced since the beginning of the economic crisis.

Regarding the black market price and the impact of the decision to increase the official exchange rate on it, Ajaqa says, “With the continuation of smuggling, monopoly and price manipulation, and the applications that give the black market price, it is not possible to predict what the black market dollar can be, as this price is not the result of the supply and economic demand only for the Lebanese market. .and therefore it is likely to rise if the government does not take additional measures.”

The increase in the price of the dollar, says Ajaqa, will lead to inflation in the market, due to the increase in the customs dollar and the value added tax dollar, “knowing that if there is strict application of the laws were, prices would have been reduced, as merchants pay taxes at the previous official exchange rate, i.e. 1507 liras. But they get it from customers at the black market price, which is around 39,000 pounds, so if they get it now at 15,000 pounds, the prices will come down, but a lot of the dealers have proven in the last stage that they are corrupt, so they are expected to raise prices more than they are now.” .

Ajaqa gave an example of this: “If the price of a commodity is $100, the citizen pays $11 value added tax, and $5 customs, that is $16 extra on the price of the basic commodity. black market dollar for the customer .

He added, “After the budget mentioned an increase in a 3% fee on all goods subject to value added tax, and a 10% tax on imported goods that has a counterpart in Lebanon, it means that the price of goods imported. from abroad that has a counterpart in Lebanon will increase by 13 percent. %, plus 16% (5% customs duties and 11% value added tax) introduced before the budget was approved is. As for its price in local currency, it remains dependent on the price of a dollar that traders will calculate, whether it is the black market dollar or the new official exchange rate dollar. “.

Regarding the reflection of the new official exchange rate on the purchasing power of citizens, Younes believes: “There is no doubt that the increase in prices will affect imported goods, at a time when the government indicates that basic consumer goods will not be affected by the new fee, but it will affect other goods, which will affect the level of consumption, since the higher the prices, the lower the demand for them, especially in a crisis country like Lebanon.”

Additional segments of the citizens will be affected by the new increase in the cost of living, but the “cash” economy, says Younes, “helps to mitigate this to some extent, but it does not cancel the fact that poverty is widespread in Lebanon .”

Agaqa divides the employees who receive the local currency into two parts: employees in the public sector whose salaries will triple in the 2022 budget approved by the government, and a part of the employees in the private sector who enjoyed better salaries before the budget than those working in government institutions. , since some of them receive part of their salary in US dollars, or its equivalent in Lebanese pounds, it is not possible to determine the repercussions of the effect of the increase of the exchange rate on the employees of the two sectors not, especially since large amounts of local currency have been pumped into the market.

Despite the fears of the Lebanese, the application of the new exchange rate will not be “hard on them”, as Ajaqa confirms, since the tendency, according to his information, is to ease the severity of the decision as much as possible, especially by the Central Bank, for example, keeps the exchange rate of the dollar for individual loans at 1507 liras. At the same time, he emphasizes, “If the government does not take strict measures such as stopping smuggling, combating the black market, combating monopoly and price manipulation, and others, it will not achieve the goal it is striving for with its decision, that is, more income secured. On the contrary, his damage will be very great.”

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