Fall of Lebanese pound compounding plight of the poor

The dizzying depreciation came as Lebanon’s central bank started reviewing the country’s banks under international pressure for banking sector reform.

Tuesday 02/03/2021
A customer counts Lebanese pounds at an exchange shop, in Beirut, Lebanon. (AP)
A customer counts Lebanese pounds at an exchange shop, in Beirut, Lebanon. (AP)

BEIRUT -  The Lebanese pound hit a record low against the dollar on the black market on Tuesday as the country’s political crisis deepens with no prospects of a new cabinet in the near future and foreign currency reserves dwindle further.

The dollar was trading at 9,975 Lebanese pounds around noon Tuesday. The previous record was registered in July, when the dollar briefly sold for 9,900 pounds on the black market. The official price remains 1,520 pounds to the dollar.

The dizzying depreciation came as Lebanon’s central bank started reviewing the country’s banks under international pressure for banking sector reform.

Lebanese banks had been given until Sunday to increase their capital by 20%, among a series of demands from the central bank.

On Monday, a central bank committee “agreed on a roadmap with deadlines for the Bank of Lebanon to take appropriate measures” if these requirements were not met, it said in a statement.

Lebanon’s Al-Akhbar newsaper said Tuesday that the currency plunge was partly the result of commercial banks sucking dollars out of the market to meet the capital demands of the central bank.

— Multiple crises —

Lebanon has been hammered by one crisis after another, starting with the outbreak of anti-government protests against the country’s corrupt political class in October 2019. That has been compounded by the coronavirus pandemic and a massive, deadly blast in Beirut’s port last August.

In neighbouring Syria — where the economy has been hit by the 10-year conflict, corruption and Western sanctions — the dollar also hit a record on Monday, reaching nearly 3,900 Syrian pounds. The economies of the two neighbouring countries are interconnected and many Syrians have had their money blocked in Lebanese banks that have implemented harsh capital controls.

The massive blast at Beirut’s port last August, when nearly 3,000 tonnes of ammonium nitrate detonated, killed 211 people and injured more than 6,000. Large parts of the Lebanese capital were badly damaged in the blast.

Prime Minister Hassan Diab’s government resigned six days after the August 4 blast, one of the largest non-nuclear explosions in history. In October, former Prime Minister Saad Hariri was named to form a new cabinet but nearly five months later, disagreements between him and President Michel Aoun on the shape of the cabinet continue to stand in the way of a new government’s formation.

Lebanon has also been in desperate need of foreign currency, but international donors have said they will only help the country financially if major reforms are implemented to fight widespread corruption, which has brought the nation to the brink of bankruptcy.

The crash in the local currency will throw more people into poverty. In Lebanon, the minimum wage is 675,000 pounds, or about $67 a month. Before the protests broke out in 2019, the minimum wage was about $450.

The crisis has driven nearly half the population of the small country of 6 million into poverty. Over 1 million refugees from Syria live in Lebanon.

In December, the World Bank warned that Lebanon’s economy faces an “arduous and prolonged depression,” with real GPD projected to plunge by nearly 20% because its politicians refuse to implement reforms that would speed up the country’s recovery.

In March last year, Lebanon defaulted for the first time ever on a payment on its massive debt amid ongoing popular unrest. Lebanon’s debt reached $90 billion or 170% of GDP, making it one of the highest in the world.