USD price to further soar in Lebanon if no proper deal with IMF
Xinhuanet | September 9, 2020
The price of the U.S. dollar in Lebanon’s black market is expected to remain high or even higher if Lebanon fails to reach a deal on aid with the International Monetary Fund (IMF) and implement strict and necessary reforms in the country, experts said.
The Lebanese pound has been pegged to the U.S. currency at a fixed rate of 1,515 Lebanese pounds for 1 U.S. dollar. But the drop in injections by Lebanese expats, the big transfers by depositors from Lebanon to foreign countries, and the central bank’s years-long policy to stabilize the fixed rate led to a shortage in the U.S. dollar.
This caused big demand on the U.S. dollar by individuals and businesses, leading to a steep hike in its price on the black market to exceed 7,000 Lebanese pounds.
The weakening of the local currency plunged more citizens into poverty as they have become incapable of purchasing their most basic needs and hence this has become the main concern of the Lebanese people who follow up on U.S. dollar prices day by day.
Patrick Mardini, president of Lebanese Institute for Market Studies, told Xinhua that Lebanon needs a quick deal with the IMF to restore confidence in the country and attract U.S. dollar from foreign countries and expats which would help in stabilizing the exchange price.
Mardini explained that the U.S. dollar’s price has been stabilized at 7,000 Lebanese pounds per dollar for the last couple of months in the Lebanese black market because the central bank is still subsidizing the main needs of the country, including fuel, wheat and medicines.
But once the central bank stops supplying a big part of the dollars needed, importers will have to resort to the black market for their imports which will push higher the price of the U.S. currency.
Lebanon’s central bank announced two weeks ago that it has the capability of subsidizing fuel oil, wheat and pharmaceutical products for three months only.
Mardini insisted that a deal with the IMF would allow capital transfers to return to Lebanon, saying “we have three very critical months. Either we implement serious reforms or we go to immediate collapse.”
Meanwhile, Pierre Khoury, director of research and development at Gates Group in Beirut, told Xinhua that the future price of the U.S. dollar will highly depend on the impact of reforms in Lebanon.
For Khoury, oil and gas exploration and investments attracted to this sector in Lebanon would guarantee a better chance for stabilizing U.S. dollar than reforms imposed by the IMF.
Khoury explained that one of the IMF’s main conditions is the liberalization of the exchange rate of the Lebanese pound to the U.S. dollar which means that the black market will then turn into the official market where the price of the U.S. currency will be subject to supply and demand.
“When we liberalize the exchange rate, the central bank must have sufficient quantity of foreign currency reserves to intervene in the market and guarantee a stabilized rate of the U.S. dollar,” Khoury explained, adding that the central bank does not have this capability for the time being.
“We will have to wait until we implement reforms and start witnessing the positive impact of these reforms,” Khoury added.
Khoury also noted that among the main conditions imposed by the IMF is the strict capital control which will not encourage foreign investors to inject money into the Lebanese market.
“In this case, dollars will only be spent outside Lebanon based on the economic needs of the country, not according to the will of investors,” he said.
Khoury explained that Lebanon is indebted to Eurobond holders and has to reach a deal with Eurobond holders as per the conditions of the IMF.
“Therefore, Lebanon needs every dollar to finance the repayment of Eurobonds which means that Lebanon will not have the capacity to use the U.S. dollar in a free manner until it pays back the dues,” he said.