As the tenure of Lebanon’s Central Bank Governor, Riad Salameh, draws to a close, speculation intensifies regarding the fate of the central bank’s stewardship and the precarious stability of the Lebanese Pound (LBP).
In a series of interviews, LIMS expressed growing concerns over the prevailing uncertainty surrounding the transition at the central bank. The temporary appointment of the first deputy governor as an interim measure would take place until a permanent successor assumes the position subsequent to the election of a new president. Yet the absence of clear communication on this transition might further exacerbate prevailing vulnerabilities.
The erratic transition has prompted questions about the Lebanese Pound’s exchange rate stability. LIMS explained that the current stability is temporary and buttressed by dollar injections into the market via the electronic exchange platform Sayrafa. The central bank persists in funding government expenditure, notably public sector wages, opting to disburse those wages in USD on Sayrafa to avoid currency devaluation. Such intervention comes at a steep cost, depleting foreign exchange reserves. Another major concern is the opacity surrounding the Sayrafa platform, which raises questions about its long-term sustainability as a stabilizing mechanism.
Compounding the situation, the recent fourfold surge in public sector salaries places additional stress on the exchange rate. The government lacks the needed resources and will finance a substantial portion of this increment through borrowing from the central bank. The central bank will find itself left with limited options, either resorting to printing additional Lebanese Pounds or further drawing on foreign reserves, both of which entail significant risks. Given the prevailing dynamics, it appears increasingly likely that the Lebanese Pound will undergo another round of devaluation.
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