LIMS explained that auditing the central bank alone is not enough to uncover past corruption and the misallocation of public resources over the years. The forensic audit ought to be expanded, so that it encompasses all past public tenders, conducted by ministries, where the taxpayers’ money was squandered. Only then can the perpetrators be disclosed and held accountable, thus setting a precedence that deters future corruption. LIMS gave the example of the Turkish power barges, as the tender document was famously tailored to suit the winning company. The contract was signed without going through the scrutiny of the Tender Board. Ironically, the power barges have cost the treasury a total of $1.5 billion. On top of that, since they were contracted back in 2013, the energy supply from government owned electricity company dropped from 12 to 2 hours a day. 

In 2021, the Lebanese parliament adopted a new public procurement law presented as being a step towards a better oversight on public tenders. The new law allows ministries and public institutions to carry out their own tenders. The Tender Board, now renamed the Public Procurement Authority (PPA), was reduced to a mere supervisory body and, according to the new law, its members will be appointed by the same government they’re supposed to oversee. The new law therefore includes a flagrant conflict of interest and should be amended to guarantee independence from political interference and that the PPA members are selected based on merit, not favoritism. 

As for the electricity sector, EDL should start by repricing electricity to match the costs of production, from 1 to 25 cents per kWh. Doing so would allow EDL to purchase enough fuel to fire up all power plants at full capacity. LIMS also suggested allowing independent power producers (IPPs) into the market and turning the private “illegal” generators into electricity distribution companies (EDCs) for their proven track record in bill collecting. IPPs would increase their production capacity and EDCs would improve their distribution ability. This in turn would put less pressure on the government’s budget and a drop in demand for additional public tenders in the problematic electricity sector. 

LIMS explained that the recent devaluation of the LBP is due to the decision of raising the exchange rate of bank withdrawals to 8,000 LBP to the dollar on December 9. Since the onset of the crisis in 2019, Lebanon has used a multiple exchange rate regime, where dollar deposits at Lebanese banks can only be withdrawn in Lebanese pounds at an exchange rate of 3,950 LBP to the dollar. After months of pressure from the Finance and Budget Committee, BdL raised the rate on the eve of the upcoming parliamentary elections. Since this measure has been financed by increasing the money supply, the Lebanese pound plunged. 

More generally, for over 2 years, the LBP’s exchange rate has been deteriorating because of the increase of money in circulation. In fact, the cash in circulation went from 6,000 billion LBP in late 2019, to nearly 42,000 billion LBP just recently. The main reason for this sevenfold increase is the government choosing to cover its budget deficit and the commercial banks’ losses through money creation and inflation, rather than reforms. LIMS also mentioned other causes for the LBP’s devaluation, notably the transition to a floating exchange rate that falls prey to political, social, diplomatic, and security issues. Any complication will inevitably reflect negatively on the exchange rate, proving that a floating system is unsuitable for an unstable country like Lebanon.

By injecting USD liquidity into the currency market, Circular 161 will be able to stabilize the currency for a while. However, LIMS sees this fix as momentary at best because it comes at the hefty price of shrinking the FX reserves even further. LIMS reiterated the dire necessity of ensuring monetary stability by establishing a currency board. Thanks to its strict rule-based monetary arrangement and a full reserve system, a currency board decouples the currency from both internal and external shocks, while guaranteeing a fixed exchange rate indefinitely. Alternatively, Lebanon could undergo a currency substitution, or dollarization, to ensure the required monetary stability needed for economic growth.