Despite the Central Administration of Statistics reporting an official inflation rate of 84.9% over the past year, LIMS cautioned that governments often underreport the real rate to save face, and pointed out the actual inflation rate of 269.1% as of February 2021, according to Professor Steve Hanke, the world’s leading inflation expert. 

On February 4, the Lebanese International Finance Executives (LIFE) hosted a webinar debate between LIMS President Dr. Patrick Mardini and Dr. Nasser Saidi, to discuss the currency board proposal and if the system would suit Lebanon’s needs.

Dr. Mardini began by explaining how a currency board can halt hyperinflation, end the devaluation of the Lebanese pound (LBP), and save the population from the resulting poverty. He then used many exemplary countries from across the world to support his point, and showed that the central bank has 84,000 billion LBP in liabilities and $17 billion in foreign exchange reserves, allowing for the creation of a currency board with a fixed exchange rate of 8,000 or even 5,000 LBP to the dollar. Dr. Mardini went on to explain that Lebanon currently lacks the monetary stability to attract investors. Establishing a currency board could be the solution, as such a system would eliminate currency risk. 

The Ministry of Energy and Water (MOEW) has been pressuring the central bank to cover the expenses of a spot cargo fuel procurement at a subsidized exchange rate of LBP1515/$—the excuse being to prevent a total nationwide blackout. LIMS pointed out that electricity sector saw the MOEW running on a $2 billion yearly deficit for over a decade. Further to this, the energy industry is responsible for $47 billion in losses, half the national debt.

After a legal discussion about the ability of a caretaker government to prepare a budget, the Ministry of Finance finally presented a first draft for approval. LIMS, upon reviewing the draft, branded the plan as nearly identical to the 2020 budget, as it lacked a long-term vision of how to restructure the economy and public debt. Granted the draft, done for the sake of meeting constitutional duties, completely disregarded the multiple currency exchange rates in the market. Furthermore, the proposal cuts neither public spending, nor reforms, as it intends to run a 5,000 billion Lebanese pound (LBP) deficit calculated at the unrealistic “official” exchange rate of 1,500 LBP to the dollar. Moreover, the plan fails to specify how it aims to cover this undervalued deficit, now that the state has defaulted on paying its debt, and securing new loans is no longer an alternative. LIMS expressed concern that continued debt monetization would lead to further currency devaluation and inflation that would drown the population into more extreme poverty.

COVID lockdowns have devastated the already exhausted Lebanese private sector. LIMS noted that Lebanon, whose economy relies mostly on services, saw heavy damage to the retail and tourism sectors. Only some tech companies and delivery services, as well as medical supply firms, managed to adapt to the newly imposed restrictions. 

LIMS blamed government for unsuccessfully handling the health crisis by diverting all resources to the public hospitals renowned for their poor services, and suffocating the successful private hospitals that could have tackled the crisis more efficiently. LIMS called for improved public-private partnerships in the response to the pandemic.