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After months of advocacy by LIMS, the Ministry of Health finally lifted subsidies on infant formula. LIMS congratulated the ministry for this important decision as it stops the shortage of infant formula and makes it available once again in Lebanon. Subsidies were supposed to keep the price low, but in reality, led to smuggling of infant formula from Lebanon to be sold at the market price in neighboring countries.
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LIMS stated that lifting subsidies on baby formula is the first step. Then, lifting subsidies on cancer and hard-to-treat drugs should be next, to help those who cannot access treatment. Subsidies has led to shortages and higher prices in the black market—where the products’ quality is unknown. Drugs are often smuggled abroad or disappear, making it difficult for patients to access treatment. Residents resort to the black market to buy expensive medication because no other choice remains. The subsidies program for drugs gave an advantage to smugglers and a huge disadvantage to consumers. This policy wasted money, increased Lebanon losses of foreign exchange reserves, and the funds did not get to the intended recipients.
LIMS Media Interviews:
- 'People lose either way': Lebanon's government ends infant formula subsidy. January 10, 2023: The National News, Article EN
- Do Critical Illness Drugs Follow The Example Of Infant Milk, Reaching Patients? January 17, 2023: Newsfolio, Article AR
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Lebanon Racks Up Penalties on Fuel Imports
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LIMS released an exclusive story on the penalties paid by Lebanon on fuel imports. The Ministry of Energy and Water promised Lebanon 4 hours of electricity per day for a 6-month period in return for 300 million dollars. The money was supposed to come from the Special Drawing Rights received by Lebanon from the IMF. However, the vessels have been anchored off Lebanon’s coast for 2 weeks, waiting for financial credits before unloading the cargo, and raking up a daily penalty of $72,000 USD for the delays.
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LIMS argued that Article 112 of the Public Accounting Law stipulates that the minister is personally responsible for those penalties. The ministry committed two main violations: (1) the fuel purchase deal was signed prior to obtaining the necessary credit, and (2) a short timeframe was set between signing the contract and requesting delivery, making it impossible for Lebanon to secure the credit on time.
LIMS also explained that the World Bank had a better deal for Lebanon promising to secure funds to allow importing gas from Egypt and electricity from Jordan. However, the World Bank stipulated that (1) electricity price increase so that Lebanon can cover the cost of imports, and (2) electricty regulatory authority (ERA) members be appointed to ensure good governance. Even though the ministry just increased the electricity prices, it has refused to appoint the ERA members aiming to maintain its direct control over the sector and act in the sector without supervision.
LIMS’ pressure on the need for the minister to cover the cost of penalties from his own pocket led to positive results, since the minister promised to negotiate with the supplier waving penalties.
LIMS Media Interviews:
- LIMS Exclusive: Council Of Ministers Did Not Address Problem Of Fuel Fines That Are Still Accumulating And The Minister Carries Them To Citizens, January 23, 2023: LIMSLB, Article AR
- Walid Fayyad Committed A Crime Against Depositors…Will The Council Of Ministers Catch It Tomorrow? January 18, 2023: Janoubia, Interview AR
- LIMS Exclusive: Reasons For Accumulation Of Financial Penalties In The Purchase Of Electricité Du Liban And Ways To Secure Financing: LIMSLB, January 11, 2023: Article AR
- Lebanese Ministry Of Energy Crimes. Bidding At The Expense Of The People? January 18, 2023: Jusur, Article AR
- LIMS Exclusive: Government Session Aims To Charge The Treasury More Than One Million Dollars In Fines, Which Will Be Borne By The Minister Of Energy With His Own Funds, January 16, 2023: LIMSLB, Article AR
- Who Will Pay The Late Fees For The Fuel Ships? January 12, 2023: Lebanon Debate, Article AR
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Renewable Energy: Main Topic at Townhall Meetings in North Lebanon
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LIMS organized 2 townhall meetings in north Lebanon, on January 23 in Tripoli and on January 31 at Notre Dame University-Louaize (NDU) in Koura. Around 100 attendees, including 5 members of parliament, 3 representatives of members of parliament, municipal council members, business owners, engineers, along with university professors and students, came to each meeting.
Lebanon has been stuck in an electricity crisis for at least three decades, with the government leaving the issue unresolved. Dr. Patrick Mardini, CEO of LIMS, illustrated how mismanaged the electricity sector has been, and then presented Toula’s pilot project. Toula’s project highlights the ability of municipalities to immediately provide 24/7 electricity to their households as follows: (1) private investors provide the initial investment in solar to municipalities—around $6,000 per household in the case of Toula. (2) the solar farm supplies electricity to the private generator using a power purchase agreement directly negotiated between the two private entities. (3) The private generator complements the purchased solar energy with their generator and then sells the bundle to households through their already established microgrid and distribution system.
Mr. Elie Greige, the engineer overseeing this pilot project, described the solar farm’s stages of development. When there was a dire fuel shortage in the country, this initiative was launched. He explained that the municipality leaders, generator owners, and private sector investors partnered together to bring such a beneficial outcome to the area. As Toula is expected to grow in its population, two times the number of needed solar panels have been installed on the farm. Nowadays, Toula is in contact with the national electricity company trying to set an agreement allowing Toula to trade or sell surplus energy at peak times.
Media Exposure:
- Can Tripoli be brought out of darkness with clean energy? January 25, 2023: An-Nahar, Article AR.
- Is it possible to bring the city out of darkness and disseminate the Tula model to the municipalities? January 25, 2023: NNA, Article AR.
- Can Tripoli be brought out of darkness with clean energy? January 25, 2023: Al-Joumhouria, Article AR.
- Toula’s Solar Farm Energy... an electrical model, January 25, 2023: nida-alwatan, Article AR.
- A meeting on the role of municipalities in providing renewable energy, in which the deputies of Tripoli participated: Is it possible to pull the city out of the darkness and generalize the Toula model to the municipalities? January 25, 2023: LIMS, Article AR.
- Can Tripoli be brought out of darkness with clean energy? January 25, 2023: Janoubia, Article AR.
- Can Tripoli be brought out of darkness with clean energy? January 25, 2023: Lebanese- Forces, Article AR.
- A meeting on the role of municipalities in providing renewable energy, in which the deputies of Tripoli participated: Is it possible to pull the city out of the darkness and generalize the Toula model to the municipalities? January 25, 2023: baladiyat, Article AR.
- A meeting on the role of municipalities in providing renewable energy, in which the deputies of Tripoli participated: Is it possible to pull the city out of the darkness and generalize the Toula model to the municipalities? January 25, 2023: klyoum, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 2, 2023: An-Nahar, Article AR.
- A meeting on "The Role of Municipalities in Securing Renewable Energy" organized by the "Lebanese Institute for Market Studies" in cooperation with Notre Dame University – Louaize, February 1, 2023: NNA, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 1, 2023: lebeconomy, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 1, 2023: Janoubia, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 1, 2023: Beirut24, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 1, 2023: Lebanese- Forces, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 1, 2023: nabd, Article AR.
- A meeting on "The Role of Municipalities in Securing Renewable Energy" organized by the "Lebanese Institute for Market Studies" in cooperation with Notre Dame University – Louaize, February 1, 2023: elqarar, Article AR.
- The role of municipalities in securing renewable energy" and an examination of how to generalize the Toula’s model, February 1, 2023: akhbaralyawm, Article AR.
- A meeting on the role of municipalities in providing renewable energy, February 2, 2023: khiyam, Article AR.
- How can municipalities secure electricity through solar farms energy? February 1, 2023: ad-dawra, Article AR.
- A meeting on "The Role of Municipalities in Securing Renewable Energy , February 1, 2023: almontasher, Article AR.
- A meeting on "The Role of Municipalities in Securing Renewable Energy , February 1, 2023: almarkazia, Article AR.
- A meeting on "The Role of Municipalities in Securing Renewable Energy , February 1, 2023: Magvisions, Article AR.
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Lebanon Arrests Money Exchangers Amid Further Currency Devaluation
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During January, the Lebanese pound (LBP) continued to devalue, with the exchange rate in the black market jumping from 42,000 LBP to 62,000 LBP to the dollar. Such news has sparked discussions about the potential manipulation of the black foreign exchange market. Some believe that money exchangers and merchants have been manipulating the exchange rate to gain financial benefits from the quick shifts in the rate.
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LIMS explained that money exchangers are not responsible for the depreciation of LBP; they simply mirror the reality of the market. The depreciation is a logical outcome, when printing a very large quantity of LBPs. Money in circulation increased by 20-fold since the beginning of the crisis in 2019, to finance government expenses and reimburse the central bank’s debt to the financial sector. LIMS argued that the Lebanese government is neither undertaking any reforms, nor halting its inflated expenses. In addition, there is denial of the banking losses to avoid the banking industry’s liquidation. Therefore, these losses are funded by printing LBPs. So long as this approach continues, the collapse of the LBP will persist. Also, LIMS pointed out the loss of the central bank's effective influence on the market, due to the rapid depletion of reserves.
LIMS expects that Lebanon will face a deteriorating economic situation, including a collapse in the exchange rate and higher inflation in 2023. The exchange rate’s collapse caused the LBP to become unpopular among residents, and the economy is turning towards dollarization.
LIMS Media Interviews:
- Dollar Accelerates The Collapse...To Stop Printing For The Lebanese Pound's Safety, January 28, 2023: Lebanese Forces, Article AR
- Lebanon...An urgent Meeting To Investigate The Manipulation Of The Exchange Rate Of The Lebanese Pound, January 28, 2023: Sada El Balad, Article AR
- Where Is Lebanon Politically And Economically On The Eve Of 2023? Part 21…Director Of The Lebanese Institute For Market Studies, Dr. Patrick Mardini: Reform Begins With Stopping The Collapse Of The Exchange Rate Of The LBP First Through The "Establishment Of A Currency Board", January 25, 2023: Safir Al Chamal, Article AR
- What Is The Solution To The Collapse Of The Exchange Rate Of The LBP? January 25, 2023: RLL, Radio Interview AR
- How To Stop The Deterioration Of The LBP And The Rise In The Price Of The Dollar With The Economic And Legal Researcher Garabed Fakrajian, January 25, 2023: VDL, Radio Interview AR
- What Are The Secrets Behind The Insane Rise Of The Dollar's Value? With Economic Expert Dr. Patrick Mardini Discussing Politics In Detail, January 24, 2023: VDL, Radio Interview AR
- The Dollar At 30,000 Lebanese Pounds? This Is What Dr. Mardini Told HADATH Online, January 24, 2023: HADATH Online, Article AR
- The Dollar Towards 60,000 LBP, OTV, January 24, 2023: TV Interview AR
- Consequences Of The Dollar's Rise Above 50,000 Lebanese Pounds With Economic Expert Patrick Mardini, January 21, 2023: VDL, Radio Interview AR
- What Was The Exchange Rate Of The "Black Dollar" Today? January 17, 2023: SBI, Article AR
- Ambiguity of The Central Decisions Increases The Sharp Fluctuations In The Dollar Exchange Rate, January 16, 2023: OTV, TV Interview AR
- Printing 7.7 Trillion Lebanese Pounds In One Month...They Print It Like Paper Without Stopping, January 4, 2023: SP Today, Article AR
- Jabai And Mardini Assess The Economic Situation And Expectations For 2023 And Focus On The Political Factor Of The Solution And The Need To Launch A Recovery Plan, January 3, 2023: Addiyar, Article AR
- Economic Vision 2023: Four Key Challenges, January 3, 2023: Lebanon 24, Article AR
- 3 Factors That Will Raise The Pace Of LBP printing In 2023! January 2, 2023: Lebanoneconomy, Article AR
- Economic Expert Patrick Mardini Discusses The Latest Decision Of The Central Bank Of Lebanon, January 2, 2023, Al Jadeed: TV Interview AR
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A Roadmap to Reverse Immense Poverty Rates
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Multidimensional poverty has increased from 42% in 2019 to 82% of the total population in 2021 in Lebanon, as per the United Nations Economic and Social Commission for Western Asia (ESCWA). Lebanon’s financial collapse has left the working class to face major challenges. To illustrate, the devaluation of the Lebanese pound (LBP), by 30 times, has significantly reduced consumer purchasing power, causing many to fall below the poverty line. Wages have not been adjusted to reflect the currency’s devaluation, thus exacerbating the situation.
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LIMS said that poverty in Lebanon is due to LBP’s collapse that contributed to consumer purchasing power taking a plummet. With the economic recession, businesses laid off workers or shut down, impacting poverty levels too. Since the crisis started, Lebanon’s GDP has decreased by 60%, hence the same percentage reflects residents’ loss of income.
Facing this unprecedented crisis, the public sector did not make any adjustments, compared to the private sector. For example, the government's tripled public sector salaries, thus amplifying the problem. This increase is not based on productivity and will be possible only by printing more LBPs, which will further deepen the economic crisis and significantly reduce the residents’ purchasing power.
LIMS suggested that the government needs to restructure the public sector. By all means, the Lebanese government should avoid raising the minimum wage, as it may deepen the recession. Voluntary wage correction processes have occurred in the private sector, particularly with businesses that laid off surplus workers and paid some wages in dollars to preserve competencies. The government should learn from this lesson.
To help reboot the economy, LIMS proposed the following (1) stopping the collapse of the LBP through a currency board or adopting comprehensive dollarization, (2) launching economic growth through reforms such as dismantling monopolies, like electricity and telecom, and (3) allowing foreign banks to enter Lebanon without imposing conditions to enable financial intermediation.
LIMS Media Interviews:
- Wages In Lebanon...Will The "Correction" Fix What Was Spoiled By The LBP’s Collapse? January 11, 2023: Independent Arabia, Article AR
- Average Salary In Private Sector...It Is Up To Corporate Discretion Without A Minimum Binding, January 7, 2023: Annahar, Article AR
- Spread Of Poverty In Lebanon: Rapid Descent Into Deprivation And "Stopgap" Solutions, January 1, 2023: Annahar, Article AR
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Official Exchange Rate to Change Soon, Causing Uncertainty for Depositors
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In February, Lebanon is set to introduce a new official exchange rate of 15,000 Lebanese pounds (LBP) to the dollar. Previously, the rate was 1,500 LBP to the dollar. Since the announcement, the exchange rate on the black market has been decreasing, reaching 42,000 LBP after peaking at 48,000 LBP. Simultaneously, the central bank raised the exchange rate of the dollar on its electronic exchange platform Sayrafa to 38,000 LBP.
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LIMS explained that the momentary appreciation of the LBP on the black market is due to the central bank’s decision to allow residents to buy as many USD as they wanted with their LBP at the favorable exchange rate of 38,000 LBP. In fact, the Sayrafa rate was raised to minimize the margin between the platform and black market. Such a move temporarily reduced the exchange rate. However, this policy is unsustainable as the central bank lacks enough dollars to continue pumping them into the market.
LIMS added that the government failed to develop a solution to depositors being unable to withdraw their dollar-denominated deposits from banks. The central bank has imposed capital controls on withdrawals, and only allows them in LBPs at an unfair exchange rate. Those withdrawals are financed through inflation and the LBP’s collapse. The central bank is trying to control the monetary base and inflation by placing a withdrawal ceiling on depositors in LBPs to prevent people from buying dollars on the black market. Given the withdrawal ceiling and the expansionary monetary policy, banks in Lebanon will not have any problem implementing the new official exchange rate of 15,000 LBP per dollar. Still the divergence between the official exchange rate and the black market rate will continue to harm the economy.
LIMS Media Interviews:
- The Wealthy, Losers, And Banks…These Are The Beneficiaries Of The “Currency Exchange”, January 5, 2023: Lebanon Debate, Article AR
- Lebanese Pound Hits All Time Low As Economic Crisis Deepens, January 24, 2023: Al Jazeera, Interview EN
- Dr. Patrick Mardini: Lebanese Banks Prevent Citizens From Withdrawing Their Dollar Money From Their Bank Accounts, January 19, 2023: Yaman Al Yawm, TV Interview AR
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Imports Spike Despite the Devaluation of the Lebanese pound
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The devaluation of the Lebanese pound (LBP) against the US dollar was expected to decrease the size of Lebanon's import bill. However, in reality, the imports actually increased by $5.41 billion in 2022 compared to 2021, reaching a total of $19.05 billion. This raises questions about how a struggling country, in a financial crisis and a shortage of hard currency managed to import as much.
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LIMS explained that there is an excess in LBP and not a lack of hard currency since Lebanon receives dollars from transfers, tourist spending, and the Lebanese central bank's reduced reserves. LIMS stressed that the increase in imports for 2022 is due to the expected increase in customs duties that was announced and the change in the customs dollar rate. Importers therefore secured their needs for years ahead. The central bank's subsidies for certain commodities such as medicine, wheat, and fuel for EDL contribute to the continued imports. LIMS suggested reducing the tariff rates in parallel to the customs exchange rate hike to protect existing businesses from illicit competition.
LIMS Media Interviews:
- Despite The Crisis, Lebanon's Import Volume Jumps $5 Billion, January 9, 2023: Sky News Arabia, Article AR
- Crisis-Ridden Lebanese Import $17 Billion, January 3, 2023: Safa, Article AR
- Roundup: Customs Rate Hike Without Countermeasures May Have Huge Impact For Crisis-Hit Lebanon, Say Experts, 16 January, 2023: Xinhua, Article EN
- Sayrafa And Its Black Hole: Commodity Prices On Market Rate, January 11, 2023: Al Modon, Article AR
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Squandered Money in Government Contracts
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LIMS broke an exclusive story on the squandered money in the government’s public auction. In the auction for the airport’s free zone, only one bidder applied, and his price was slightly higher than the opening price set in the book of conditions. More generally, there is a permanent suspicion of collusion between bidders in government auctions. Other examples of squandered money include auctions denominated in Lebanese pounds without any inflation adjustment factor. The winners end up paying much less value with the devaluation of the currency.
Furthermore, the Ministry of Energy and Water contracted cleaning the coast of the Nahr al-Kalb river without doing a proper tender, by not announcing and publishing it on the electronic platform of the Public Procurement Authority or the Official Gazette. The river happens to be rich in sand that has economic value. LIMS issued a series of recommendations to address those problems.
LIMS Media Interviews:
- Waste of Public Money on the Airport’s Free Zone Bidding and at the Ministry of Energy, January 28, 2023: LIMSLB, Article AR
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Supply Chain Disruptions Could Create Future Recession
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China is facing a new dilemma due to the high number of COVID-19 cases, as it balances human sacrifice and economic revival. The world is closely linked to China through supply chains and investments, making its economic importance crucial, contributing up to 30% of global industrial output and leading in technology and industrial sectors. LIMS explained that the coronavirus pandemic led to the closure of factories in China, causing a shortage of goods in foreign countries. Disruptions in the supply chain are evident. In the US, for example, there are longer than usual wait times to buy certain vehicles, since some parts are manufactured in China. The expansionary monetary policy during the pandemic has only made prices higher, while simultaneously, creating an uptick in demand for basic supplies.
LIMS Media Interviews:
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