LIMS believes that this attempt to preserve a failing monopoly is futile since the suggested hike in prices, although substantial, would not allow EDL to break even. EDL produces electricity at a very high cost and loses 40% of the production in transmission, distribution, and electricity theft. The only way for EDL to breakeven is by increasing its tariff to above 50 cents per kWh, equal to that of the private generators.  

LIMS explained that opening up the electricity sector to private companies provides a better solution. Law 288 of 2014 and Law 129 of May 2019 enabled the private sector to enter the electricity market if licensed by the Ministry of Energy of Water. However, the ministry did not grant any license, thus maintaining the monopoly of EDL over the market. LIMS argued for stripping the ministry from the ability to grant licenses and moving the jurisdiction to municipalities. This would come at the perfect time with the boom in renewable energy. Such a solution would allow the introduction of independent large-scale solar power producers to sell electricity directly to the Lebanese consumer. Municipalities can also grant licenses to electricity distribution companies. 

Finally, the Lebanese parliament approved the overdue 2022 annual budget, requested by the IMF as a pre-condition for ratifying the final agreement. The budget increased the exchange rate at which imports’ prices are converted to calculate the customs duties from around 1,500 Lebanese pounds (LBP) to 15,000 LBP to the dollar. Still, the new rate differs substantially from the 36,800 LBP to the dollar prevailing on the black market throughout September. The government justified the move as a necessity to move closer to the market rate and needing to finance an increase in public sector salaries by three- fold.  

LIMS added that taxes on income have been covertly increased through the manipulation of tax brackets. Most taxpayers fall under the progressive income tax scheme. After the devaluation of the Lebanese currency, those who earned a certain raise to partially keep up with inflation entered higher tax brackets. The tax brackets in the 2022 budget did not reflect the actual devaluation in currency. Therefore, taxpayers will need to pay higher taxes, while the actual income value remained the same or even less than what it used to be.   

Additionally, LIMS explained that that budget will have a recessionary impact and will not be able to raise the projected revenues. In other words, this will make the deficit even larger than current estimations. The increased tariffs and fees will further shrink the economy and incentivize tax evasion. Businesses will have to choose between shutting down or evading taxes and tariffs, which is easily done due to the large loopholes and corruption. Eventually this increase will only provide smugglers with an increase in revenue, as opposed to the treasury.  

LIMS argued for the simplification of tariffs and taxes through unifying all rates—flat tax and tariffs—closing huge loopholes for evasion. Simultaneously taxes and tariffs should undergo a substantial reduction to render evasion unprofitable. As a result, overall revenues could increase, and the economic activity would profit.  

After the approval of the budget by the parliament, the minister of finance announced the official devaluation of the Lebanese pound (LBP) from 1,515 LBP to the dollar to 15,000 LBP, before retracting it in a later statement. Many pundits considered the announcement and retraction to be intentional, aiming to prepare for the official devaluation, especially since the 2022 budget already changed the rate of costume duties to 15,000 LBP. Meanwhile, the local currency continued its devaluation on the black market and dropped from 33,750 LBP to the dollar at the beginning of September to 38,500 LBP to the dollar by the end of the month.  

Time and time again, LIMS has stated that multiple exchange rates are an unhealthy phenomenon and should be terminated. However, the reform cannot be done simply by changing the official exchange rate without altering the underlying monetary policy that is causing inflation and devaluation. Most salaries in Lebanon are denominated in LBP that has lost more than 95% of its value since the beginning of the crisis driving poverty to a record level. To put a halt to inflation and currency devaluation, LIMS argued for a currency board, which allows Lebanon to solve the monetary crisis almost immediately.  A currency board would clone the LBP to the USD by having the entire money supply in LBP covered 100% by USD reserves.  

Alternatively, Lebanon could switch to a full and official dollarization that would enable businesses to sell goods and services in dollars. From a legal perspective, the USD income would allow companies to dollarize salaries, thus protecting the remaining purchasing power of their employees. Once businesses and employees of the private sector have their income in a hard currency, taxes and tariffs can be dollarized, allowing a dollarization of the public sector as well. The central bank would simultaneously buy the amount of LBP in circulation switching to a full dollarization.  

LIMS Media Interviews: 

• Is Dollarization Best Option For Lebanon’s Collapsing Economy? September 2, 2022: Al Monitor, Article EN 

• Magic Solution That Ends Salary Crisis: Economist Reveals How Lebanon Can Quickly Recover, September 3, 2022: Spotshot, TV Interview AR 

• New Record For The Dollar, September 6, 2022: SBI, TV Interview AR 

• Upward Trajectory Will Continue In The Next Stage, September 9, 2022: VDL, Radio Interview AR 

• “Dollarization” Of Salaries And Wages For Public And Private Sectors Linked To “Dollarization” Of Prices And Contracts, September 14, 2022: Al Afkar, Article AR 

• Lebanese Pound Slides To New Low, September 14, 2022: English News, Article EN 

• Coinciding With The End Of Summer And Budget Deficit...Will Dollar Exchange Rate Touch Fifty Thousand? September 15, 2022: Annahar, Article AR 

• Budget Ignites The Dollar…“It Goes Down An Unreasonable Decline”, September 20, 2022: Lebanese Forces, Article AR 

• Newsfolio Special: When "Banking" Turned From A Medicine Into A Disease! September 26, 2022: News Folio, Article AR 

• Economic Researcher Garabed Fakrajian: Lebanese Expect Further Major Collapse In Local Currency, September 27, 2022: Al Yaman, TV Interview AR 

• What Does Official Dollar At 15,000 LBP Mean? September 28, 2022: Naqd Politics, TV Interview AR 

• Unifying Official Exchange Rates Necessary Step To Curb Speculation, September 28, 2022: OTV ,TV Interview AR 

 

LIMS noted that the banking crisis stopped financial intermediation—loans and deposits—but international transactions still go through the banking system. The strike will therefore hinder the payment of remittances and import-export operations, as well as local transactions such as payments of salaries and transfers. 

LIMS stated that it does not condone violent approaches, but depositors are losing hope and it looks like they will be recovering a smaller fraction of their funds with the passing of time. The government has been promising small depositors a solution for the last 3 years without any tangible action. Authorities should stop pitting depositors and banks against each other and announce a credible, transparent, and time-bound plan that would allow better recovery rates for depositors. Alternatively, the problem should be settled through the judicial system, with foreign courts having responded in favor of depositors’ claims. LIMS clarified that banks are insolvent and if liquidated, depositors would not recover more than 20% of their funds. The remaining dollar-denominated funds were deposited at the central bank or loaned to the government and both entities are unwilling to service their liabilities in USD.   

Experts suggested converting deposits into shares in a sovereign fund. The fund would receive income from some government-owned assets and the recovery of stolen funds, while paying the funds to shareholders. LIMS revealed that the term sovereign fund is misused as it usually designates a fund owned by a government, not by depositors. Countries rich in natural resources, like oil and gas, prefer to deposit the revenues resulting from those resources in a sovereign fund, instead of spending them. The fund would then invest the money in a portfolio of internationally diversified assets. None of those features would apply to the case of Lebanon.  

LIMS Media Interviews: 

• How Can Capital Controls Protect Depositors? September 3, 2022: Leb Economy, Article AR 

• Raising The Exchange Rate Of Bank Withdrawals ..This Is How Depositors Are Treated Fairly! September 12, 2022: Leb Economy: Article AR 

• Storming Banks... The Lebanese Way To Recover Their Deposits, September 16, 2022: Al Mamlaka TV, TV Interview AR 

• How Can The IMF Look At The Lebanon Crisis? September 16, 2022: Bloomberg Al Sharek, TV Interview AR 

• Patrick Mardini: The Role Of Fintech In Strengthening Banking Sector, September 19, 2022: MTV, TV Interview AR 

• What Does The Sovereign Fund Mean? Is Its Creation Useful For Lebanon? September 21, 2022: MTV, TV Interview AR 

• Today, Banks Remain Unable To Pay Depositors' Money, And Government Faces Challenge Of The Agreement With The IMF, September 21, 2022: France 24, TV Interview AR  

• Director Of The Lebanese Institute For Market Studies, Patrick Mardini, Commented On Bank Scenes And Dollar Fluctuation, September 22, 2022: Boost Lebanon, TV Interview AR 

• Patrick Mardini: Lebanese Judiciary Does Not Provide Justice To Lebanese Depositors, September 22, 2022: Al Yaman: TV Interview AR 

• Will The Flow Of The “Fresh” Dollars Stop? September 23, 2022: Lebanon Debate, Article AR 

 

LIMS showed that subsidies are squandering the central bank’s foreign exchange reserves without any benefit to the population. Dollars used by the central bank are, in reality, what is left of depositors’ funds and therefore subsidies are exacerbating the banking crisis. Using what is left of the central bank’s reserves would lead to a complete loss of trust in the LBP and the exchange rate would skyrocket in the medium run. Moreover, subsidized fuel incentivizes smuggling and overconsumption. Therefore, LIMS believes that subsidies must be lifted completely and immediately.  

LIMS explained that the cash cards (direct handouts), initially designed to replace subsidies face an obstacle of funding. However, the main reason behind citizens needing help is due to the LBP devaluation. Reforming the monetary policy is the only way to resolve this crisis.  

LIMS Media Interviews: 

After Losing Millions Of Dollars, Lebanon Abandons Gas Subsidies, September 12, 2022: Sky News Arabia, Article AR 

Video: Mardini To "Janoubia": This Is What The Fuel Subsidy Brought Upon The Depositors' Money! September 15, 2022: Janoubia, TV Interview AR 

Who Is the Beneficiary Of The Cash Subsidy Card, And What Mechanism For Distribution And Financing Will Be Used? Abi Ali: It Will Be Distributed To All Citizens And Employees, Except Those With High Incomes, September 30, 2022: Social Affairs, Article AR 

Telecom employees of Ogero went on strike, which led to multiple countrywide connectivity issues for business and residential consumers. Since Ogero is government-owned, having a monopoly over landlines and internet connections throughout Lebanon, no other provider could have connected users during the workers’ strike.   

LIMS further elaborated on government monopolization of most of the basic infrastructure (electricity, telecom, airlines, etc.) , which has limited the private sector’s ability to have broader options for investments and job opportunities. Abolishing government monopolies is key to not only halting the current economic recession, but also to limiting the emigration of the much-needed Lebanese youth. Such a youth population would be in high demand, should new possible job opportunities come as a result the Lebanese economy becoming liberated. 

LIMS Media Interviews: 

• Fakrajian: Poor Communications Impede Investments, September 2, 2022: Beirut 24, Article AR 

• Actual Cost Of Ogero Employees' Strike! September 10, 2022: Annahar, TV Interview AR 

• Race To The Abyss…Telecommunications Sector In Lebanon Threatened With Complete Halt, September 12, 2022: Arab Majalla, Article AR 

• Armenians Of Lebanon In Crisis…“They Demolished What We Built And Forced Us To Flee Again.” September 30, 2022: Raseef22, Article AR