Hyperinflation in Lebanon continued for the 26th consecutive month, as the International Monetary Fund called on authorities to implement critical structural and financial reforms, a prerequisite to securing $3 billion of assistance from the lender to help the country emerge from its worst economic crisis.
Inflation rose to about 162 per cent in August from the same month a year earlier, according to Lebanon's Central Administration of Statistics' Consumer Price Index. The index increased about 7.6 per cent from July 2022.
The cost of water, electricity, gas and other fuels increased nearly fivefold in August, compared with the same month last year, followed by transport costs that shot up about four times.
The cost of healthcare increased about three and a half times in August from the same period a year earlier, nearly the same rate of increase as the price of miscellaneous goods and services. Both the cost of communication and food and non-alcoholic beverages rose threefold.
Lebanon is expected to post the second-highest inflation rate in the world this year, trailing Sudan, according to Fitch Solutions.
“Despite the urgency for action to address Lebanon’s deep economic and social crisis, progress in implementing the reforms agreed under the April SLA [staff-level agreement] remains very slow,” Ernesto Ramirez Rigo, who led an IMF mission visit to Lebanon from September 19 to 21, said last week.
“The Lebanese economy remains severely depressed against continued deadlock over much needed economic reforms and high uncertainty.”
Lebanese politicians are deadlocked over the formation of a new Cabinet nearly four months after parliamentary elections. The country's political elite also need to agree on a new president by October 31, when incumbent Michel Aoun's six-year term expires.
Political impasses have previously led to political vacuums in the country and stalled its economic progress. Lebanon was without a president for two and a half years until Mr Aoun's election by the 128-seat Parliament in 2016. His predecessor, Michael Sleiman, was elected in 2008 after the position had been vacant for 18 months.
Securing IMF backing will help to unlock a further $11bn of assistance that was pledged at a Paris donor conference in 2018, which is also tied to a slew of reforms.
Lebanon's economy collapsed after it defaulted on about $31bn of eurobonds in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market.
The IMF said the existence of several exchange rates is causing “significant distortions to economic activity” and creating “opportunities for corruption and rent-seeking, leading to excessive pressures on the central bank’s foreign currency reserves”.
The central bank's gross foreign currency reserves were $9.6bn at mid-September 2022, while the value of its gold reserves amounted to $15.6bn.
The IMF also said while the reform of the country's banking secrecy law approved by Parliament in July “contained some positive steps, it fell short of the changes needed to bring it in line with best international practice”.
Lebanon's public debt ballooned to more than $100bn, or about 212 per cent of gross domestic product, in 2021.
Its economy contracted about 58 per cent between 2019 and 2021, with GDP falling to $21.8bn in 2021, from about $52bn in 2019, according to the World Bank — the largest contraction on a list of 193 countries.
The IMF reform programme for Lebanon is based on five key points:
- Restructuring the financial sector to restore banks’ viability and their ability to efficiently allocate resources to support the recovery;
- Implementing fiscal reforms that, coupled with the proposed restructuring of external public debt, will ensure debt sustainability and create space to invest in social spending, reconstruction and infrastructure;
- Reforming state-owned enterprises, particularly in the energy sector, to provide quality services without draining public resources;
- Strengthening governance, anti-corruption, and anti-money laundering/combatting the financing of terrorism (AML/CFT) frameworks to enhance transparency and accountability, including by modernising the central bank legal framework and governance and accountability arrangements;
- Establishing a credible and transparent monetary and exchange rate system.