Lebanon's coronavirus lockdown piles pressure on flagging currency

Government declared medical emergency on March 15 and country's cash-strapped banks limited services to critical imports

Lebanese police stand outside the entrance of the Association of Banks in downtown Beirut, Lebanon November 1, 2019. REUTERS/Mohamed Azakir

The battered Lebanese pound has weakened even more during the coronavirus lockdown, with banks blocking access to already scarce dollars.

The move has forced up the price of the greenback on the black market, as well as the cost of imports on which the heavily indebted country relies.

Since the government declared a medical emergency on March 15, Lebanon's banks have limited services to critical imports and paid salaries in local currency, while opening only a handful of branches.

The pound has since tumbled about 15 per cent, trading at about 2,850 pounds to the dollar on Wednesday, compared with about 2,500 before the shutdown, importers and currency dealers said.

That is about 47 per cent weaker than the official peg of 1,507.50 pounds, a rate now available only to importers of wheat, medicine and fuel.

"There's less and less cash available in the market, and this is one of the reasons why the black market rate is increasing," said Hani Bohsali, general manager of major importer Bohsali Foods.

The parallel market has been the primary source of cash during Lebanon's financial crisis, which saw it default on its foreign-currency debt on March 23 and launch formal debt-restructuring talks days later.

The government sought in recent weeks to crack down on foreign exchange bureaus selling above an agreed rate of 2,000 pounds to the dollar, with some shut down and others turning away customers seeking higher rates, making dollars more scarce.

Banks have now halted withdrawals, which they had already capped at as little as $100 a week.

They introduced controls late last year when Lebanon sank into a crisis after capital inflows slowed and protests erupted against the ruling elite.

While there has been no announcement on a move to stop dispensing dollars or on whether such measures were temporary, sources at four banks said that since the lockdown, only freshly deposited dollars or those transferred in from abroad could be taken out.

The government has extended the coronavirus lockdown until April 12, shutting nearly all businesses and the airport while enforcing an overnight curfew.

Lebanon has recorded 479 infections and 14 deaths, the Health Ministry said on Wednesday.

Depositors have been forced to withdraw their dollars from ATMs, which convert them to Lebanese pounds at the official rate, slashing the value and angering Lebanese already hit by sweeping job cuts and rising inflation.

Bankers have reduced dollar circulation in recent weeks as worldwide airport closures choked the flow typically brought in by travellers and cargo shipments of banknotes.

But Michel Mecattaf, a shareholder in a Lebanese company that ships banknotes, was quoted by local media as saying that cargo shipments for banknotes were continuing.