Cash-strapped Lebanon is hoping to fill state coffers by raising the exchange rate for taxes, fees and customs duties, Caretaker Finance Minister Youssef Khalil told The National, as the country reels from three years of economic collapse.
Lebanon will abandon the official rate of 1,507 pounds to the US dollar and introduce a combination of higher exchange mechanisms in accordance with the currency’s market value.
Government revenue has shrunk dramatically, with the Lebanese pound’s market rate value sinking to about 40,000 to the dollar.
A number of official exchange rates have sprung up since Lebanon’s economy collapsed in 2019 and unifying them is one of the main reforms demanded by international lenders for Beirut to access billions of dollars in loans.
“We do not have any other choice,” Mr Khalil said. "The fiscal situation has become unsustainable: we collect at the official rate but we spend at the parallel one."
Taxes and fees will be paid based on the flexible rate set by Sayrafa, an official platform managed by the Central Bank, currently trading at about 30 000. The change comes as part of the 2022 budget voted in September by Parliament, which should be applied on Tuesday after weeks of delay.
“Tax policies will be adjusted to limit the impact on vulnerable households,” Mr Khalil said.
Customs duties will be calculated based on another rate of 15,000 per dollar. The minister said the switch, which should take place in mid-December, was expected to benefit public finances greatly.
A step towards unifying exchange rates?
Mr Khalil said the move was a crucial step towards the reforms demanded by the International Monetary Fund to unlock $3 billion of loans to ease the country’s economic woes. These include the unification of Lebanon's multiple exchange rates.
“It is the end of the 1,507.5 rate area and the beginning of a new one,” he said.
However, experts say that instead of unifying exchange rates, the ministry is simply adding a new exchange rate to the list.
“For now, there is no unification of the multiple rates but rather the introduction of new ones”, said Sibylle Rizk, director of public policies at advocacy group Kulluna Irada.
She added that in the absence of any comprehensive reform agenda, the increase in customs duties was only going to increase prices as most of the Lebanese people depend on imports for their daily consumption.
“We need an overall budgetary strategy to restore the public finances’ sustainability through tax reforms and a considered allocation of public spending,” she said.
Parliament still needs to pass several crucial reforms to activate the deal. This includes a law on capital controls, as banks have been introducing informal restrictions on withdrawals and overseas transfers, as well as a restructuring strategy to revive the sector.
The sweeping reforms come at a time when Lebanon is facing major leadership problems because the country is without a president and has been ruled by a caretaker government with limited powers since May.