Lebanese lira's fall to speed up as political paralysis goes on, experts say

Owners of small businesses say crisis will eventually force closures

A man counts Lebanese pound banknotes at a currency exchange shop in Beirut, Lebanon March 2, 2021. REUTERS/Mohamed Azakir
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Lebanon's national currency will continue to depreciate unless  steps are taken to tackle the country's economic crisis, experts said.

The lira neared a record low of 10,000 to the dollar,  with small business owners increasingly feeling the burden.

On Tuesday, sporadic protests broke out across Lebanon.

Samer Sleiman, a fruit and vegetable vendor in Beirut, said his income is barely enough to cover food and drink.

With five mouths to feed at home, the vendor works day and night to be able to afford the basics.

"Whatever we don't need we don't buy from the supermarket," Mr Sleiman told The National. "We're living with whatever we have."

The lira's fall has no end in sight, and the economy can only be redeemed with serious reforms, experts warned.

“The fate of the lira depends on what those in power do,” said Dan Azzi, former chairman and chief executive of Standard Chartered bank Lebanon. “If the situation continues as is, the lira can reach 50,000. There’s no ceiling.”

Officially pegged at 1,500 to the dollar, the lira has lost more than 80 per cent of its value since late 2019, when a liquidity crunch ushered in the worst economic and financial crisis to hit Lebanon since the end of the civil war.

The record fall in the lira eroded the purchasing power of earners, with the official monthly minimum wage down from the equivalent of $450 to about $67.

Food prices have more than tripled, according to the World Food Programme in Lebanon, while more than half of the population is now living below the poverty line, the United Nations Economic and Social Commission for Western Asia said.

Despite the crisis, Lebanese officials have yet to appoint a government that will carry out reforms needed to release International Monetary Fund (IMF) support.

The negotiations, which kicked off in the first half of 2020, were suspended later that year over disagreements on the economic recovery plan.

Henri Chaoul, a former member of Lebanon’s official negotiation team and former adviser to the Ministry of Finance, said an agreement was “still very far away”.

Mr Chaoul said he quit his position in June of last year after realising that the ruling class “were not serious about reforms”.

"I realised it was all a joke," he told The National. "No one should be surprised that the pound is at 10,000 or higher."

Mr Chaoul said the only solution to the crisis lay in the formation of government independent of Lebanese sectarian politics and equipped with exceptional legislative powers.

“You cannot fix the problem by going through the same parliament that prioritises the private interests of politicians rather than the public interest,” Mr Chaoul said.

His views were echoed by Mr Azzi, who downplayed the odds of tangible reforms under the status quo.

Protests erupt in Beirut as Lebanon's currency collapses

Protests erupt in Beirut as Lebanon's currency collapses

“If it takes them eight months to a year to form a government, how would they solve the crisis? How can we expect different results?” Mr Azzi said.

Andy Khalil, an economics researcher, said that the increase in lira supply amid a dollar shortage will speed up the lira's devaluation.

“You have more money in people’s hands, but the money is worthless because it is not backed by a real asset," he said.

"The central bank is issuing more currency absent buying something of worth in return.

"It’s like me printing out images of the Lebanese pound and handing them out, same thing. It has no value.”

The absence of a transparent and complete foreign exchange market is making the crisis worse, Mr Khalil said.

“What good is the currency if it’s stable at 1,500 but we can’t buy a chocolate bar with it because of supply shortages?"