Bloomberg/Sima Diab

Economy

Lebanon dollar crunch blamed on imports as governor stands by peg

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Lebanese importers of fuel and wheat have warned of shortages if the government failed to supply them with enough dollars to pay their bills.

Sunday 06, October 2019

Banque du Liban governor has attributed the recent hike in demand for dollars to increased imports and affirmed Lebanon’s commitment to its decades old currency peg, reported Bloomberg.

Riad Salameh, the Governor of Banque du Liban, said that this week’s central bank circular that aims to ensure dollar supplies to banks to cover demand from importers in vital industries is essential for social stability and to avoid creating further chaos.

The governor, who’s been at the helm of the central bank since 1993, said that BdL would repay maturing debt in dollars—Lebanon has a $1.5 billion Eurobond due in November 2019.

“This is necessary, and the central bank is doing it for monetary reasons to protect Lebanon’s credibility and capabilities to finance its economy,” said Salameh.

For months, banks weren’t meeting their demand, forcing many to swap Lebanese pounds at higher rates at money changers. Local lenders now can buy dollars from the central bank and supply importers of fuel, wheat and pharmaceuticals.

Salameh said the divergence in the exchange rate was between one per cent and three per cent of the fixed price at banks—money changers were trading dollars for as much as 1,580 pounds.

Lebanon’s government is scrambling to implement reforms needed to unlock billions in international aid to revive the stagnant economy. Compounding weaker growth of bank deposits—a key source for government funding—is a current-account deficit that the International Monetary Fund expects to reach almost 30 per cent of gross domestic product by the end of this year.

Salameh said he hoped that the government’s 2020 budget would go some way to send a positive signal to markets.

The governor also questioned if all the imports entering Lebanon were for domestic consumption. Local media have reported that traders were smuggling imported goods to Syria and that some were even withdrawing their money in dollars and illegally sending it to the neighbouring war-torn country.

TAGS : imports, US dollar, International Monetary Fund, Lebanese pounds, Banque du Liban

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