The price of the dollar in Lebanon today, Thursday, October 22,...

The average exchange rate of the dollar against the Lebanese pound decreased slightly, during Thursday morning trading, between 7380 and 7450 Lebanese pounds per dollar, in the parallel (black) market, while the price stabilized in banks and exchange offices.

Lebanon’s economy is contracting by 25%, according to the International Monetary Fund.

There is still no government in Lebanon that addresses the country’s worst crisis since the civil war that took place between 1975 and 1990 at the very least, as the competing political blocs are unable to agree on the division of power.

At the same time, cash reserves decreased to a dangerous degree, the lira collapsed, and there was no longer sufficient liquidity to cleanse the effects of the destruction of people and property in the Beirut Port explosion on the fourth of August.

The United Nations says that 55% of the population lives below the poverty line, while the Infopro research company in Beirut says that a third of workers in the private sector have lost their jobs.

Exchange rates

The Syndicate of Money Changers in Lebanon kept pricing the exchange rate of the dollar against the Lebanese pound with a moving margin between buying at 3850 pounds and selling at 3900 as a maximum.

The price of the dollar in banks

The Central Bank of Lebanon has also fixed the exchange rate of the dollar at 1507.5 pounds, and this price is applied only to imports of fuel, medicine and wheat, and banks have set a price of 3,850 pounds to the dollar, when withdrawing the dollar to small depositors.

A financial collapse of an unprecedented scale in Lebanon has raised concerns about stability in a country facing multiple crises.

The problems facing Lebanon have been exacerbated by the political chaos, the Covid-19 pandemic, and the huge explosion that destroyed the Beirut port, killing about 200 people and leaving billions of dollars in damage.

After months of wrangling, politicians are now heading towards choosing a prime minister on Thursday to form a new government that should start an economic recovery and bring in foreign aid.

The economic crisis, triggered by decades of government squandering and corruption, erupted last fall in light of scarce capital flows and nationwide protests. For a year, the currency has collapsed and banks are paralyzed as prices rise and layoffs continue.

Poverty increase

Last May, the United Nations estimated that the number of people living in poverty, or on less than $ 14 a day, in Lebanon rose to double in the past year and reached 55%. Within this group, the number of people considered to be in extreme poverty has tripled, which constitutes about a quarter of the population.

The United Nations expects more people to fall into poverty, further widening one of the region’s largest wealth gaps. More Lebanese became threatened by inflation and in the wake of the port explosion.

Inflation escalated

The collapse of the Lebanese pound pushed inflation to 120.3 percent year on year in August. Consumer prices have risen in a country that relies heavily on imports but produces few goods.

Layoffs and closure of companies

InfoPro, a Beirut-based research firm that surveyed companies three times in the last 12 months, concluded that a third of all private sector jobs had been cut. The total number of unemployed was 550,000, or 30 percent of the workforce of 1.8 million.

This was last June, before the port explosion, which affected hundreds of companies. The explosion resulted in the loss of at least 100,000 jobs in the tourism sector, which has long been one of the major employment sectors and one of the pillars on which the economy is based.

Currency collapse and exchange rates varied

The scarcity of the US dollar has grown in the black market, which is one of the most important sources of liquidity during the crisis.

The official exchange rate of the Lebanese pound has remained at 1507.5 against the dollar since 1997. However, the dollar is now available only for imports of basic commodities, namely wheat, fuel and medicine.

The banks, which have reduced the withdrawal of liquidity and prevented spending of foreign currency, have paid depositors with dollar accounts in Lebanese pounds at an exchange rate of 3900.

But the value of the pound on the street has fallen by 80%.

Damage caused by the Beirut explosion

The World Bank said last August that the Beirut port blast caused between $ 3.8 billion and $ 4.6 billion in damage. It also estimated the size of the damage to the economy at between $ 2.9 billion and $ 3.5 billion.

After the explosion, Lebanon’s external financial needs for the next four years increased to more than $ 30 billion, compared to about $ 24 billion, according to some estimates. Foreign donors have assured that they will not provide aid to a country that is not implementing reforms.

Drowning in debt

Lebanon announced earlier this year it was defaulting on its huge hard currency debts, citing dangerously low reserves.

Public debt increased sharply from 131% of GDP in 2012 to about 176% at the end of 2019, one of the highest in the world.

The government was spending about 50% of its revenue in 2019 on interest payments alone.

The total public debt expanded to $ 94.3 billion last August, according to data from the Lebanese Banks Association, with international bonds accounting for a third of the debt burden.

Banks and the government in Lebanon blamed each other for the crisis. Lebanese banks are the government’s largest creditor and the largest shareholder entity with international bond holders. Lebanese banks hold 28% of Lebanese pound-denominated debt instruments, worth $ 59 billion, while the Central Bank holds 60%.