As economy deteriorates, Lebanese juggle sky-high rates for devalued pound

BEIRUT, March 19 (Reuters) – When Caroline Sadaka goes shopping in Lebanon’s capital, Beirut, she keeps her phone in her hand – not to check her shopping list, but to calculate the skyrocketing prices of goods now sold at volatile exchange rates that vary from store to store. and sector.

As the Lebanese economy continues to slump, a series of exchange rates for the local pound have emerged, complicating personal accounting and clouding hopes of fulfilling a demand for reform set out by the International Monetary Fund.

The official government exchange rate was pegged at 15,000 pounds to the US dollar in February, a nearly 90% devaluation from the long-held peg of 1,507.5.

But the Central Bank is selling dollars at a rate of 79,000 dollars for a greenback while the Minister of Finance intends to calculate the tariffs of imported goods at 45,000 pounds.

The parallel market rate hovers around 107,000 pounds and changes daily. Supermarkets and gas stations are required to post signs showing the value they have adopted for the day, but the rate changes so quickly that many instead set prices in relatively stable US dollars.

Examining a can of tuna, Sadaka illustrated the daily dilemma buyers face. “It has no price (logic). If you look, it’s in Lebanese pounds, so is that the price? Or is it an old price, and now there’s a price in dollars?”, she wondered.

She quit her job as a teacher who paid her in local currency, the value of which has fallen by more than 98% against the dollar on the parallel market since 2019.

It was then that the economy began to collapse after decades of unsound financial policies and alleged corruption.

To solve the confusion of exchange rates, the government must implement a unified rate. This is part of the preconditions set by the International Monetary Fund nearly a year ago for Lebanon to secure a $3 billion bailout.

But the lender of last resort says reforms have been too slow. They have met resistance from politicians who protect vested interests and avoid accountability.

In the meantime, the country has moved towards a monetary and dollarized economy given spiraling inflation and restrictions imposed by banks on transactions.

Store owner Mahmoud Chaar told Reuters the exchange rate was moving so fast his business was losing money overnight.

Like many business owners, Chaar has to pay in US dollars to import goods but sells in Lebanese pounds. One day he had sold all of his assets on a rate basis but woke up the next day to find he had jumped nearly £10,000 per US dollar.

“Basically, we lost in the exchange rate difference what we had gained in profits,” Chaar told Reuters.

Economist Samir Nasr said variable rates across sectors were making personal accounting “messy” for the Lebanese and there was more urgency than ever to unify them.

“What is needed is a comprehensive set of reforms and measures that will allow the economic situation to stabilize in general – and then allow the exchange rate to be unified,” he said.

Report by Emilie Madi and Mohamed Azakir; Written by Maya Gebeily; Editing by Cynthia Osterman

Our standards: The Thomson Reuters Trust Principles.

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