By: Sammi Ibrahem,Sr
Describing the current financial and monetary situation is no longer just a pessimistic scenario that can be expected for Lebanon’s near future. The case today.
The former minister and former first deputy governor of the Banque du Liban, Nasser Al-Saidi, in an interview with Al-Jumhuriya, listed three indicators that outline the current phase on the financial, monetary and economic levels:
The emergence of a market parallel to the exchange rate, which means that the official exchange rate is no longer used for trading. As a result, consumer price inflation will rise, as institutions will require payment in dollars or re-price their price regulations at the current exchange rate in the parallel market. In this context, Saidi expected inflation to exceed 7 percent this year, compared with 6 percent last year, which will affect the consumer and purchasing power.
Informal Capital Control or restrictions imposed by banks on remittances from the lira to foreign currencies and on remittances abroad. “These restrictions are unofficial because the BDL has not issued a circular in this regard, but it is an agreement between banks that may be directed by the BDL to put those restrictions on banking operations,” Saidi said.
He explained that «these restrictions will lead to an unannounced change to the economic and financial system in Lebanon, which has been characterized throughout the history of the free movement of money».
He said that «banks continue to impose these restrictions and even increase them as long as the situation did not witness any positive developments, and in the absence of a clear economic and financial vision for the future and the absence of a government that can initiate a rescue program».
He said: “The most serious in this matter is that remittances and capital to Lebanon will decline to stop completely, which will exacerbate the crisis.” He explained that «Lebanese expatriates who used to transfer money to their families will refrain from that, because banks in Lebanon are freezing those funds».
He added: «This will increase the risks, and the liquidity crisis and the tightening of the dollar is increasing day by day. This means that the size of the dollar monetary mass in the market will decline, and will negatively affect the exchange rate of the dollar in the parallel market and lead to rise ».
He also pointed out that the restrictions imposed by the banks will lead to a high cost of importing raw materials, which means an increase in the cost of Lebanese industry or any local production activity.
3 – The emergence of a new system for the import of fuel, wheat and medicines, «which puts us in the category of countries that impose restrictions on exchange operations, such as Syria and others. As a result, the “dollar” will get a special price for anyone who has the license to import these materials, creating a black or parallel market that will be exploited by the owners of these licenses “This is what happened in other countries.”
“The three indicators mentioned above will change in an undeclared manner the Lebanese economic system,” Al-Saidi said. “To invest its funds in the private sector and only to employ in the Banque du Liban.”
He continued: «The liquidity crisis in the market as a result of those investments in the Bank of Lebanon, which affected the economic activity as a whole, and led to an economic recession resulting in bankruptcies and closures of private sector institutions and factories».
“What the banking sector is doing is a palliative home. The mere imposition of restrictions means that strict measures will follow, and will increase the tightness of the dollar and increase the exchange rate in the parallel market ».
While noting that the economic recession will increase, he said: “What is needed now is, as soon as possible, to establish a credible government that includes honest people who are not politically affiliated to any party, competent and experienced. .
Central Bank of Lebanon circular
As for the circular of the Banque du Liban, which asked banks to increase their capital by up to 20 percent at the end of June 2020 and not distribute dividends to shareholders for the fiscal year 2019, Saidi said that this circular was the result of the downgrade of Lebanon and the rating of banks holding sovereign bonds. He explained that the downgrade of banks means that the value of their assets has fallen due to the decline in the prices of sovereign bonds by between 30 to 40 percent, noting that 70 percent of bank assets are treasury bonds and certificates of deposit.
As a result of the downgrade, Saidi explained that banks are obliged to increase their solvency ratio and thus increase their capital, which is also a measure that can be put in the palliative category, because it was in response to the downgrade by Moody’s and Fitch.
If a new government is not formed, the budget is approved and the required reforms implemented, the Standard & Poor’s rating, expected in the next two months, will be negative, requiring more private funds to be allocated to banks.
