Lebanon’s central bank rejects currency printing to cover deficit. Urgent reforms and cooperation were emphasized amid an economic crisis.
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Lebanon is facing a significant challenge as its central bank has clarified that there will be better solutions to its massive financial deficit than printing more money. The country’s acting central bank governor, Wassim Mansouri, emphasized the need for urgent reforms and cooperation from the government and parliament.
Avoiding Currency Printing to Fill the Gap
Wassim Mansouri, the acting governor of Lebanon’s central bank, has firmly stated that the country will not use the strategy of printing more of its local currency to deal with the enormous fiscal deficit. He emphasized that it is crucial to implement deep reforms and work with the parliament and government to address the crisis.
Budget Shortfall and Current Situation
The recently approved draft budget for 2023, endorsed by the government after nearly nine months into the year, highlights a state deficit of 24 percent. This amounts to a staggering 46 trillion Lebanese pounds, a little over $500 million when considering the parallel market exchange rate. This significant budget shortfall is a pressing concern for the nation.
New Leadership After Controversy
Following the departure of Riad Salameh, who led the central bank for thirty years but faced corruption allegations locally and internationally, Wassim Mansouri has taken on the role of acting central bank governor. Salameh has denied the accusations against him.
Lebanon’s Economic Struggles
Lebanon is grappling with a severe economic crisis, one of the worst in its modern history. This crisis has resulted in the local currency losing around 98 percent of its value compared to the US dollar in the parallel market. Such a drastic currency devaluation has further exacerbated the country’s economic difficulties.
Public Sector Salaries and Exchange Rates
Addressing the impact of the crisis, Wassim Mansouri stated that public sector salaries, which have suffered significantly during this period, would be paid in US dollars for August. The exchange rate for these payments is one dollar to 85,500 Lebanese pounds. It is important to note that the parallel market rate is slightly higher at around 89,600 Lebanese pounds per dollar.
Urgent Call for Reforms
Wassim Mansouri emphasized the urgency of adopting economic reforms. He warned that with every passing day without significant changes, the risk of the state’s collapse increases, leading to greater financial losses. Furthermore, delaying these reforms could isolate Lebanon from the global financial system, which poses additional challenges to the nation’s stability.
Collaboration Needed for Monetary Stability
The acting central bank chief stressed the vital role of cooperation between the central bank, government, and parliament for maintaining monetary stability. With this collaborative effort, Lebanon’s central bank can ensure the stability of the country’s currency and financial systems.
IMF Agreement and Pending Action
Lebanon had secured a staff-level agreement with the International Monetary Fund (IMF) for a $3 billion bailout in the previous spring. However, the nation has struggled to fulfill most of the stipulated requirements needed to access the funds. This agreement remains a critical step for Lebanon’s economic recovery.
Lebanon’s central bank’s decision to avoid printing more money to address its fiscal deficit reflects the urgency for comprehensive reforms and collaboration between the government and parliament. The nation’s economic challenges are significant, and addressing them promptly is essential to prevent further financial instability and potential isolation from the global financial system.