Lebanon’s embattled currency hits new record low

The Lebanese pound hit a record low against the United States dollar on the black market on Tuesday, a sign of the country’s multiple crises deepening with no prospects for a new Cabinet in the near future.

The crash in the local currency that has resulted in a sharp increase in prices led to the outbreak of small protests in different parts of Lebanon on Tuesday. The demonstrations saw roads closed off with burning tyres.

A lack of hard currency has also led to delays in the arrival of fuel shipments, leading to more extended power cuts around the country, in some areas reaching more than 12 hours a day.

Lebanon is one of the only countries on the planet that is heavily dependent on fuel oil and diesel oil to generate electricity.

The dollar was trading at 9,975 Lebanese pounds around noon local time on Tuesday. The previous record fall was registered in July, when the dollar briefly sold for 9,900 pounds on the black market.

The official exchange rate remains 1,520 pounds to the dollar.

Lebanon has been hammered by one crisis after another, starting with the outbreak of anti-government protests against the country’s corrupt political class in October 2019. That has been compounded by the coronavirus pandemic and a massive blast in Beirut’s port last August that decimated the facility.

In neighbouring Syria — where the economy has been ravaged by a 10-year conflict, corruption and Western sanctions — the dollar also hit a record on Monday, reaching nearly 3,900 Syrian pounds. The economies of the neighbouring countries are connected. Many Syrians have had their money blocked in Lebanese banks that have implemented harsh capital controls to stem the outflow of dollars.

The massive blast at Beirut’s port last August, when nearly 3,000 tonnes of ammonium nitrate detonated, killed 211 people and injured more than 6,000. Large parts of the Lebanese capital were badly damaged in the blast.

Prime Minister Hassan Diab’s government resigned six days after the August 4 blast, one of the largest non-nuclear explosions in history. In October, former Prime Minister Saad Hariri was named to form a new Cabinet but nearly five months later, disagreements between him and President Michel Aoun on the shape of the Cabinet have stood in the way of a new government’s formation.

Lebanon has also been in desperate need of foreign currency, but international donors have said they will only help the country financially if major reforms are implemented to fight widespread corruption, which has brought the nation to the brink of bankruptcy.

The drop in the value of the Lebanese pound also came after an end-of-February deadline for the country’s banks to raise their capital after they were hit hard by the crisis. Local media reports hinted that some lenders had to collect hard currency from the black market, increasing demand for the greenback over the past days ahead of the February 28 deadline.

“The dollar is equal to 10,000 pounds. People are hungry, prices are flying and there is no electricity,” tweeted Lebanese business writer Hala Saghbini. “We want a government immediately. Enough humiliation of the people.”

The crash in the local currency will throw more people into poverty. In Lebanon, the minimum wage is 675,000 pounds, or about $67 a month. Before the protests broke out in 2019, the minimum wage was about $450 per month.

The crisis has driven nearly half the population of the small country of six million into poverty. Over one million refugees from Syria live in Lebanon.

In December, the World Bank warned that Lebanon’s economy faces an “arduous and prolonged depression”, with the gross domestic product (GDP) projected to plunge by nearly 20 percent because the country’s politicians refuse to implement reforms that would speed up its recovery.

In March last year, Lebanon defaulted for the first time ever on a payment on its massive debt amid ongoing popular unrest. Lebanon’s debt reached $90bn or 170 percent of GDP, making it one of the highest in the world.