The financial crisis in Lebanon has seen its currency, the Lebanese pound, fall 80%. The International Monetary Fund (IMF) has
estimated that the country’s central bank has accumulated losses as much
as 170 trillion pounds. The disagreement between the Lebanese
government and the central bank has stalled bailout discussions.
The economic and financial crisis in Lebanon has deepened as the
local currency has been in a free-fall. The Lebanese pound sold at a
rate of 8,000 to the U.S. dollar on Sunday at local exchanges, losing
about 80% of its value over the past 10 months.
The IMF has warned
Lebanon that its central bank, Banque du Liban, has accumulated losses
of up to 170 trillion pounds, the Financial Times reported on Thursday.
The publication explained that the central bank has used “a series of
sovereign debt and currency swaps with local lenders … to shore up the
banking sector, attract foreign currency and stabilize the Lebanese
pound.” Citing people familiar with the matter, the publication reported
that the IMF told the Lebanese finance minister and central bank
governor:
That activity, combined with the impact of
Lebanon’s default in March on the bank’s sovereign bond holdings and a
collapse in the value of the currency, has resulted in accumulated
losses of about L£170tn.
The losses equate to 91% of
Lebanon’s total economic output in 2019 and are almost equal to the
total value of the deposits held by the central bank from the country’s
commercial banks, the news outlet conveyed. The pound had been pegged at
1,507.5 to the U.S. dollar since 1997.
An IMF spokesperson said
last week, “Our estimates are broadly consistent with those in the
government’s plan.” The central bank and some members of parliament,
however, argued that the losses are substantially lower.
The
disagreement between the Lebanese government and the central bank has
put the prospect of obtaining much-needed emergency financing from the
IMF at risk. IMF Managing Director Kristalina Georgieva said Friday that
she did not “expect progress in the negotiations with the Lebanese
officials.” Georgieva added: “IMF officials are still working with
Lebanon, but it is not clear whether it is possible for the country’s
leaders, active parties, and society to agree on implementing the
reforms needed to stabilize the economy and boost economic growth.”
However,
“Not accepting the diagnostic simply means that the IMF [will] walk
away,” commented Henri Chaoul, a banker and former advisor to the
government in the IMF talks. He resigned from his advisory role at the
Ministry of Finance on June 17. Lebanon’s fiscal and monetary policy has
come undone over the past six months, following weeks of
anti-government protests.
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