‘Economic massacre’: Lebanon dollarizes economy as pound plunges

People shop at a supermarket as the price of goods are priced in US dollars, in Beirut, Lebanon Mar. 1, 2023. (Reuters)

• Amid warnings of looming economic chaos, the Finance Ministry set the price of the customs dollar at 45,000 Lebanese pounds
• The ministry pegged the value at 15,000 pounds only a few weeks ago

BEIRUT: Escalating political confusion sent the Lebanese pound plummeting to a new low on the black market, trading at 90,000 pounds to the dollar on Wednesday.
The latest plunge in the local currency means the exchange rate is more than 60 times lower than the base rate of 1,500 LBP/USD that has been in place for the past three years.
Amid warnings of looming economic chaos, the Finance Ministry set the price of the customs dollar at 45,000 Lebanese pounds so the state treasury could pay public sector salaries.
The ministry pegged the value at 15,000 pounds only a few weeks ago.
Shops and supermarkets also began to price products in dollars on Wednesday.
Economists and political experts predicted the Lebanese pound would drop to 100,000 to the dollar soon.
Meanwhile, a man stormed a Creditbank branch in Sidon, southern Beirut, and threatened to set it ablaze if he was denied access to his savings. The man ended up leaving the bank without getting his money after being assured he would face no criminal charges.
Economist Jassem Ajaka said that “there is no end to the hole the country has slipped into,” adding: “The worst is yet to come and we are drowning in utter chaos due to accumulated mistakes.”
Ajaka said the Finance Ministry had no option but to raise the customs dollar to step up treasury revenues.
Sources told Arab News that the ministry estimated the cost of covering the raises and social aid allowances that were added to public sector salaries at 8,000 billion Lebanese pounds.
“The country suffers from a large deficit, and increasing revenues is one of the International Monetary Fund’s demands,” he said.
“After raising the customs dollar and dollarizing the economy, the issue lies with controlling market prices in the absence of effective state institutions. Immense chaos awaits.”
Economic observers believe if the political class remained inactive, financial, economic and banking breakdown was inevitable.
With the local currency plunging and the prices of commodities and foodstuffs increasing by the minute, the Finance Ministry was fiercely criticized for its decision to raise the customs dollars, a step that is likely to drastically reduce people’s purchasing power.
Hani Bohsali, head of the Food Importers Syndicate, said the decision was surprising and would increase the prices of essential commodities by 2-10 percent.
“Even if oils and grains are exempt from customs fee increases, their prices will rise as the local currency drops.”
Tripoli MP Ashraf Rifi warned that the local currency depreciation could result in a real catastrophe with devastating repercussions.
“The Lebanese have become victims of an economic massacre,” he said. “The ruling authority and Hezbollah need to go before we can start reforming what this system destroyed.”
The Council of Maronite Bishops convened on Wednesday and appealed to the caretaker government to discharge its duties wisely and avoid any action that would aggravate the situation.
The council expressed concerns over security and called on law enforcement agencies to tighten measures.