Key Takeaways:
- The value of the Lebanese Pound (LBP) fluctuated against the US dollar (USD) throughout August and by the end of the month depreciated to about LBP 33,000. The depreciation appears to have been triggered by a continued decline in Sayrafa exchanges compared to previous months and a record amount of LBP in circulation. It is likely that the LBP will depreciate further in September, driven by fewer Sayrafa transactions, high amounts of LBP in circulation, and changes to import financing by the Central Bank.
- The Central Bank is steadily reducing credit lines for importers through the Sayrafa platform. Throughout August, the Central Bank decreased this effective subsidy three times over the span of three weeks by adjusting the percentage of foreign exchange provided to fuel importers via Sayrafa to 70%, then 45%, and then 40%. The rest is paid via the parallel market rate. This led to minor disruptions in the market and queues of cars formed around petrol stations as fuel prices increased, specifically 95-octane, 98-octane, and diesel.
- The Budget and Finance Committee completed its review of the 2022 draft budget and sent it to the parliament for approval. Notably, the draft budget does not contain a specific customs tax rate, fostering uncertainty about whether the budget will be passed or returned for another round of review. Changes to the exchange rate at which custom tariffs are calculated will likely lead to further inflation. Further delays in ratifying the budget will prevent officials from addressing the open-ended public sector strike and present additional challenges to unlocking IMF funding.
- A parliamentary session focusing on the capital control law was halted by MPs and met with protests outside the parliament, further delaying prospective implementation of the longawaited law, which doubles as a requirement for a deal with the IMF. A separate IMF requirement, an amended the banking secrecy law, was sent back to the parliament by President Michel Aoun despite being approved by the parliament in late July. The IMF stated that the draft banking secrecy law does not meet its requirements and the parliament is expected to revisit the law in the coming month.
By Crisis Analytics Team, Mercy Corps Lebanon
