July Crisis Update

Key Takeaways:

• Central Bank Vice Governor Wassim Mansouri was named acting Central Bank governor after the cabinet failed to select a successor to former Central Bank Governor Riad Salameh. Prior to taking on his new position, Mansouri and three other vice governors called for the government and parliament to engage more directly with the Central Bank, in addition to proposing a mechanism by which Lebanon could float its national currency, the Lebanese pound (LBP). 

• Central Bank foreign assets dipped in July due to an unprecedented USD 608 million decrease on its balance sheet amid a marked reduction in LBP money supply. On August 1, the new Central Bank leadership announced that it would limit new access to the official exchange platform Sayrafa, in a move which could loosen the Central Bank’s influence over the parallel market exchange rate.

• Caretaker Finance Minister Youssef Khalil submitted a draft budget, introducing new taxes on tobacco, alcohol, travel, and private generators – all of which were suggested by the International Monetary Fund in their January report on tax reforms –  in addition to raising vehicle-related fees. Despite higher projected revenues, the proposed 2023 budget would result in an 18.79% deficit.

• French Minister for Europe and Foreign Affairs Jean-Yves Le Drian paid an official visit to Lebanon, during which he met with representatives of multiple political parties regarding Lebanon’s political deadlock and stalled presidential elections. The meetings focused on determining various political factions’ preferred presidential candidate profile and ensuring that political parties will have their MPs participate in electoral sessions in September. 

• Heavy fighting broke out at the Ein el-Hilweh refugee camp near Saida in late July, prompted by tit-for-tat assassinations and assassination attempts targeting Fatah and Islamist paramilitary figures. The fighting carried into early August, forcing thousands of people to flee the camp. 

• Tensions are high between Hezbollah and Israel along Lebanon’s southern border  following Israel’s construction of a barrier around the northern half of Ghajar, a village which sits along the frontier, and Hezbollah’s erection of tents along a disputed section of the Blue Line.