Rania Chakhtoura, “Akhbar al-Yawm” agency

Ghobril to "Akhbar Al-Yawm": two tools to curb inflation are missing and the demand for cash does not stop

The Lebanese pound has entered a new stage of collapse, with the exchange rate of the US dollar exceeding the ceil of one hundred thousand, and continuing to rise, where today's record is 120,000 LBP without any deterrence, in the complete absence of the relevant authorities, intentionally or perhaps unintentionally.

In front of this unprecedented pace of deterioration, the head of economic research and analysis at Byblos Bank in Beirut, via "Akhbar Al-Yawm" agency, believes that the exchange rate should not be viewed from the technical point of view only because nothing has changed from the economic point of view since the beginning of the year - when the sharp decline in the lira exchange rate began - until today, not at the level of growth, purchasing power, consumption or demand for goods down to the volume of imports.

Ghobril says that as long as there is no economic reason for this sharp decline, the matter calls for asking a series of questions, including: Is it political pressure to impose some reality on the ground? Is it pressure to reach the resignation of the governor of the Bank of Lebanon Riad Salameh before the end of his term? Is it political pressure on all the forces and the Lebanese to push for the election of any president only in order to get out of the crisis?

Ghobril explains that one of the reasons for the collapse is the failure to take any action to address the existence of a parallel market that appeared in September 2019 due to the lack of liquidity in foreign currencies in the Lebanese economy as a result of the sharp decline in the flow of capital and the crisis of confidence that began in late 2017 and early 2018, pointing out that this parallel market is not subject to any control or law, but controlled by speculators, crisis traders, exploiters of political controversies and money seekers.

Pointing out that the rise in the exchange rate in this way makes commodity prices in a race with exchange rates, Ghobril explains that what is happening today is the repercussions of inflation, while the tools for stopping it are missed.

Ghobril states that in order for the economy to function normally, there are two tools to curb inflation:

First: through the central banks that move interest rates up or down in order to withdraw liquidity from the market, and we saw last year that the central banks in Europe, America and around the world raised interest rates rapidly in order to curb inflation, but this tool has been disabled in Lebanon since the beginning of the crisis because the normal functioning of the banking sector is disrupted and there is no money entering into it, so the Bank of Lebanon cannot resort to the interest tool. It is known that the Bank of Lebanon has been the only means since the post-war period to attract capital to Lebanon, as there are no developed financial markets such as the stock exchange, the corporate bond market or investment banks, among others.

Second: public expenditures, which are supposed to be reduced in crises, but in Lebanon the budget for 2022 was approved at the end of last September, and we do not know anything yet about the budget for 2023.

Ghobril continues: add to all this the demands that do not stop: the increase in salaries, wages and allocations in the public sector, and this is what leads to the injection of liquidity by the Bank of Lebanon, and the reason here is that the state revenues are disrupted as a result of the continuous strikes in the public sector for more than a year and a half. He says: people have the right to demand their rights and I support raising the purchasing power of all citizens, but the strike in the public sector led to a decline in treasury revenues due to the closure of official departments and the suspension of transactions and fees due to them. Therefore, all requests go back to the Banque du Liban to secure lira for public sector employees.

What about negotiating with the International Monetary Fund? Ghobril explains that the IMF is waiting for the Lebanese authorities to act, while the current government has been in a caretaker state since May, after obstructing the formation of a new government since June, despite the election of a new parliament, and therefore cannot take serious reform measures to renegotiate with it. The constitutional deadline for the election of the president of the Republic has not been respected, in addition to the paralysis of institutions, whether executive or legislative, which cannot do anything before the election of a president. That is, all the institutions that are supposed to discuss the IMF are in a state of paralysis and vacancy...