BEIRUT: When grocery shopping in the Lebanese capital Beirut, Caroline Sadaka always has her phone on hand. This is not so she can check her list, but so she can figure out how much everything will cost given the fluctuating exchange rates that apply to different stores and industries.
A variety of exchange rates for the local pound have emerged as the collapse of Lebanon’s economy continues, making personal accounting more difficult and reducing optimism that the country will meet an IMF requirement for reform.
In February, the government officially set the exchange rate at 15,000 pounds to the US dollar, a devaluation of nearly 90% from the previous peg of 1507.5 pounds to the dollar.
However, the finance minister plans to calculate tariffs for imported goods at 45,000 pounds, while the Central Bank is selling dollars at a rate of 79,000 to the dollar.
Meanwhile, the rate on the black market is fluctuating daily but is currently around 107,000 pounds. Since the rate fluctuates so rapidly, many stores and gas stations are instead pricing their goods in US dollars, which is more stable.
Sadaka demonstrated the constant internal struggle of modern consumers by dissecting a can of tuna. There is no (reasonable) cost associated with this. The price appears to be listed in Lebanese pounds; is that correct? She wondered if this was the current price or if it had changed since she last looked.
She was a teacher who was paid in the local currency, which has lost more than 98% of its value against the dollar on the black market since 2019.
After decades of poor fiscal policy and alleged corruption, the economy started to fall apart around that time.
If the government is serious about ending the currency exchange rate chaos, it must establish a single, standard rate. For Lebanon to qualify for a $3 billion bailout, the IMF stipulated this and other measures nearly a year ago.
The Lender of Last Resort, however, claims that reforms have moved at a snail’s pace. Their efforts have been thwarted by politicians who are trying to protect special interests at the expense of the public good and avoid responsibility.
Given the rising cost of living and banking institutions’ increasing reluctance to process transactions, the country has been gradually shifting toward a cash-based and dollarized economy.
In an interview with Reuters, shop owner Mahmoud Chaar complained that the fluctuating exchange rate was causing overnight losses for his company.
Chaar, like many other business owners, must pay in U.S. dollars to import goods but sells them for Lebanese pounds. Since he had already made all of his sales based on the previous day’s rate, he was very surprised to find that the exchange rate had increased by nearly 10,000 pounds to one US dollar overnight.
What we made in profit was basically wiped out by the exchange rate difference,” Chaar told Reuters.
Economist Samir Nasr argued that unifying the rates was more important than ever because the disparity between industries was making personal accounting “messy” for Lebanese.
Unifying the exchange rate is possible only after the economy has stabilized, which requires a comprehensive set of reforms and steps, he said.
