The financial situation in Lebanon isn’t well-documented. It is one of the many regions often overlooked.
New reports indicate that the country is struggling with its reserves. In terms of stabilizing the domestic economy, trouble may loom ahead.
The Financial Situation in Lebanon
A lot of countries are known to struggle financially. Most of those discussions pertain to regions such as Venezuela, Argentina, or African countries. Where the Middle East is concerned, most people automatically assume everything is going well. Lebanon is a prime example of how things are not always what they seem.
A new government has been elected in the country. That usually results in some changes, as well as cleaning up the mess of predecessors. Overcoming those hurdles will be difficult in this country. A lot of financial problems loom just around the corner.
First of all, there are huge debt repayments to address. Secondly, the currency peg for the Lebanese Pound is crumbling. Last but not least, the overall cash reserves are dwindling at an alarming rate. It creates a very problematic cocktail of circumstances.
Debts Continue to Mount
Lebanon is a country that is heavily indebted at this time. Receiving money to address the domestic financial situation is one thing. Being able to repay the debt, is a different matter altogether. Major bond repayments will need to occur in May of April of 2020. A total of $2.182 billion of interest and principal are due at that time.
Covering the costs will pose serious challenges. The central bank will play a key role in this regard. There is also the option of rescheduling the repayment dates. A restructuring the entire payment plan is a last resort, if need be.
Currency peg is Failing
The Lebanese pound is fixed to the US Dollar in a way. One US Dollar is valued at 1,507.5 Lebanese pounds. That situation has been in place since December 1997. However, the situation has begun to shift as of August 2019.
More pressure on the peg has created a parallel rate. Combined with the lack of central bank reserves, a very worrisome situation has been created. The official exchange rate cannot be defended in an official capacity.
Although things have improved in early 2020, the concerns are not removed by any mean. For now, Lebanese citizens are inclined to sell their US Dollars. How long that situation will remain in place, is very difficult to predict. Signs of a lower influx of dollars have already become apparent last week.
The Reserve Currency Situation
As the Lebanese central bank cannot “enforce” the official exchange rate, a lot of questions go unanswered. Relying on the “goodwill” of the people is not a way to introduce financial stability. A proper solution is to use the central bank’s currency reserves.
Analysts speculate how these reserves might not even exist at this time. Some even go as far as claiming they are officially in the negative. Assuming that is the case, there is no way out of the current mess.
Until accurate information comes forward, these concerns appear justified. Lebanon may be in a lot more financial trouble than most assume. There is also the debt owed to commercial banks, which stands at $67 billion. For now, the figures do not add up, but the real damage remains unclear.