Lebanese businesses struggle to get dollars
Country hit by worst financial strain since civil war
Cars line up to fill their tanks but the worker at the petrol station in Lebanon’s capital city waves them off, standing by the ‘Strike!’ signs. “No fuel today,” he shouts.
The day of industrial action at petrol pumps across the country was not really about fuel, it was about the dollars needed to pay for it, or rather the lack of them.
“We don’t want a crisis ... the sector is bleeding,” said Fadi Abu Chakra, a spokesperson for fuel distributors who led the strike this week. “We [get paid] in Lebanese pounds, and we need dollars to pay importers. Where are we supposed to get dollars if the banks are not giving them?”
A stagnant local economy and a slowdown in cash injections from Lebanese abroad have reduced the central bank’s foreign currency reserves, making it difficult for businesses to buy the dollars they need from banks.
Some say they are forced to go to money-exchange houses that charge rates above the official peg of 1,507.5 pounds to the dollar. Lebanon has not had such financial strain since its 1975-1990 civil war. The pressure has raised concern about the stability of a country where political tension local and regional is never far from the surface and which hosts about a million Syrian refugees.
Banks in the Middle Eastern state still sell dollars at the official exchange rate, but some business owners say they cannot get the amounts they need from them.
Saddled with one of the world’s heaviest public debt burdens at 150% of annual GDP, Lebanon’s government has declared an economic emergency to try to get its finances under control.
“The economic situation is tough, but we are not a collapsing country at the financial level,” finance minister Ali Hassan Khalil told reporters.
“Yes, there is not much liquidity in foreign currencies in people’s hands in the market, but the dollar exchange rate is still maintained in the banks.”
Lebanon’s banking association said banks were satisfying demand for foreign currency, and dollars were available. The central bank said lenders were able to tap its supply of US dollars to meet customer requests.
“When they are in shortage they buy [dollars] from the central bank,” governor Riad Salameh said. However, three bankers contacted by Reuters said they were rationing the amount of dollars they could sell for Lebanese pounds.
“The central bank gives a daily quota of dollars for each bank, but people are asking the banks for more dollars than the quota,” said one senior banker, who asked to remain anonymous to speak freely.
The central bank did not respond to a request for comment.
“It’s the first time in the history of the Lebanese banking sector that the demand in the dollar market is not being met in this way,” the banker said.
The banking sources said there was no problem withdrawing from dollar or Lebanese pound deposit accounts.
“It’s not an issue of dollar shortage, but rather higher demand,” said another banker, declining to be named because she was not authorised to discuss the matter publicly.
Seven importing companies contacted by Reuters said they were finding it harder or more expensive to obtain dollars. They asked to remain anonymous out of concern that speaking publicly would harm their businesses.
A leather importer said banks were taking a few days longer to turn pound cheques into dollars, “and sometimes they tell us sorry, we can’t exchange them”.
The Lebanese pound has been pegged at its current level against the US dollar for more than two decades, and the government has promised to keep it there. It wants to avoid a devaluation that could hit people’s savings and spending power.
Salameh, who has run the central bank for a quarter of a century, has since 2016 boosted reserves through a series of measures including attracting inflows with high interest rates on long-term, high-value deposits. But this has absorbed liquidity from banks.
And amid anaemic economic growth and political instability, traditional sources of foreign exchange including tourism, real estate and money sent home by citizens abroad have slowed.
The central bank’s foreign assets, excluding gold, fell about 15% from a record high in May 2018 to $38.7bn in midSeptember. The central bank said it had received a $1.4bn dollar boost in late August from private depositors.
Reflecting the increased pressure on Lebanon’s finances, Fitch ratings agency recently downgraded it deep into junk territory. Rival ratings agency S&P Global kept Lebanon’s credit rating at B-/B, but warned that it could be lowered, saying it considered its foreignexchange reserves sufficient to service government debt in the “near term”.
Finance minister Ali Hassan Khalil said last week that Lebanon was committed to repaying its debts in all currencies.
“We have never been late to fulfil our commitments, not even for an hour,” he said.
In 2018, foreign states and donors pledged $11bn for Lebanon for a 12-year infrastructure investment programme so long as the government enacts reforms.
“The currency peg risks being tested unless we see significant political commitment and implementation of announced reforms, which could be supported by the disbursement of some donor funds,” said S&P’s Lebanon analyst, Zahabia Gupta. Dollars and pounds alike are legal tender in Lebanon, which is a net importer of goods with a persistent need for dollars to fund trade and government deficits.
Amid the demand for dollars, some money-exchange houses have raised the amount of Lebanese pounds required to buy dollars beyond the margins set by the central bank.
A Lebanese clothing company owner said it stopped importing material this summer and now sources locally, blaming sluggish demand and bank dollar conversions too small for currency needs.
“Getting dollars at the moment is difficult,” said an importer of alcoholic drinks. “The bank is adamant it will not exchange dollars. You have to go to a [money] exchanger.”
His company, which imports about $10m worth of goods annually, has not cut imports yet, he said.
THE CURRENCY PEG RISKS BEING TESTED UNLESS WE SEE POLITICAL COMMITMENT AND IMPLEMENTATION OF REFORMS