Lebanon plans shift to flexible exchange rate

BEIRUT: Lebanon would adopt a flexible exchange rate in the coming period and would need $28 billion in the next five years to overhaul its economy and address the country’s worst financial crisis in decades, Finance Minister Ghazi Wazni said yesterday.

“The central bank will maintain the fixed exchange rate for now and shift to a more flexible regime once confidence in the economy is restored,’’ Wazni said in a presentation to lawmakers at the presidential palace.

“Floating the currency before regaining confidence and bolster the economic and financial environment and getting funding from he International Monetary Fund and donor countries will lead to complete chaos in prices of goods and sharp deterioration in the exchange rate,” he said.

Lebanon defaulted on its debt earlier this year and has initiated talks with the IMF with the aim of securing a loan worth at least $10 billion to support its plan to overhaul the economy.

The government’s economic reform plan includes spending cuts, better tax collection and a restructuring of the loss making electricity sector as well as the banking sector.

The country’s crisis has been years in the making, but financial conditions deteriorated rapidly in 2019 as the central bank’s foreign currency reserves began to run low, forcing businesses to turn to money changers for dollars they need to pay for imports.

The pound has been sliding on the black market for months, prompting the central bank to introduce a series of different rates to manage demand and purchasing power as inflation soars.

Wazni said that the government started talks with bondholders of $30 billion Eurobonds two weeks ago and that a programme from the IMF would help facilitate the negotiations.

Lebanon’s Eurobonds rallied, with the security that matured on March 9 jumping 2.24 cents to 18.10 cents on the dollar at 10.14 a.m. in London. The debt due in 2037 climbed 34 cents to 17.71 cents on the dollar.