Najib Mikati’s government has been finally formed after 13 months of political bickering over the form, size and shape of new cabinet. However, the Lebanese streets received the new announcement with a lot of caution despite the drop in the exchange rate of the dollar against the Lebanese pound.
This drop has caused large confusion in the local market because previous experiences do not inspire confidence. This matter will leave its repercussions on all sectors, especially that goods were imported at an exchange rate that ranged between 18,000 and 19,000 LBP against the dollar. The question that arises in this context, will the goods’ prices drop and what will be the impact on the market, investors, and traders?
The birth of the government, which coincided with the decision to lift subsidies, which has been draining the treasury and benefiting the Syrian regime from half of its value, have led to a drop in the dollar exchange rate against the Lebanese pound. This reality will urge citizens to sell their dollars in order to reduce their losses, and therefore, its results will impact the Central Bank positively, because the latter will be able to restore the subsidies it provided for a long period. It will also help the Central Bank maintain the mandatory reserves at the lowest cost, which it may have spent part of it.
An informed source confirmed to Sawt Beirut International (SBI) that the drop in the dollar exchange rate will not exceed the threshold of 14,000 LBP for a specific period of time, and it may be “quick”. This matter will be related to citizens’ estimates and their confidence in what the new government can perform. Central Bank Governor Riad Salameh would ask oil importers to pay their dues in Lebanese pounds to help reduce the price of the dollar, which it wants to restore at a low price.
Despite the timid optimism, it must emphasized that this government will remain restricted in its decisions, even if it includes some names known for its efficiency, because the International Monetary Fund (IMF) has imposed certain conditions which will oppose Hezbollah’s economic policy. The latter cannot abandon this policy in terms of sea, land and air crossings, because it allows him to bypass the penalties imposed on some of his individuals, institutions, and entities, as well as for some sectors whose management will be outside the control of the state, especially the telecom sector, which includes a huge number of “crooks”.
The source added that within one month, the Central Bank disbursed $820 million, which is equivalent to the amount that the IMF will provide to Lebanon for a year.
Abdallah Khazaal, the financial and economic expert, said after the government formation that citizens will rush to sell the dollars in their possession considering it a positive start, but the question that arises to what extent the dollar exchange rate will drop against the Lebanese pound.
Khazaal confirms that the margins are not large in relation to the dollar exchange rate dropping below 14,000 LBP in the short term, pointing out that devaluing the dollar requires radical reforms. Will the government be able to implement these reforms and negotiate with the IMF, which has demanded several matters to sit on the dialogue table with the ministers to release the amounts pledged by IMF, and the first of which is to solve the depositors’ problem by implementing “haircuts” on their money, in addition to reducing the value of the Lebanese debt below 100 percent of the GDP. This is a major step that this government will not dare to take.
Proposals for privatizing the electricity sector and solving its enormous problems are opposed by some parties that dominate this sector, and this applies to the port, the airport, the telecommunications sector and the Internet.
Expectations indicate that there will not be a significant drop in the exchange rate of the dollar, and if it occurs, it will be for a short period of time and within certain limits that do not exceed 17,000 LBP, to rise again when it appears that the government wasn’t able to do any achievements or reforms. As the matter will be limited to passing some laws, including the election law, and it is possible that the government will be forced in the street to step down before it achieves any success.
It is worth noting that there are other conditions related to banks that fall within the conditions of the IMF, in terms of merging some banks and closing others, in addition to forensic audit, and this matter will not be easy because it has become clear that many parties are involved and want to evade it.
In conclusion, Khazaal believes that implementing the IMF’s conditions seems to be impossible, and it is difficult for this government to implement it.