Prices soar as Lebanon’s economic crisis worsens

As Lebanon’s economic crisis continues to worsen, with the value of the Lebanese lira spiraling, the prices of goods at stores have started to increase, with some products almost doubling in price.

Imported food – that account for around 80 percent of Lebanon’s food supply – and locally produced products are both subject to inflation, though unevenly.

A dollar shortage in the country means that importers are unable to secure dollars at the pegged rate to pay for their goods, but even locally produced products might have an import component, such as packaging, that requires sellers to raise their prices, even if it is just marginally.

The Lebanese lira is officially pegged to the US dollar at a rate of 1,507 to one, but that peg has slipped over the past months, and is now around 4,300 to the dollar on the parallel market, despite efforts by the central bank to stabilize the rate down between 3,000 and 3,800.

 

As the lira continues to sink, Lebanese have lost some of their purchasing power, and poverty and hunger are on the rise in some pockets of the country.

For people like Mariam, who spoke with Al Arabiya English on the condition of anonymity, and other residents of Chiyah, an area in Beirut’s poverty-stricken southern suburbs, the lack of money and uncertainty is crushing.

 

Prices high, supermarkets closed

“Don’t ask me about the high increase of prices,” Mariam stated passionately, “Ask me how much it’s costing me to make one bowl of salad, with tomatoes costing up to 4,000 lira ($2.64, at the official rate). Most supermarkets in Chiyah have closed because they don’t have money to buy products or pay their employees.”

Ramadan, traditionally marked with family feasts for iftar dinners, has proven challenging this year.

“My kids used to break their fast by eating soup, salad, and either carrot juice or mixed fruit juice, but we don’t have much for main courses during Ramadan,” Miriam said. “We are now limited with the amount of salad we make. My 14-year-old son loves soup, so my other daughter puts less soup on her plate so he can take more. My husband does the same. Why? Because we know that once this bag of lentil finishes, we might not have 6,000 lira ($4, at the official rate) to buy another.”

Miriam said that she, her daughter, and her husband – a taxi driver – have all stopped work. Her oldest daughter may soon stop working too, and since the beginning of the crisis, she has been paid 400,000 lira, which is $264 at the pegged rate and around $117 at the real rate.

Her husband’s taxi cab is in need of repairs they cannot afford, but she said the family is unable to afford even the simplest things, like the medicine that she needs, but hasn’t bought for three months.

Miriam said she would prefer a war over the failing economy as she says it would at least unite the people together and everyone would help their communities.

“An Israeli invasion would’ve been better than this,” Mariam exclaimed, “Because then we’d know that if we needed anything we can knock on the doors of our neighbors and they’ll lend us a hand. But now we’re all in the same situation.”

Tensions between Lebanon and Israel have been present for decades, and the countries fought their most-recent war in 2006.

“I don’t know what I might do if the crises continues,” she said, “Is the solution protesting? They [the government] won’t listen. Is the solution to burn down the country? The country is ours. I wish someone can tell us of a way to we can fix this crisis.”

The economics of price rising and a way forward

Prices across the board are rising, and according to Hani Bohsali, head of the Syndicate of Importers of Foodstuffs, Consumer Products and Drinks, if the economic crisis continues to worsen, and the lira continues to depreciate, many products will no longer be brought into the country as imports won’t be able to turn a profit on them.

However, this does not include the products that stores already have in their inventory that they bought at the old exchange rate.

“If you’re a retailer,” Mike Azar, a financial adviser, told Al Arabiya English, “then you have a lot of inventory … that you bought many months ago, and [that] cost was based on the old exchange rate.”

Those products may not be subject to inflation just yet, meaning there are discrepancies in food costs around the country, but it’s different from place to place. Also, due to the rapid decline of Lebanon’s economy, this has caused some stores to raise the prices of various goods to a level that is above their worth, an act called “price gouging.”

A fruit vendor waits for customers at his stall in front of Sidon’s sea castle. (Finbar Anderson)
A fruit vendor waits for customers at his stall in front of Sidon’s sea castle. (Finbar Anderson)

 

“Some stores may be price gouging. There’s probably a lot of that happening,” Azar said. “Overall, prices are going to go up regardless if it’s now or in the near-term because the exchange rate has gotten weaker, and most importers don’t benefit from the official exchange rate.”

For importers of fuel, wheat, and medicine, the central bank has subsidized their product, ensuring they can buy dollars at the official rate.

For the majority of importers, however, they have to change currencies in the exchange shops, making the good subject to price fluxes.

And as the dollars dry up, inflation rises.

“What concerns us is the … availability of dollars,” he said.

Importers are more heavily affected when they sell their products, rather than when they buy them. This is because when importers sell their products, their buyers have to exchange their currency at a constantly shifting, usually upward, black market rate, according to Bohsali.

Azar explained that in order to start fixing the economic situation, there need to be reforms that help restore not only local confidence in the lira, but with the international community as well.

“The only way to do that,” he said, “is to give people confidence that the government will be able to do the reforms that are needed to stabilize the economy, to get dollars flowing back into the economy and [encourage] investment in the economy.”

Few have faith the government can make those reforms, even though they passed an economic reform plan yesterday that lays out a path for the heavily indebted country to begin to climb out from its current spiral.

“Nobody can predict exchange rates,” Azar later added, “The lira can become 3,000 tomorrow. It’s inherently unpredictable. Where the exchange rate goes depends on the decisions that are made today.”

 

 

Al Arabiya English

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