Lebanese pound extends rally fuelled by central bank intervention

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BEIRUT – The Lebanese pound extended a rally against the dollar on Wednesday, strengthening to about 24,000 from 34,000 last week thanks to central bank intervention which economists said was unsustainable unless the government enacts long-delayed reforms.

The gains still leave the pound more than 90% weaker than its level in 2019 before Lebanon descended into a financial crisis that has plunged a majority of people into poverty.

The central bank announced last week that banks could buy dollars from it without any ceiling at the price determined by the central bank’s Sayrafa platform, which has consistently priced the pound at rates stronger than on the parallel market.

The Sayrafa rate was 23,300 on Tuesday.

The financial system collapsed in 2019 under the weight of Lebanon’s massive public debt and the unsustainable way it was financed by borrowing from commercial banks.

“It’s a political decision really … but it is not sustainable,” said Mike Azar, an expert on the crisis and former lecturer in international economics at John Hopkins School of Advanced International Studies.

“It comes at very big cost, burning up the reserves you have, which are of course borrowed from depositors,” he said.

A parliamentary election is due in May.

The government which took office in September says it aims to reach an agreement with the International Monetary Fund to unlock donor support. But it has yet to enact reforms sought by donors to address the causes of the collapse, such as tackling state waste and corruption.

“If you continue with this (intervention) without any measures on the structural and fiscal reform front, we are going to end up depleting the reserves,” Byblos Bank chief economist Nassib Ghobril said. “It has to be accompanied by structural measures and progress with the IMF.”

Reuters

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