Lebanon’s draft budget for 2022 applies exchange rates of between 15,000 and 20,000 Lebanese pounds to the dollar for operating expenses, an official source told Reuters on Friday, moving away from the previously official rate of 1,500. used. The pound has lost more than 90% of its value since Lebanon sank into the financial crisis in 2019. The official exchange rate is still 1,500 to the dollar, while the currency changes hands in a parallel market around of 23,000.
The government is due to start discussing the draft budget on Monday at its first meeting in more than three months. The source, who is familiar with the draft budget, said that a specific exchange rate was not mentioned in the draft budget as a rate range was applied.
Last year’s budget, drawn up by an interim government and not passed by parliament, applied the official exchange rate of 1,500 – a parity introduced in 1997. The unification of the multiple exchanges currently in use in Lebanon is a policy recommendation from the International Monetary Fund, with whom Beirut said it hoped to sign a preliminary agreement between January and February.
Lebanon is heavily dependent on imports, including fuel for the state-run electricity company. A copy of the draft budget seen by Reuters forecast revenue of £39.15 trillion and spending of £49.42 trillion – a deficit of 20.8%.
Lebanon is in the grip of what the World Bank has described as one of the world’s worst economic depressions, and donors want to see its government pass long-delayed reforms before releasing any financial aid. “The budget lays the foundation for a sustainable plan for the next three years that allows state institutions to continue,” Prime Minister Najib Mikati told Reuters in a comment relayed by his office when asked about the importance from the budget.
Mike Azar, an expert on the Lebanese financial crisis and a former senior lecturer in international economics at the Johns Hopkins School of Advanced International Studies, said that “the budget appears to be a stand-alone document when right now the country needs of a broader macroeconomic stabilization plan”. “Understanding the government’s plans in terms of future monetary policy and restructuring of the financial system and the central bank are critical aspects for which we do not yet have information,” he said.
The budget included an advance for the state power company, Electricité du Liban (EdL), up to a maximum of £5.25 trillion. (Writing by Nayera Abdallah and Tom Perry; Editing by Raissa Kasolowsky and Alison Williams)
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