Lebanon needs $12-15b to kickstart recovery: Central bank chief

Lebanon needs to receive $12-15 billion from its partners to kickstart its economic recovery and shore up fast-diminishing foreign currency reserves, Central Bank Governor Riad Salameh said Tuesday.

Lebanon is grappling with an unprecedented economic crisis branded by the World Bank as one of the planet’s worst since the mid-19th century.

More than 80 per cent of the population lives in poverty and the currency has lost more than 90 per cent of its black market value amid political squabbling that has delayed an agreement with the International Monetary Fund.

“Our quota in the International Monetary Fund is four billion,” Salameh said in an AFP interview. 

“If countries add to it, we could reach 12 to 15 billion, an amount that could help start Lebanon’s recovery and restore confidence,” he said.

Lebanon defaulted on its debt for the first time last year but political leaders have continued to resist key reforms demanded by donors to unlock necessary funds.

The central bank’s mandatory dollar reserves have been slashed by more than half, according to Salameh, who is widely viewed as a key culprit behind an economic crash many blame on central bank policies. 

“The mandatory reserves are around $12.5 billion,” that the central bank can’t spend, Salameh said, explaining that an additional $1.5 billion in reserves had been freed up for central bank spending.

The mandatory reserves stood at $32 billion before the start of the economic crisis in 2019.

lack of transparency

Salameh dismissed criticism blaming him for the crisis, saying that “had it not been for the central bank and its reserves, Lebanon would not have been able to carry on”.

“The central bank deals with the outcome of the crisis. It is not the side causing it.”

The fast-diminishing reserves are threatening a subsidy programme that had initially covered fuel, medicine, flour and other vital imports before it petered out.

The central bank can afford to finance partial subsidies on a few remaining key imports for “around six to nine months,” if no additional measures are taken to combat the depreciation of the Lebanese pound, Salameh said.

The only new usable foreign currency injections that the central bank has access to come in the form of IMF Special Drawing Rights (SDR) allocations received this summer, a  former central bank official and a former adviser to the finance ministry both told AFP.

“We do not know how they are being used as there is a total lack of transparency and disclosure,” the ex-central bank official told AFP on the condition of anonymity.

IMF talks

Officially pegged at 1,507 to the greenback since 1997, the Lebanese pound sold for nearly 30,000 to the dollar on the black market earlier this month, a record low.

The official fixed rate is “no longer realistic”, Salameh said, while explaining that a unified exchange rate would be unlikely in the absence of an IMF agreement and political stability.