Lebanon switches to new exchange rate policy

Reuters/Mohamed Azakir

• Move to Bloomberg platform
• IMF praises recognition of ‘reality’
• A ‘lose-lose situation’ says critic

The Lebanese government is now using a dollar exchange rate closer to that of the parallel market when calculating taxes and fees for other administrative charges.

The 2024 budget law, which was passed on January 26, ditches all references to the official LBP15,000 and LBP1,508 rates on which the bulk of government revenue was previously based. 

According to the new budget, the exchange rate will be decided by the forthcoming Bloomberg platform.

This was commissioned in September to replace the old Sayrafa platform to consolidate exchange rates around a single source informed by market forces.

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On Friday, the pound was trading at 89,400 to 89,700 against the USD on the parallel market.

The new amendment stands to increase government revenue, which has slumped since the start of the current economic crisis in 2019. 

In an email, the International Monetary Fund’s country head for Lebanon, Frederico Lima, said he welcomed the effort to unify the exchange rate as a recognition of “the reality on the ground”. 

He added that the move underscored “the need to restructure the banking sector to restart growth and maximise recovery rates for depositors” and urged the government to enact crucial reforms “including the laws needed for the bank restructuring process to start”.

However, the new budget has been roundly criticised for increasing the tax burden on a nation still in the grips of economic crisis and its lack of progressive tax reforms.

Nassib Ghobril, chief economist at the Byblos Bank Group, called talk of exchange rate consolidation “a cover” for government efforts to “increase revenue at any cost”.

“It’s effectively an increase in the cost of public services,” he said. 

The Beirut-based Policy Initiative has also denounced the new budget, calling it a “lose-lose situation”. In a report released on January 24, the group described the budget’s approach to revenue collection as “regressive” and “predatory”. 

Under the new budget, 77 percent of government revenue will come from indirect taxes, compared to just 55 percent in the pre-crisis budget.

Revenue from taxes on income and capital gains are projected to fall by one-third from $380 million to $240 million.

This is evidence, the report said, that the new budget will “disproportionately burden middle and lower-income households compared to affluent ones”.