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08 December 2019
ECONOMY

Lebanon appeals for import credit as crisis sparks dollar crunch

Lebanon has been convulsed by weeks of nationwide protests that toppled Prime Minister Saad Hariri’s government and raised investor concern that the country, one of the most indebted in the world, might struggle to pay bondholders.

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Lebanon’s caretaker premier sought credit offers from allies Saudi Arabia, France and the US to cover critical imports as the nation’s economic and political crisis fuels a shortage of dollars, reported Bloomberg.

Saad Hariri, who resigned in late October 2019 in the wake of mounting nationwide protests against the elite whom demonstrators accused of mismanagement and corruption, also sent letters to the leaders of Russia, Egypt as well as Turkey, China and Italy. Hariri said that Lebanon needed assistance to counter a ‘liquidity shortage’ and ensure food security.

The dollar crunch has worsened as the central bank attempts to protect its foreign reserves and ease pressure on the Lebanese pound’s peg to the US currency. A parallel rate has emerged for the pound higher than the fixed regime of LBP 1,507.5 to the dollar. Lebanese banks have tightened restrictions on the movement of capital with some even freezing credit lines for importers and others refusing to dispense dollars.

To keep its lenders stable and defend the peg, Lebanon relies on inflows from the millions of its citizens living abroad. However, capital inflows needed to finance the large current account and fiscal deficits have slowed as confidence has dwindled; outflows have gathered pace.

Hariri and other officials had earlier asked Gulf countries for financial aid to help alleviate the financial crisis but received only promises of assistance.

Last week, President Michel Aoun also said that he discussed Lebanon’s plight with representatives of Morgan Stanley and other financial institutions, ahead of planned talks with political factions on naming a new premier.

 


RELATED STORIES: Prime Minister Saad Hariri Lebanon dollar crunch


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