Banque du Liban (BdL) Governor has warned that a political solution is needed within ‘days’ to avoid economic collapse and restore public confidence after 12 days of anti-government protests that have forced banks to close, reported Bloomberg.
Riad Salameh, the Governor of BdL said that a change in government was needed to restore confidence and ensure that financial inflows—which have already slowed this year—do not dry up.
“It’s a matter of days because the cost is heavy on the country but more important we are losing confidence everyday, more and more confidence—finance and economy is all about confidence,” said Salameh.
The Association of Banks in Lebanon has said lenders will not reopen their doors until a political solution is found to the crisis but the closures have increased uncertainty and fed worries that a financial crisis is looming.
Prime Minister Saad Hariri’s trying to get consensus on a new government or changes in the present government in a way to satisfy the people of Lebanon and to regain a certain trust, but for the time being, there is no progress.
Hundreds of thousands of protesters have been on the streets for over a week, demanding the resignation of the political elites they blame for endemic corruption and falling living standards. The country has been paralysed as protesters block major highways forcing banks, schools and many businesses to shut down.
Prime Minister Hariri has hinted that some change to the cabinet lineup was being considered, adding that he was ready to submit to popular demands for early elections. However, the pro-Iranian-backed Hezbollah group, which has immense influence over Lebanese politics, opposed both moves.
To keep its lenders stable and defend the dollar peg, Lebanon relies on inflows from the millions of Lebanese living abroad. However, capital inflows needed to finance the large current account and fiscal deficits—including non-resident deposits—have slowed as confidence has dwindled.
According to the Institute of International Finance (IIF), the growth in Lebanese banks’ deposit base broadly stagnated throughout September 2019. The dollarization of deposits may have increased to as much as 79 per cent of total deposits in recent weeks, said the IIF.
The shortage of greenback has forced importers to buy from exchange bureaus leading to the emergence of a parallel rate that is hovering around 1,650 per US dollar compared to the official rate of 1,507 to the dollar.