Lebanon’s fragile Economic Recovery: A Looming Crisis?
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Lebanon’s economy, battered by years of turmoil, has seen a period of relative stability in its currency, the Lebanese pound (LBP). Though, experts warn that this calm might potentially be deceptive, raising concerns about the contry’s financial future and its potential impact on the global economy.
For nearly a year, the LBP has maintained a degree of stability against the US dollar. But this stability is now being questioned, particularly given Lebanon’s ongoing economic and financial struggles. The exchange rate’s trajectory is a critical issue for economists and policymakers alike.
Banking expert Nicolas Chikhani offers a sobering assessment.He explains, “A year ago, the Bank of Lebanon adopted a monetary policy to buy the lira against the dollar, which led to a reduction in the monetary supply in pounds in the market. However, during the past two weeks, the monetary supply witnessed an increase of approximately 10%, This is according to the latest budget of the Bank of Lebanon, and this matter is very dangerous.”
Chikhani’s concerns stem from a troubling trend within the Lebanese banking system. In an interview, he noted, “There are banks that offer high interest rates of up to 45% to freeze large amounts of the lira for a period of six months or a year. In return,these banks re-lend this money to other banks at interest rates of up to 80% and 100%.”
He views this practice as extremely risky, warning that it resembles a “ponzi scheme” – a fraudulent investment scheme that relies on attracting new investors to pay off earlier investors. This,he argues,creates artificial stability that masks underlying problems. “This will create imaginary benefits that will double the bloc into cash, which may prompt the Bank of Lebanon to print the pound when it wants to recover money for citizens,” Chikhani stated.
The expert’s warning is a stark reminder of the precarious nature of Lebanon’s economic recovery. He urges the Governor of the Bank of Lebanon, Wassim Mansouri, and the Oversight Committee to take immediate action to address these potentially devastating issues before the situation spirals further out of control.
the situation in Lebanon serves as a cautionary tale for global investors and highlights the fragility of economies grappling with notable financial challenges. The potential for a collapse of the Lebanese pound could have ripple effects across the international financial system,underscoring the interconnectedness of the global economy.
Understanding the Lebanese Pound Crisis
The Lebanese pound’s current predicament is rooted in years of political instability, corruption, and economic mismanagement. The country’s debt burden is immense, and its banking sector is struggling under the weight of non-performing loans. The recent increase in the money supply, as highlighted by chikhani, only exacerbates these existing vulnerabilities.
The potential consequences of a further devaluation of the LBP are severe. It could lead to hyperinflation, widespread poverty, and social unrest. The international community is watching closely, as the crisis in Lebanon could have broader implications for regional stability and global financial markets.
Lebanon’s Fragile Economic Recovery: A Looming Crisis?
Lebanon’s economy, battered by years of turmoil, has seen a period of relative stability in its currency, the Lebanese pound (LBP). However, experts warn that this calm might be deceptive, raising concerns about the country’s financial future and its potential impact on the global economy.
Interview with Dr. Sarah Khalil, Economist specializing in the MENA Region
Senior Editor, World-Today News: Dr. Khalil, thank you for joining us today. Lebanon’s currency has enjoyed some stability recently,but some experts are expressing concerns. Can you shed some light on the current situation?
Dr. Sarah Khalil: Certainly. While the lebanese pound has held relatively steady against the US dollar for the past year,several worrying trends suggest this stability could be artificial and unsustainable.
Senior Editor: Could you elaborate on these trends?
Dr. Sarah Khalil: One major concern is the recent increase in Lebanon’s money supply.The Bank of Lebanon has been buying liras to prop up the currency,which while intended to stabilize the LBP,actually introduces more currency into circulation. This can fuel inflation in the long run.
senior Editor: Are there other worrying practices taking place within the Lebanese banking system?
Dr.Sarah Khalil: Unluckily yes.We’re seeing high-interest rate offers used as a tactic to freeze large sums of Lebanese pounds for extended periods. These funds are then re-lent at even higher interest rates, essentially creating a Ponzi-like scheme.
Senior Editor: This sounds extremely risky. What are the potential consequences?
Dr. Sarah Khalil: This creates a façade of financial health while masking underlying problems.Once confidence erodes, the system could collapse rapidly, leading to a devaluation of the Lebanese pound and a severe economic crisis.
Senior Editor: What steps should be taken to avert such a crisis?
Dr. Sarah Khalil: The Governor of the bank of Lebanon and the Oversight Committee need to take immediate action. This includes implementing stricter regulations on lending practices, curbing the further expansion of the money supply, and addressing the underlying structural issues plaguing the Lebanese economy.
Senior Editor: If the Lebanese pound were to collapse, what would be the impact beyond Lebanon’s borders?
Dr. Khalil: A collapse of the Lebanese pound would have important ripple effects across the global financial system. it could trigger financial instability in the region and impact investor confidence globally, underscoring the interconnectedness of the world economy.
Senior Editor: Dr. Khalil,thank you for your insightful analysis.
