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Lebanon: Salameh Says Dollar Offered in Market Since Govt Formed

Lebanon: Salameh Says Dollar Offered in Market Since Govt Formed

Tuesday, 5 February, 2019 - 10:45
Lebanon's Central Bank Governor Riad Salameh holds a news briefing in Beirut, Lebanon December 4, 2018. REUTERS/Dalati Nohra/Handout via REUTERS
Beirut- Asharq Al-Awsat
US dollars are being offered in Lebanon's local market to buy Lebanese pounds since the formation of a new government, Lebanese al-Jadeed television quoted the central bank governor, Riad Salameh, as saying on Tuesday.

Lebanese leaders agreed a new national unity government last week after nearly nine months of political wrangling over how to share out cabinet portfolios.

Prime Minister Saad al-Hariri has said bold reforms must now be taken to address problems in the heavily indebted state, which has suffered from years of low economic growth and has some of the world's worst debt and balance-of-payment ratios.

The Lebanese pound has been pegged against the dollar at its current level for more than two decades.

"After the formation of the government the dollar has been offered in the local market to buy pounds and this restores the strength of the role of national currency in savings," Salameh said from the presidential palace.

Presidential sources said President Michel Aoun had discussed the monetary situation at a meeting with Salameh.

Moody's said on Monday the government formation was positive for the country's credit rating as it should help unlock an $11 billion, five-year international support package offered last year.

The international institutions and foreign governments that pledged the support, mostly in the form of concessional loans, want to see government reforms to put the state finances on a sustainable path.

Lebanon's 150 percent debt-to-GDP level and its near 25 percent current account gap - a figure that effectively shows how much a country borrows from the rest of the world - are its most worrying statistics.

Moody's estimates the interest bill from its debt alone absorbs roughly half of all government revenues and represents about one-third of total government spending.

The current account gap meanwhile is worth around $15 billion in real money terms according to Goldman Sachs, and although $500 billion of aid from Qatar and as much as $3.5 billion from Saudi Arabia might cover some of it, there is still likely to be an $11 billion black hole in the finances.

For the time being, it can easily be covered by the country's near $40 billion of central bank reserves, which are equivalent to 71 percent of GDP and enough to cover 13 months of imports.

It also has gold holdings of $11.8 billion, the second highest in the MENA region after Saudi Arabia. But with a pegged currency, plundering that cash or gold could cause problems, said Reuters.

Authorities must hold sufficient dollar buffers to maintain faith in the exchange rate, while ensuring steady inflows to keep coffers topped up.

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