A petrol station closes during a protest against tight supply of dollars in Beirut, Lebanon, on September 18 2019. Picture: REUTERS/MOHAMED AZAKIR
A stagnant local economy and a slowdown in cash injections from Lebanese abroad have reduced the central bank's foreign currency reserves, making it difficult for businesses to buy the dollars they need from banks. Saddled with one of the world's heaviest public debt burdens at 150% of annual GDP, Lebanon's government has declared an economic emergency to try to get its finances under control.
“The central bank gives a daily quota of dollars for each bank, but people are asking the banks for more dollars than the quota,” said one senior banker, who asked to remain anonymous to speak freely.“It's the first time in the history of the Lebanese banking sector that the demand in the dollar market is not being met in this way,” the banker said.
A leather importer said banks were taking a few days longer to turn pound cheques into dollars, “and sometimes they tell us sorry, we can't exchange them”.The Lebanese pound has been pegged at its current level against the US dollar for more than two decades and the government has pledged to keep it there. It wants to avoid a devaluation that could hurt people's savings and spending power.
Reflecting the increased pressure on Lebanon's finances, Fitch ratings agency recently downgraded it deep into junk territory. Rival ratings agency S&P Global kept Lebanon's credit rating at B-/B but warned that it could be lowered, saying it considered its foreign exchange reserves sufficient to service government debt in the “near term”.
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