Lebanon's exchange rate confusion complicates personal accounting

Lebanon's exchange rate confusion complicates personal accounting

BEIRUT Reuters -- When Caroline Sadaka buys groceries in the Lebanese capital Beirut, she keeps her phone in hand not to check her shopping list but to calculate the spiralling costs of goods now priced at volatile exchange rates that vary by store and sector.

As Lebanon's economy continues to collapse, an array of exchange rates for the local pound has emerged, complicating personal accounting and dimming hopes of meeting a reform requirement set out by the International Monetary Fund.

The official exchange rate was set at 15,000 pounds to the U.S. dollar in February, a nearly 90% devaluation from the longtime peg of 1507.5.

The finance minister intends to calculate tariffs for imported goods at 45,000 pounds, while the Central Bank is selling dollars at a rate of 79,000 to the dollar.

The parallel market rate is around 107,000 pounds and changing daily. Supermarkets and fuel stations must post signs with the value they adopted for the day but the rate is changing so fast that many are pricing in the relatively stable U.S. dollar instead.

Sadaka illustrated the daily quandary faced by shoppers by looking at a can of tuna. This doesn't have a logical price. Or is this an old price, and there is now a price in dollars? She left her job as a teacher, which paid her in local currency, the value of which has decreased by more than 98% against the dollar on the parallel market since 2019.

The economy started to unravel after decades of unsound financial policies and alleged corruption.

The exchange rate confusion is a problem and the government needs to implement a unified rate. This is one of the conditions set by the International Monetary Fund a year ago for Lebanon to get a $3 billion bailout.

The lender of last resort said reforms have been too slow. They have met resistance from politicians who are shielding vested interests and dodging accountability.

The country is moving towards a cash-based and dollarized economy due to spiralling inflation and restrictions by banks on transactions.

The exchange rate was changing so quickly that his business was losing money overnight, according to shop owner Mahmoud Chaar.

Like many business owners, Chaar has to pay in U.S. dollars to import goods, but sells in Lebanese pounds. One day, he had sold all his goods based on one rate, but the next morning he found out that it had jumped nearly 10,000 pounds per U.S. dollar.

Chaar told Reuters that they lost what they had made in the exchange rate difference.

Economist Samir Nasr said the varying rates across sectors were making personal accounting messy for Lebanese and unifying them was more urgent than ever.

He said that a full group of reforms and steps must be taken to allow the economic situation to stabilize in general and allow the exchange rate to be unified.