Is the Lebanese currency at risk of devaluation?

At the end of September, Lebanon’s foreign reserves reached $38.5 billion, an increase of over $2 billion since June, according to official figures. (AFP/File)
Updated 06 October 2019

Is the Lebanese currency at risk of devaluation?

  • The depreciation and banking restrictions last month prompted calls for strikes from gas station owners

BEIRUT: Fears of a monetary devaluation in Lebanon, where the exchange rate has been fixed for more than two decades, are on the increase following a dollar shortage and the downgrading of the country’s sovereign credit rating.

Panic has gripped Lebanon in recent weeks when it became nearly impossible to withdraw dollars from ATMs or to change large sums in banks.

Since 1997, when the exchange rate was fixed at 1,500 Lebanese pounds to the dollar, the greenback has been used interchangeably with Lebanese pounds in everyday transactions.

That measure was adopted after several rounds of devaluations in the 1980s and after Lebanon 1975-1990 civil war.

But on the parallel market, exchange rates reached 1,600 Lebanese pounds to the dollar in September.

This depreciation and banking restrictions prompted calls for strikes, notably from gas station owners who receive pounds but would have to pay suppliers in dollars. The action was called off under a deal allowing payments in dollars. After initially denying a dollar shortage, the central bank blamed the fluctuating exchange rate on increased imports, which observers say could be partly due to smuggling to neighboring war-torn Syria.

But Lebanese economist Jad Chaaban points to a decision by banking authorities to control the flow of capital, including central bank “oversight to limit anyone exchanging dollars in banks, but also withdrawing large dollar amounts.”

The original rationale for banking restrictions was worry over revised ratings to Lebanon by the three major international credit agencies.

On Tuesday, Moody’s announced it had put Lebanon’s credit rating “under observation” with the possibility of a downgrade within three months. The agency downgraded Lebanon from “B3” to “Caa1” in January, signalling “a very high credit risk.”

In August, Fitch downgraded Lebanon from “B-” to “CCC,” a category for countries where there is a “real possibility” of default.

Standard & Poor’s (S&P) kept Lebanon’s “B-/B” rating but with a negative outlook, meaning it could slide over the next year, the agency’s associate director of sovereign ratings Zahabia Gupta told AFP.

The Lebanese economy has suffered for years from low growth and a public debt swelling to around $86 billion. At roughly 150 percent of GDP, this is one of the highest rates worldwide.

In a country where the political class is often accused of corruption and racketeering, analysts say trust in Lebanon’s system of governance is being tested.

For the past year, Beirut has been trying to introduce economic reforms in order to unlock pledges of $11.6 billion in loans and grants from the international community.

This crucial aid has not been released due to delays in implementing reforms.

Despite the worry, “there is no real risk today of a devaluation,” according to economist Nassib Ghobril.

The central bank “has the necessary tools” to maintain monetary stability, said the chief economist at Byblos Bank.

These tools include sufficient foreign currency reserves to allow the bank to buy and sell currency to maintain the rate of the Lebanese pound.

At the end of September, foreign reserves reached $38.5 billion, an increase of over $2 billion since June, according to official figures, about four times the amount the country had in reserve in 2005.

Another positive indicator for analysts are deposit inflows that can replenish foreign currency reserves. The central bank’s inflows increased over three consecutive months between June and August, according to Marwan Barakat, chief economist at Bank Audi. But observers remain cautious.

The increase in deposit inflows and central bank reserves “are primarily linked to the (central bank’s) financial engineering and other one-off transactions and may not be sustained,” warned S&P’s Gupta.


IMF chief warns pandemic leaving some countries behind

Updated 24 February 2021

IMF chief warns pandemic leaving some countries behind

WASHINGTON: The crisis caused by the pandemic is leaving many economies lagging behind, increasing the plight of the poor, a problem made worse by “uneven” access to vaccines, IMF chief Kristalina Georgieva said Wednesday.
In a message to the Group of 20 meeting on Friday Georgieva urged governments to increase vaccine distribution, ensuring Covid-19 is brought under control.
“The economic arguments for coordinated action are overwhelming,” she said in a blog post.
“Faster progress in ending the health crisis could raise global income cumulatively by $9 trillion over 2020-25. That would benefit all countries.”
She said that should include financing for vaccinations, reallocation of excess supply to countries with a shortage, and scaling up of production.
The global pandemic death toll is approaching 2.5 million, according to Johns Hopkins University, and the shutdowns forced to control infections have devastated economies.
And while vaccine rollouts are raising hopes for a recovery this year, the IMF forecasts job losses in the G20 alone to total more than 25 million this year.
By the end of 2022, emerging market and developing nations — excluding China — will see per capital incomes 22 percent below pre-crisis levels, compared to just 13 percent lower for advanced economies, which will throw millions more into extreme poverty, Georgieva warned.
“That is why we need much stronger international collaboration to accelerate the vaccine rollout in poorer countries,” she said.
G20 finance ministers and central bank chiefs led by Rome will meet by videoconference to discuss the state of the recovery and how best to attack the problem.
The Washington-based crisis lender estimated more than half of the world’s 110 emerging and developing countries will see their incomes fall further behind advanced economies through the end of next year.
And the virus-driven economic crisis also will widen income gaps within developing nations, especially as millions of children are still facing disruptions to education.
“Allowing them to become a lost generation would be an unforgiveable mistake. It would also deepen the long-term economic scars of the crisis,” she warned.


Moody’s revises up US and emerging markets forecasts, cuts Europe

Updated 24 February 2021

Moody’s revises up US and emerging markets forecasts, cuts Europe

  • Emerging market growth moved up to 7 percent from 6.1 percent, led by upward revisions to China, India and Mexico

LONDON:Credit ratings firm Moody’s revised upwards on Wednesday its economic forecasts for the year for the United States and emerging markets, but cut Europe’s following the region’s tough COVID-19 lockdowns.
Moody’s pushed up its US growth forecast to 4.7 percent, from the 4.2 percent it had expected in November.
Emerging market growth moved up to 7 percent from 6.1 percent, led by upward revisions to China, India and Mexico, while the euro zone and Britain saw their respective projections cut to 3.7 percent and 4.7 percent, from 4.7 percent and 5.2 percent previously.
“The effects on individual businesses, sectors and regions continue to be uneven, and the COVID-19 crisis will endure as a challenge to the world’s economies well beyond our two-year forecast horizon,” Moody’s said in a report on its new forecasts.

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Updated 24 February 2021

SoftBank-backed Berkshire Grey to go public via $2.7bn SPAC deal

SoftBank-backed robotics firm Berkshire Grey said on Wednesday it has agreed to go public through a merger with blank-check firm Revolution Acceleration Acquisition Corp. in a deal valuing the equity of the combined company at $2.7 billion.

Food and drinks group Agthia eyes acquisitions to become big regional player

Updated 24 February 2021

Food and drinks group Agthia eyes acquisitions to become big regional player

  • Agthia’s products include bottled water, dairy products and baked goods

DUBAI: Abu Dhabi-listed food and drinks group Agthia Group is looking into making more acquisitions to turn the company into one of the region’s top players in the food and beverage industry, its chief executive said on Tuesday.
After doing a number of deals already Agthia has a “pipeline of ideas” for additional targets to strengthen its position at home and abroad.
“Certainly we want to be a big regional player in the F&B business and more in the consumer space, so we want to move into that branded space where we can start building master brands across the region,” CEO Alan Smith said.
Agthia’s products include bottled water, dairy products and baked goods.
Smith did not rule out entering new markets, though he said a number of factors would come into play, including whether the company could enter at a large enough scale.
He said Agthia has had conversations with Israeli parties on potential cooperation, but no agreements have been finalized.
Smith also said Agthia had some sub-scale assets that the company was currently reviewing.
Abu Dhabi state-owned holding company ADQ, the corporate structure where Agthia sits, in November signed an agreement to acquire an indirect 45% stake in Louis Dreyfus Co., the first outside investment in the family-owned commodity merchant’s 169-year-old history.
“To be honest the Dreyfus transaction is fairly recent and I think we have had some initial conversations just in terms of the commodities space. But at the moment there’s no plans to have a conversation with them about (consumer packaged goods) products.”
Smith said Agithia, which reported a fall in net profit for 2020, had a strong balance sheet and was comfortable with its debt levels. It has no current plans to tap international debt markets, but may need to in the future, he said.


Britain’s Heathrow sinks to $2.8bn loss during pandemic

Updated 24 February 2021

Britain’s Heathrow sinks to $2.8bn loss during pandemic

  • Heathrow called on the government to agree a common international travel standard to allow passengers to start flying again in the summer

LONDON: Britain’s Heathrow Airport plunged to a 2 billion pound ($2.8 billion) annual loss after passenger numbers collapsed to levels last seen in the 1970s during the pandemic.
Heathrow called on the government to agree a common international travel standard to allow passengers to start flying again in the summer and to provide business tax breaks for airports to help them ride out the crisis.
The airport, west of London, is hopeful that travel markets will reopen from mid-May after a government announcement on easing lockdown on Monday.
Still Britain’s biggest airport, Heathrow last year lost its title as the busiest in Europe to Paris as its flight schedules contracted more than its rival’s.
The airport said on Wednesday that during 2020 passenger numbers shrunk 73% to 22 million people, with half of those people having traveled during January and February before COVID-19 shut down global travel.
The airport sunk to a 2 billion loss before tax on revenues which were down 62% to 1.18 billion pounds, but Heathrow said it had 3.9 billion pounds of liquidity and that could keep it going until 2023.
The airport is owned by Spain’s Ferrovial, the Qatar Investment Authority and China Investment Corp, among others.