Lebanon

Lebanon initially managed its exchange rate within a relatively free forex market but the civil war and conflicts from 1975 to 1990 led inevitably to high deficit financing and hyperinflation. Following the Taif Agreement the exchange rate was gradually stabilised and inflation brought under control. This was succeeded by a hard peg to the USD, maintained despite problems with fiscal deficits, recurring conflicts and acute political tensions.

Years Targets and attainment Classification
1974-92 exchange rate initially managed to avoid volatility within relatively free forex market; central bank has added powers over money and banking from 1973 and uses them more or less actively to stabilise goods and services and asset prices; large number and variety of banks, many foreign-owned, also discount house set up by local banks in 1983; civil war 1975-90 (plus Israeli invasion 1982), at varying intensity (banks closed much of 1975-6 but otherwise continued to function): swings in cash/deposit holdings and towards foreign currency, budget deficits financed largely by banks from 1976, central bank uses techniques including reserve and portfolio requirements, credit ceilings and sales of Treasury bills to banks to contain monetary growth and limit depreciation; deterioration of statistical data available; deficit financing, dollarisation, depreciation and inflation reach high (and volatile) levels in second half of 1980s/early 1990s loosely structured discretion LSD
1993-98 exchange rate managed to produce small, relatively regular and gradually declining appreciation (not pre-announced); rising public debt with high level of monetary financing of budget deficits (mainly sales of Treasury bills and short-term bonds to banks, but also eurobonds); continuing high dollarisation; inflation brought under control loose converging exchange rate targeting LCERT
1999-2017 exchange rate pegged to USD with very narrow margins, with central bank gearing monetary policy to exchange rate and intervening within liberal forex market; repeated attempts at fiscal consolidation but debt to income ratio rises to around 180% in mid-2000s, comes down to around 130% in early 2010s but then rises again; high levels of dollarisation, especially of bank deposits from and lending to private sector and of public debt, much of latter held by commercial banks and central bank; monetary policy keeps interest rates relatively high for confidence and exchange rate reasons, with high fiscal costs, in context of fluctuating capital inflows; central bank balance sheet and foreign reserves sometimes weak; continuing political instability and conflict including prime minister Rafiq Hariri assassinated 2005 (followed by withdrawal of Syrian forces), war with Israel 2006, tensions between different Lebanese blocs, influx of refugees from Syrian civil war from 2011; recurring government inability to pass budgets full exchange rate targeting FERT

Selected IMF references: RED 1975 pp30, 32, 35-6, 45; RED 1977 pp21, 29; RED 1979 pp14-15, 18-19; SR 1979 pp2-3, 5; RED 1982 pp15-18; SR 1982 pp1-4; RED 1983 pp17, 20, 25; RED 1985 pp20, 28-30, 35-6; RED 1991 pp20-1, 31-6, 41-2; Lebanon: Economic Recovery, Stabilization and Macroeconomic Policies (1994), pp28-41, 59-66; SR 1994 pp2-4; SR 1996 pp14-16; SI 1997 p59; SR 1997 pp4-14, 18-19; SR 1999 pp26-7; SR 2001 pp5-9, 13-14; SR 2007 pp12-13; SR 2009 p13; SR 2010 pp9-10; SR 2012 pp16-17; SR 2014 pp19-21; SR 2016 pp5, 8-9.

Additional reference: Dibeh (2011).

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