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, until late 2019 when the political tensions exploded (followed in 2020 by a warehouse at Beirut port).
| 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 |
| 1999-2019 | 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; interest rates kept 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; from 2015 and especially 2018 deposit inflows decline, despite intensified ‘financial engineering’ by central bank which continues to fund large fiscal deficits; IMF calls repeatedly for serious fiscal consolidation, return to more normal monetary operations, improvements in financial stability and crisis management procedures (later comprehensive financial restructuring), and structural reforms, notably in the electricity sector and on corruption, but vested interests ensure only limited response; rising dollarisation; | full exchange rate targeting FERT |
| 2020-23 | late 2019 tax rises announced, mass protests, followed by collapse of Lebanese pound exchange rate (down 98% in parallel market, limited correction of multiple official rates February 2023), hyper-inflation, massive recession (GDP down 40%), electricity outages, commercial and central banks’ balance sheets deteriorate despite capital controls and limits on deposit withdrawals from banks; increased dollarisation; policy fails to respond adequately on any issue; 2020 default on Eurobond debt service, Covid-19, also Beirut port explosion: collapse of economic activity, large rises in unemployment and poverty, spike in inflation, high emigration, and growing (Syrian) refugee crisis; 2022 IMF staff-level agreement on comprehensive reform package with significant prior actions required, but lack of political will among Lebanese confessional elites means implementation very weak and delayed; major bank restructuring required as well as wide range of structural reforms and new monetary regime with multiple official exchange rates unified; summer 2023 seasonal uptick in tourism softens crisis but offers no long-term relief; some positive reforms at central bank, some basic stabilisation measures, but no restructuring of commercial banks: economy becomes more cash-based and informal; October 2023 war brings massive war damage in south by Israeli forces and widens political, social and economic crisis facing country; statistical database seriously weakened, particularly national accounts and fiscal data | unstructured discretion UD |
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; [2018 Article IV Report not published] IMF Staff Statement from 2018 Article IV Mission, §§7-8, 11-26; SR 2019 pp6-8, 16-17, 25; Statement by IMF Managing Director on the International Conference on Support to Beirut and the Lebanese People August 2020; IMF Managing Director’s Remarks at the International Conference in Support of the Population of Lebanon August 2021; IMF Staff-Level Agreement on Economic Policies with Lebanon for a Four-Year Extended Fund Facility April 2002; SR 2023 pp5-8, 18-20, 52-6; SRIA 2023 pp6-8; IMF Staff Concludes Visit to Lebanon (press release September 15, 2023); IMF Staff Concludes Visit to Lebanon (press release May 23, 2024).
Additional reference: Dibeh (2011).
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