Beirut – The year 2022 is heavy on Lebanon’s shoulders while it is experiencing crises that have pushed more than 80% of its population below the poverty line, and if the collapse of the lira has been at the forefront of the economic scene since the end of 2019, it will sweep away various sectors with it, which made the only Lebanese concern to provide their livelihood after it became difficult Affordable to many classes.
This year, Lebanon is facing challenges related to formulating a plan to confront monetary and banking turmoil, adhere to the conditions of the International Monetary Fund, and work to address the energy crisis.
Here, Al Jazeera Net raises 6 questions about the most prominent economic challenges in 2022, and insiders rule out finding solutions, amid political stagnation and an electoral struggle that impedes the achievement of internationally required reforms from Lebanon.
The guests are: writer and economic researcher Mounir Younes, banking expert Ali Noureddine, and economic journalist Antoine Farah.
What is the fate of the lira in 2022?
At the beginning of 2022, the lira recorded a new record collapse in the black market, which controls the actual value of the currency, and the exchange rate touched 30 thousand to the dollar, which was automatically reflected in the prices of food commodities, fuels and medicines, a gradual collapse about 3 years ago, while the official exchange rates for the dollar vary according to a basket of The circulars issued by the Central Bank of Lebanon, and the monetary market is in chaos, so controlling prices – which have cumulatively increased by about 1500% – has become impossible.
In turn, Ali Noureddine holds the Bank of Lebanon with great responsibility for the deterioration of the lira due to its circulars about cash withdrawals in dollars, but Antoine Farah finds that the lira declines and has not collapsed completely, and there is room to save it, and holds the political authority responsible, and sees that the Central circulars do not affect the lira and ” It proposes partial solutions to depositors’ withdrawals.
As for Noureddine and Younes, they expect the lira to continue its deterioration in 2022 without stopping and without a ceiling against the dollar, which is scarce in the markets. The first says that the absence of monetary policy and its confusion weaken the lira’s ability to withstand “because the central platform did not succeed as a tool for monetary trading, in return for the difficulty of unifying and controlling the exchange rate.”
Who will bear the losses in the banking system? What will happen to deposits in 2022?
After deep disagreements, His Excellency Al-Shami, the Lebanese Deputy Prime Minister and Chairman of the Negotiating Committee with the IMF, estimated in December 2021 the losses of the banking system at about 69 billion dollars.
Munir Younes mentions that the dispute over the criminal audit of the Central Bank’s accounts hinders the issue of assigning responsibilities by wasting tens of billions of dollars, and it is likely in 2022 to proceed with proposals such as “lulling” some dollar deposits, i.e. converting them to the lira, and saving a few (real) dollars for small deposits.
Antoine Farah holds the political authority responsible for the losses that represent banks’ investments with the Central Bank, and divides the fate of deposits into two parts:
- Small deposits, set by the Central Bank at 50 thousand dollars, and a large part of them were recovered through circulars with varying rates of the heretics (i.e. the discount or forced deduction on debts).
- Large deposits, and will bear the bulk of the loss, based on what Al-Shami said, “We will try to preserve the origin of the deposit,” meaning that the heuristics will be large on the interests.
As for Ali Nour El-Din, he finds that the distribution of losses depends on the approaches of the committee charged with negotiating with the IMF, and he conveys data about 4 primary approaches of the Loss Distribution Committee:
- The first: to go back 3 years in time to write off the money that was transferred from the lira to the dollar, and to write off half of the interest in the lira that was paid in the last 8 years in dollars, and that the exchange rate for the approved dollar be 8,000 liras, to reduce the gap of losses in dollars.
- The second: an approach related to state assets, such as creating a fund or company for public investable assets, and opening a partnership between the public and private sectors in return for using its proceeds to pay off obligations to banks, and in turn, banks pay to depositors.
- The third: A proposal to transfer a percentage of deposits into shares in banks, to bridge the gap between commitments in hard currency and assets.
- Fourth: Freezing deposits and dealing with them gradually over the long term, and repaying them in pounds through circulars.
The banking expert said, “The committee has not resolved its options for distributing losses, but its proposals suggest that the process will not be fair, and it will bear the burdens of losses on depositors, the general public, state assets and the value of the lira in exchange for floating bank budgets.”
Can the banking sector be restructured in 2022?
Antoine Farah considers that it is not possible to start restructuring the banking sector before setting up a comprehensive rescue plan, and said that depositors have no interest in restructuring the sector, because banks may later be able to reposition themselves in proportion to the size of the market.
Younis finds that the dispute over the Capital Control Law on Transfers and Withdrawals makes it difficult to restructure the banking sector, while increasing its capital is required. He said that offering treatments in the interest of banks is a subject of great contention over how to structure a semi-bankrupt sector, and determining who remains of banks, who merges and who disappears.
However, Noureddine believes that the banks urgently need to be restructured, because their size before the crisis was greater than the size of the Lebanese economy, and it swelled to the point that it hampered playing a healthy role, and the sector turned into a burden rather than a lever for the economy.
He said that the central bank wants to leave the sector to correct itself, ruling out its seriousness with recapitalization “in what is required for the regularity of banking work, to carry out its normal services and to save and refund depositors’ dues.”
Will the government complete the economic recovery plan in 2022?
Munir Yunis links the government’s failure to complete its plan with disputes over the distribution of losses, and because economic recovery requires reforms requested by the IMF, at the level of approving the Capital Control Law, scaling down the public sector, increasing taxes, exiting the budget deficit, reducing imports, balancing the balance of payments, and unifying and liberalizing the exchange rate.
Noureddine finds that the most important factor in the plan is the fate of losses and deposits, and is expected to include the involvement of the public and private sectors in the electricity file, and the development of visions for the port.
He rules out embarking on the plan in 2022, despite its importance in reaching an agreement with the IMF, and he said that the plan, in light of the government’s paralysis, needs a political consensus that is not available, so it becomes capable of being overthrown later.
Antoine Farah indicates that the government is able to implement a recovery plan based on the previous government’s plan headed by Hassan Diab, provided that political consensus is reached.
Will Lebanon be able to negotiate with the International Monetary Fund in 2022?
After the start of the preliminary talks, Munir Younis expects to announce an agreement of principles with the Fund in the next two months, but the implementation is postponed due to political conflicts.
Younis points out that the difficulty of the government’s completion and implementation of the 2022 budget hinders negotiation, because the IMF wants to include items that increase revenues, and the political forces are afraid of an increase in taxes and fees ahead of the elections, knowing that the IMF – according to Younes – requests budgets for 5 years that include reforms, up to a stage Recovery and sustainable growth of the Fund’s loan repayment.
Noureddine considers that negotiations may start without reaching an understanding before the first half of the year, but their success depends on the seriousness of the Lebanese state and its ability to make concessions and commit to the types of reforms requested by the IMF, which “conflict with the interests of senior political and banking system.”
Will the hours of electrical feeding rise in 2022?
In September 2021, Lebanon signed an agreement to drag Egyptian gas and Jordanian electricity through Syria through the “Arabian Line”, to operate the Lebanese electricity production plants, and the Lebanese Ministry of Energy launched at the end of December 2021 the Arab Gas Line Maintenance Project by TGS. (TGS) Egyptian.
So far, there is anticipation for the mechanism of implementing the agreement, despite Washington giving the green light to exclude the project from the sanctions of the “Caesar Act”, which prohibits dealing with the Syrian authorities.
Lebanese Energy Minister Walid Fayyad had stated that Egyptian gas and Jordanian electricity would contribute to raising the supply hours to 10 hours per day within the coming months.
Antoine Farah said that the Arab movement and the American acceptance suggest the seriousness of paying to provide electricity to Lebanon, “but providing it and raising its tariff 20 times will exacerbate the poverty of the Lebanese.”
Noureddine points out that Egypt wants a written guarantee from Washington that it will not be subjected to sanctions for the passage of gas from Syria, “while the Lebanese side is satisfied with insufficient verbal assurances in the long term.”
Munir Younes points out that there are technical obstacles to repairing the gas pipeline from Egypt and the current lines from Jordan, and it may take time to overcome them if the American side gives the final exceptions to Caesar’s sanctions.
Yunus recalls the obstacle to financing the project, which amounts to about $400 million annually, “as the World Bank requires the provision of financing to raise the electricity tariff, so the promise of increasing feeding hours without it is technical, financial and popular problems that take many months to solve.”