Lebanon Says Ready to Float Pound Only after Aid Secured

Lebanese Finance Minister Ghazi Wazni. (AFP)
Lebanese Finance Minister Ghazi Wazni. (AFP)
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Lebanon Says Ready to Float Pound Only after Aid Secured

Lebanese Finance Minister Ghazi Wazni. (AFP)
Lebanese Finance Minister Ghazi Wazni. (AFP)

Lebanon is ready to terminate a 23-year-old dollar peg and float the pound, but only after it secures billions in aid, Finance Minister Ghazi Wazni said Friday.

Speaking to AFP after talks started Wednesday with the International Monetary Fund on a plan to rescue Lebanon's crisis hit economy, he also said banking sector restructuring would entail halving the number of lenders.

Foreign exchange shortages have in recent months severely strained the official rate of 1,507 to the dollar, with the pound losing well over half its black market value to trade at considerably beyond 4,000 against the greenback.

"The IMF always asks for the freeing of the pound's exchange rate," Wazni said.

But "we need to change the stabilization policy to one of a flexible exchange rate in a first stage and for the foreseeable future," he said, referring to an initial managed flotation.

"When we receive financial support from abroad, we will transition to flotation" dictated by the market, he said.

"The Lebanese government has asked for a transitional period to pass through a flexible exchange rate before we reach flotation," he added.

Wazni said the first phase would involve a gradual depreciation of the Lebanese pound against the dollar, in coordination with the central bank.

He said this was necessary because the government feared a "huge deterioration of the pound exchange rate" otherwise.

Merging banks

Lebanon, which was hit last autumn by unprecedented protests, asked the IMF for financial assistance on May 1 after laying out a much-awaited financial rescue plan.

That plan aims to drum up billions of dollars in aid, reduce the deficit, restructure a colossal debt burden and slim down an oversized banking sector.

Wazni said banking sector restructuring would be carried out "step by step", and possibilities included "merging" financial institutions.

"Lebanon counts 49 commercial banks and it is normal for that number to decrease to around half of that in the next stage," he said.

Wazni said that the IMF had however not set any political conditions for financial assistance.

"No political conditions have been set," he said.

Analysts say the economic collapse is due in part to years of political crises that have stalled decision-making and permitted a culture of waste and corruption.

A mass protest movement that erupted on October 17 -- but has since largely dwindled -- has blamed the financial crisis on politicians demonstrators say are inept and corrupt.

But people have also protested against the banks, which have since the autumn imposed informal capital controls on small depositors, capping then stopping dollar withdrawals and banning all transfers abroad.

The financial fallout of recent months has created enormous hardship. Around 45 percent of Lebanon's population now live in poverty and inflation has soared to 55 percent, according to official estimates.

Capital controls bill

The finance minister said "parliament will pass a capital controls bill in the coming weeks".

Wazni noted Lebanon was aiming to obtain around $9 billion from the IMF, on top of another $11 billion in grants and loans already pledged by international donors in 2018.

"Lebanon's quota at the IMF is about 870 million dollars, but it hopes to secure... around ten times that amount... around 9 billion dollars," he said.

He said it was in Lebanon's interest to reach an agreement with the IMF quickly.

"The sooner we wrap up the negotiations, the better for Lebanon," he said.

A deal would "give credibility to the government's program, broaden prospects for international support conferences, and ease negotiations between Lebanon and creditors", Wazni said.

Lebanon is one of the most indebted countries in the world, with a debt burden equivalent to 170 percent of its gross domestic product.

It defaulted on a eurobond repayment for the first time ever in March.

Wazni said a "first call" with creditors was made two weeks ago, without providing any further details.



China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
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China Launches Late Stimulus Push to Meet 2024 Growth Target

FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo
FILE PHOTO: A worker works on a building under construction in Beijing's Central Business District (CBD), China July 14, 2024. REUTERS/Tingshu Wang/File Photo

China's central bank on Friday lowered interest rates and injected liquidity into the banking system as Beijing assembled a last-ditch stimulus assault to pull economic growth back towards this year's roughly 5% target, Reuters reported.
More fiscal measures are expected to be announced before China's week-long holidays starting on Oct. 1, after a meeting of the Communist Party's top leaders showed an increased sense of urgency about mounting economic headwinds.
On the heels of the Politburo huddle, China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, two sources with knowledge of the matter have told Reuters.
Capital Economics chief Asia Economist Mark Williams estimates the package "would lift annual output by 0.4% relative to what it would otherwise have been."
"It's late in the year, but a new package of this size that was implemented soon should be enough to deliver growth in line with the 'around 5%' target," he said.
Chinese stocks are on track for the best week since 2008 on stimulus expectations.
The world's second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has missed forecasts, raising concerns among economists that the growth target was at risk and that a longer-term structural slowdown could be in play.
On Friday, data showed industrial profits swinging back to a sharp contraction in August.
"We believe the persistent growth weakness has hit policymakers' pain threshold," Goldman Sachs analysts said in a note.
As flagged on Tuesday by Governor Pan Gongsheng, the People's Bank of China on Friday trimmed the amount of cash that banks must hold as reserves, known as the reserve requirement ratio (RRR), by 50 basis points, the second such reduction this year.
The move is expected to release 1 trillion yuan ($142.5 billion) in liquidity into the banking system and was accompanied by a cut in the benchmark interest rate on seven-day reverse repurchase agreements by 20 bps to 1.50%. The cuts take effect on Friday and Pan, in rare forward-looking remarks, left the door open to another RRR reduction later this year.

Given weak credit demand from households and businesses, investors are more focused on the fiscal measures that are widely expected to be announced in coming days.
Reuters reported on Thursday that 1 trillion yuan due to be raised via special bonds will be used to increase subsidies for a consumer goods replacement program and for the upgrade of large-scale business equipment.
They will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child.
China aims to raise another 1 trillion yuan via a separate special sovereign debt issuance to help local governments tackle their debt problems.
Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks.
Most of China's fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt.
The looming fiscal measures would mark a slight shift towards stimulating consumption, a direction Beijing has said for more than a decade that it wants to take but has made little progress on.
China's household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above but has been fueling much more debt than growth.
The politburo also pledged to stabilize the troubled real estate market, saying the government should expand a white list of housing projects that can receive further financing and revitalize idle land.
The September meeting is not usually a forum for discussing the economy, which suggests growing anxiety among officials.
"The 'shock and awe' strategy could be meant to jumpstart the markets and boost confidence," Nomura analysts said in a note.
"But eventually it is still necessary for Beijing to introduce well thought policies to address many of the deep-rooted problems, particularly regarding how to stabilize the property sector."