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.



Indian State Refiners May Buy Mideast Spot Oil to Replace Russian Shortfall

A worker rides a bicycle at the Bharat Petroleum Corporation refinery in Mumbai, April 24, 2008. REUTERS/Punit Paranjpe/FILE PHOTO
A worker rides a bicycle at the Bharat Petroleum Corporation refinery in Mumbai, April 24, 2008. REUTERS/Punit Paranjpe/FILE PHOTO
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Indian State Refiners May Buy Mideast Spot Oil to Replace Russian Shortfall

A worker rides a bicycle at the Bharat Petroleum Corporation refinery in Mumbai, April 24, 2008. REUTERS/Punit Paranjpe/FILE PHOTO
A worker rides a bicycle at the Bharat Petroleum Corporation refinery in Mumbai, April 24, 2008. REUTERS/Punit Paranjpe/FILE PHOTO

Indian state refiners are considering tapping the Middle East crude market as spot supply from their top supplier Russia have fallen, three refining sources said, in a move that could support prices for high-sulphur oil.
The three large state refiners- Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum- are short of 8-10 million barrels of Russian oil for January loading, the sources told Reuters.
The refiners fear continued problems in securing Russian oil in the spot market could continue in coming months as Moscow's own demand is rising and it has to meet commitments under the OPEC pact.
However, they added that they can draw from their inventories to meet crude processing needs in March.
Two of the sources said their company may lift more crude from Middle East suppliers under optional volumes in term contracts or to float a spot tender for high-sulphur oil.

IOC, the country's top refiner, previously floated spot tenders to buy sour grades in March 2022.
The companies did not immediately respond to requests for comment.
India became the largest importer of Russian crude after the European Union, previously the top buyer, imposed sanctions on Russian oil imports in response to the 2022 invasion of Ukraine. Russian oil accounts for more than a third of India's energy imports.
Russia's spot crude exports since November as its refineries resumed operations after the maintenance season and poor weather disrupted shipping activities, traders said.
“We have to explore alternative grades as Russia's own demand is rising and it has to meet its commitments under OPEC,” said another of the three sources.
Russia, an ally of the Organization of the Petroleum Exporting Countries, promised to make extra cuts to its oil output from the end of 2024 to compensate for overproduction earlier.
Also, most supplies from Russia's state oil firm Rosneft are tied up in a deal with Indian private refiner Reliance Industries, Reuters reported earlier this month.
The new deal accounts for roughly half of Rosneft's seaborne oil exports from Russian ports, leaving little supply available for spot sales, sources told Reuters earlier this month.
India has no sanctions on Russian oil, so refiners there have cashed in on supplies made cheaper than rival grades by the penalties by at least $3 to $4 per barrel.
Sources said there are traders in the market that are willing to supply Russian oil for payments in Chinese Yuan but noted that state refiners stopped paying for Russian oil in the Chinese currency after advice from the government last year.
“It is not that alternatives to Russian oil are not available in the market but our economics will suffer,” the first source said.
Oil prices rose on Tuesday, reversing the prior session's losses, buoyed by a slightly positive market outlook for the short term, despite thin trade ahead of the Christmas holiday.
Brent crude futures were up 42 cents, or 0.6%, to $73.05 a barrel, and US West Texas Intermediate crude futures rose 38 cents, or 0.6%, to $69.62 a barrel at 0742 GMT, Reuters reported.
FGE analysts said they anticipated the benchmark prices would fluctuate around current levels in the short term “as activity in the paper markets decreases during the holiday season and market participants stay on the sidelines until they get a clearer view of 2024 and 2025 global oil balances.”
Supply and demand changes in December have been supportive of their current less-bearish view so far, the analysts said in a note.
“Given how short the paper market is on positioning, any supply disruption could lead to upward spikes in structure,” they added.
Some analysts also pointed to signs of greater oil demand over the next few months.
“The year is ending with the consensus from major agencies over long 2025 liquids balances starting to break down,” Neil Crosby, Sparta Commodities' assistant vice president of oil analytics, said in a note.
Also supporting prices was a plan by China, the world's biggest oil importer, to issue 3 trillion yuan ($411 billion) worth of special treasury bonds next year, as Beijing ramps up fiscal stimulus to revive a faltering economy.
China's stimulus is likely to provide near-term support for WTI crude at $67 a barrel, said OANDA senior market analyst Kelvin Wong.