Beirut: Lebanon is expected to record the second highest inflation rate in the world after Sudan this year, according to Fitch Solutions. Fitch said inflation in the country, which is facing its worst economic crisis in more than 30 years, will rise to an average of 178% in 2022 from about 155% last year. That was an upward revision from Fitch’s forecast of about 156% for this year, due to increased inflationary pressure from telecommunications, ports and tariff adjustments, it said.
Fitch expects inflation to drop to 60% in 2023 as the impact of subsidy removal fades. Lebanon’s runaway inflation rate rose to 210% year-on-year in June, and the Central Statistical Office’s consumer price index rose by triple digits for the 24th straight time since July 2020. The index has increased 9.23% since May 2022. .
Domestic inflation continues unabated, but remains far from the peak of 741% towards the end of 1987 during the 1975-1990 civil war. The decline of the Lebanese pound takes place on the parallel market and his Sayrafa, an electronic trading platform regulated by the Banque du Liban (BDL).
“We believe the gradual adoption of the Sayrafa exchange rate (currently 26,100 Lebanese pounds to the dollar instead of the official exchange rate of 1,507.5 pounds to the dollar), set daily by the BDL, will drive higher inflation in several sectors. pressure,” Fitch said. Telecommunications charges from 1 July 2022 and the Cyrafa exchange rate he adopted for port charges from 1 August 2022 will “significantly reduce” the cost of telephone and internet bills, as well as the cost of imports through ports. It said it would lead to a “great increase”.
Fitch expects the Lebanese parliament to approve the tariff adjustment. This pushes up the cost of imported non-essential goods such as cigarettes and alcohol, leading to higher inflation. Lebanese authorities are also expected to begin cutting subsidies on bread after eliminating most subsidies on basic commodities in 2021, which will lead to higher prices.
“The surge in wheat prices following Russia’s invasion of Ukraine and the erosion of BDL’s foreign exchange reserves will make it more difficult for the government to subsidize bread prices,” Fitch said. “Indeed, tight supply in global and domestic wheat markets since Russia’s invasion of Ukraine has led to a gradual increase in the price of subsidized bread, with the price of bread dropping from about 14,000 Lebanese pounds in August. 30,000 Lebanese Pound in March 2022. We expect bread prices to continue their upward trend and inflationary pressures to rise.” of Eurobonds collapsed after defaulting, and the currency has fallen more than 90% against the dollar on the black market.
The country’s public debt has ballooned to over $100 billion in 2021, or about 212% of gross domestic product. Lebanon’s debt-to-GDP ratio is her fourth highest in the world, surpassed only by Japan, Sudan and Greece. to the World Bank. According to the World Bank, the country’s economy shrank by about 58% between 2019 and 2021, and GDP fell from about $52 billion in 2019 to $21.8 billion in 2021. This is the largest reduction in the list of 193 countries.
Fitch also warned that “rising tensions with Israel over a maritime border dispute and/or a sharp rise in political risks in the run-up to the presidential election could lead to a more pronounced decline in the Lebanese pound in parallel markets.” There is potential,” he warned.
Lebanon’s political elite must agree to a new president by Oct. 31, when Michel Aoun’s six-year term expires. Lebanon has historically been plagued by political deadlocks that have created political vacuums. The politician said three months after parliamentary elections were held he still hadn’t formed a government and had failed to implement reforms, a prerequisite for him to secure $3 billion from the International Monetary Fund. I’m late. – agency