IMF: Lebanon’s Plan To Allow USD Withdrawals Risks Higher Inflation

The Consumer Price Index in Lebanon for the month of July 2021 registered a 24.08% increase compared to the previous month
Bloomberg/Hasan Shaaban

The decision by the Central Bank of Lebanon to allow depositors to withdraw U.S. dollars from their accounts on a monthly basis risks higher inflation, the International Monetary Fund (IMF) warned on Thursday.

In light of the shortage of foreign currency in Lebanon and the persistent need to subsidize imports, it isn’t clear how the withdrawals enabled by the Banque du Liban (BDL) will be financed, IMF spokesman Gerry Rice told Bloomberg.

Rice said that there is a “serious risk” that the amount of Lebanese currency in the local market, which is already high, would increase, “adding to inflationary pressures, and to the depreciation of the lira, which would be highly detrimental to standards of living.”

Commenting on the capital control draft law that was recently approved by the Lebanese Finance and Budget Parliamentary Committee, Rice affirmed that the law should be accompanied by “appropriate fiscal monetary and exchange rate policies.”

For context, earlier this month, the BDL announced a decision that requires banks to pay a monthly sum of $400 in fresh U.S. dollars, and the equivalent of that amount in Lebanese pounds, to holders of accounts dating before October 2019.

Banks were quick to object to the decision, with the Association of Banks in Lebanon emphasizing that banks are unable to provide any cash in foreign currency, regardless of the amount.

Nonetheless, the Central Bank is moving forth with the decision, which takes effect on June 30th for an extendable period of 1 year.

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