What You Need to Know About Inflation in Lebanon

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ALBANY, New York — As of 2020, Lebanon is ranked as having the fourth highest inflation rate globally at 85.45%. This rapid hyperinflation has severely impacted the people of Lebanon, especially impoverished communities. Imports, as a result of this, have skyrocketed in price and the cost of food and non-alcoholic beverages have inflated by more than 441% since 2019. Inflation has also affected the prices of clothing, transportation, healthcare, rent and education.

The Causes and Start of Inflation

Lebanon has been struggling with internalized political corruption for years, which has taken a toll on its economy. In late 2019, the Lebanon Central Bank was exposed to a Ponzi scheme as they struggled to keep the lire’s value afloat; the bank was borrowing money at above-market interest rates to pay back its debts. While this was happening, Lebanese citizens were growing increasingly more and more frustrated with
their government. They suffered under poor internet connection, power cuts, minimal access to drinking water and limited healthcare. Citizens began to protest against the economic turmoil caused by their government and the Prime Minister attempted to tax WhatsApp calls to generate revenue.

Increased economic pressures arising out of COVID-19 related quarantines and shut-downs in early 2020 worsened the situation. Frustration grew to a breaking point in August 2020 when an explosion hit a major Lebanese city, Beirut, killing at least 200 people and injuring 5,000 more. This resulted in the Prime Minister and his Government stepping down and bringing about political and economic change. Since then, the Lebanese Government has yet to rebuild itself, making attempts to process aid and reduce inflation more difficult.

How the Inflation Rate Effects Humanitarian Aid

In previous years, Lebanon has had an exchange rate in place to help control inflation. Before 2020, the Central Bank limited inflation to 3% per year. However, this spike in inflation now has lire conversions set at 6,240 lire to the dollar as the official rate, while on the street, the transaction goes for nearly double. With the potential to lose 20 million dollars a month, foreign aid from the United Nations (U.N.) will be severely impacted, a critical result during such a global crisis.

The U.N. agencies and other Non-Government Organizations (NGOs) have donated nearly $500 million to Lebanon. They currently distribute debit cards and vouchers. However, at the current exchange rate, the Lebanese only get 6,240 lire per dollar. The organizations making the donations are trying to convince Lebanese authorities to process the donations through the informal rate, at which Lebanese citizens would receive 14,000 lire per dollar. However, Lebanon’s Central Bank has been holding out on this request. The World Bank agrees, pointing out that should this request go through, it could worsen the already persistent inflation, further impacting impoverished communities.

Possible Solutions

One possible solution to the economic aid crisis has been distributing the donations in dollars. The World Bank notes that this can alleviate stress on the lire, ease inflation and help relieve the surge in the money supply. However, due to the various outsource of donations, it may not be feasible to allocate $1.3 billion to all of those who need it and it would be especially unfair to those who receive their aid in lire instead. What is more critical is that Lebanon reestablishes its government in order to regulate aid transactions and get the country back on track.

– Samantha Fazio
Photo: Flickr

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