Runaway inflation in Lebanon continued in triple digits as the formation of a new government stalls more than two months after parliamentary elections were held, delaying the implementation of reforms that are a prerequisite to securing $3 billion from the International Monetary Fund.
Inflation in the country, which faces its worst economic crisis in more than three decades, rose to 210 per cent last month from the same period a year earlier.
This is the 24th consecutive triple-digit increase of the central administration of statistics Consumer Price Index since July 2020. The index increased 9.23 per cent from May 2022.
Lack of monitoring of retail prices, the fluctuation of the Lebanese pound’s exchange rate on the parallel market, the gradual lifting of subsidies on hydrocarbons and the smuggling of imported goods has also led to supply shortages locally while raising prices, Byblos Bank said in a note on Tuesday.
Water, electricity, gas and other fuels soared 594 per cent in June 2022, compared with the same month last year, followed by the health segment, which surged 492 per cent.
Transport costs shot up 462 per cent, while food and non-alcoholic beverages rose 332 per cent.
Inflation in the country soared to about 155 per cent in 2021. However, it remains far from its peak of 741 per cent towards the end of 1987, during the country’s civil war from 1975 to 1990.
Lebanon’s economy collapsed after it defaulted on about $31bn of Eurobonds in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market.
The country’s public debt ballooned to more than $100bn, or about 212 per cent of gross domestic product, in 2021.
Lebanon has the fourth-highest debt-to-GDP ratio in the world, surpassed only by Japan, Sudan and Greece, the World Bank says.
Failure by politicians to agree on the formation of a new government will exacerbate the country’s economic crisis and delay the implementation of an IMF bailout programme. Securing IMF backing will help to unlock a further $11bn of assistance that was pledged at a Paris donor conference in 2018.
Lebanon’s political elite must agree on a new president by October 31, when Michel Aoun’s six-year term expires.
The president, who has to be a Maronite Christian, in accordance with the country’s power-sharing structure, approves all legislation and serves as commander-in-chief of the Lebanese Army.
Lebanon has historically been marred by political impasses that have created political vacuums.
Political wrangling left Lebanon without a president for two-and-a-half years until Mr Aoun’s election by the 128-seat Parliament in 2016. His predecessor Michael Sleiman was elected in 2008 after the position remained vacant for 18 months.
Donor countries and international organisations have been reluctant to provide any funding to the country until it begins to put in place the necessary reforms, which include restructuring its banking sector, reforming its bank secrecy law and the endorsement of a medium-term fiscal and debt restructuring strategy.
Once the IMF programme is in place, Lebanon’s government will need to make other changes that include a single exchange rate and capital controls, as well as reforming state-owned enterprises and strengthening fiscal reforms.
The country’s economy contracted about 58 per cent between 2019 and 2021, with GDP falling to $21.8bn in 2021, from about $52bn in 2019, according to the World Bank — the largest contraction on a list of 193 countries.
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