Central Bank Gov. Riad Salameh said Tuesday that U.S. dollars were being offered in Lebanon’s local market to buy Lebanese pounds in light of the formation of the new government.
“Since the formation of the government, the dollar has been offered in the local market to buy pounds, and this restores the strength of national currency savings,” Salameh was quoted as saying after meeting President Michel Aoun at the presidential palace in Baabda.
The Central Bank chief added that the Eurobond prices had also seen a rise by about 10 percent compared with the prices before the government was formed.
Lebanese government Eurobonds dropped in value few weeks ago after then-caretaker Finance Minister Ali Hasan Khalil told a local newspaper that he intended to restructure the public debt. But the prices readjusted after Khalil walked back his comments and said that he had no plans to restructure the debt, reiterating that the Treasury was fully committed to paying all its dues to creditors on time.
Since the Taif Accord of 1989, Lebanon has never defaulted on payments of maturing debts.
Marwan Barakat, head of economic research at Bank Audi, confirmed that the demand for the Lebanese pound had picked up while the demand for the dollar had eased following the formation of the Cabinet.
He said the market would keep an eye on the Cabinet’s performance in the coming months to determine if Lebanon was serious about implementing reforms.
Barakat underscored the importance of a quick and transparent 2019 government budget, as this would reflect positively on the local market. He said he expected interest rates to drop if the reforms were implemented in earnest.
Lebanese leaders formed a new national unity government last week after nearly nine months of political wrangling over how to distribute Cabinet portfolios.
Prime Minister Saad Hariri has said bold reforms must now be taken to address Lebanon’s problems.
The country has some of the world’s worst debt and balance-of-payment ratios.
The Lebanese pound has been pegged to the dollar at its current level for more than two decades.
Moody’s Investors Service said Monday that the government formation was positive for the country’s credit rating as it should help unlock $11 billion in grants and soft loans offered last year at the CEDRE conference in Paris.