Lebanon reached a staff level agreement with the IMF in April 2022. In fact, the agreement stipulates a set of preconditions including the approval of the delayed 2022 budget. The suggested 2022 budget involves an increase in tariffs through the rise of the exchange rate used to calculate customs duties.  To illustrate, the new rate would go from the pre-crisis exchange rate of 1,500 Lebanese pounds (LBP) to the dollar, to around 20,000 LBP to the dollar. Adjusting the “customs dollar” in this way is supposed to enable the government to finance the pay raise of public sector employees.

LIMS revealed that the “customs dollar” would have negative repercussions on Lebanon. Increasing the customs exchange rate by around 13-fold would lead to a huge uptick in the cost of living, having an impact on all residents. Furthermore, higher tariff payments would jeopardize the ability of competitive, local businesses to export. For instance, if the cost of imported goods used by the tourism industry increases, tourists will prefer to visit competing destinations like Turkey or Egypt. Furthermore, the “customs dollar” will encourage smuggling of imported goods from Syria and customs evasion, which is already widespread in Lebanon, generating lower revenues from what is currently expected.
 
While LIMS is in favor of the unification of all exchange rates, the institute views that it must happen simultaneously with the decrees of all customs fees. Rather than adding a new arbitrary exchange rate of 20,000 LBP to the dollar, LIMS suggests using the central bank’s electronic foreign exchange platform rate (also called the Sayrafa rate) currently floating at around 24,000 LBP to the dollar. Simultaneously, customs fees should be drastically reduced to offset the increase in the exchange rate, or even removed entirely and unilaterally. Unifying the exchange rates will reduce the arbitrage opportunities resulting from the multiple exchange rates regime, while the reduction of tariffs would offset the recessionary and inflationary impact of this adjustment on the economy.

LIMS Media Interviews:

• Timing And Repercussions Of Approving The Customs Dollar, July 21, 2022: Tripoli LBN, Article AR
• Soon A Unified Exchange Rate At This Figure! July 23, 2022: Leb Economy, Article AR
• Get Ready For Crazy Price Hikes Due To Global Inflation! July 25, 2022: El Nashra, Article AR
• Mardini To “Voice Of Beirut International”: Adjusting The Customs Dollar Will Not Cover Cost Of Salary Increase For Public Sector Employees, July 24, 2022: SBI, Article AR
• Living Implications Of Calculating Customs Duties Based On A Banking Platform, July 31, 2022: VDL, Radio Interview AR