Dollar drought: BDL's funding freeze puts Lebanon's government in a critical financial situation

Lebanon is grappling with a clear and critical challenge as the Banque du Liban (BDL) suspends its financial support to the government, leaving it without any dollars.

The only option for deputy governors to access the mandatory reserve and remaining funds of depositors is through the issuance and adoption of a government-drafted law in the parliament to ensure their legal coverage.

Prime Minister Najib Mikati has warned that by the end of August, the government will be unable to secure funds for necessities like medicine and salaries.

According to the BDL's numbers, the government currently relies on around $80 million to pay public sector salaries in dollars at the Sayrafa exchange rate.

Additionally, approximately $30 million is allocated for supporting critical medicines, and $20 million covers various state expenses, including food, fuel for the military and security forces, and fuel for OGERO's power stations.

So, what will happen if the funding from BDL ceases?  

According to governmental sources, the solution proposed is to pay salaries in Lebanese lira instead of dollars, using state revenues.

However, this approach is not sustainable, which leads to an increase in the money supply in the market, driving up the demand for dollars and, consequently, its exchange rate.

As a result, the value of salaries could quickly erode, particularly after the summer season when expatriates go, leaving no dollars to stabilize the market.

The critical issue lies in other expenses, especially the need for dollars to support critical medicines. The lack of dollars may hamper essential healthcare services.

According to deputy governors sources, the importance of borrowing is not merely for funding purposes but to secure the implementation of necessary reforms that generate income for the government and restore economic confidence. They highlight that the loan can be suspended anytime with a decision from the Central Council if the reforms are not implemented.

Thus, The situation leaves the country with a choice: enact reforms or face uncertainty.