Dilemma looms over public sector salaries: In dollars or Lebanese lira?

Will public sector employees receive their salaries in dollars or Lebanese lira at the end of the month? 

This predicament has emerged following the Banque du Liban (BDL) suspension of dollar support to the government following the Sayrafa platform, jeopardizing the payment of public sector salaries. 

The decision by acting BDL governor Wassim Mansouri to refrain from tapping into foreign reserves without a borrowing law has led to concerns over the fate of salaries. 

However, sources indicate that salaries are secured, but as for the currency selected, three potential scenarios are being considered.

The first scenario entails disbursing salaries this month in dollars, utilizing the remaining Special Drawing Rights (SDR) funds. As reported by Finance Ministry sources, these funds are deemed sufficient for August's payouts; however, the decision ultimately rests with the Cabinet. 

The second scenario involves paying salaries in Lebanese lira, assuming that the state possesses ample local currency from its revenues. Yet, this move could pose challenges, as injecting more lira into the market could intensify pressure on the dollar, causing its exchange rate to rise.

The third possible scenario may involve the intervention of the BDL. 

Nevertheless, this intervention would not involve tapping into the foreign reserves. Instead, the BDL could purchase dollars from the market using the available cash in Lebanese lira that the government holds, therefore enabling salary disbursements in dollars. 

Sources close to the deputy governors suggest that this step is legally permissible under the Monetary and Credit Law and underline that it is not the BDL's responsibility to distribute salaries. Instead, its market intervention to purchase dollars and pay them to employees aims to stabilize the exchange rate and prevent its collapse.

These sources further elaborate that even for this step to be taken, the state must have acquired sufficient cash in lira from its revenues.  

The BDL will collaborate with the Finance Ministry to assess the financial feasibility. 

Therefore, the final decision is expected to be reached in the upcoming days.