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The upward trend in the prices of goods and services continues as the diaspora holiday season gets underway. As for inflation, it’s not yet time for a break, which could cause harm to Lebanon.

According to the International Monetary Fund’s (IMF) latest report on Lebanon, published on Thursday, June 29, the dramatic depreciation of the exchange rate in the first quarter of 2023 led to an increase in the dollarization of liquidity and an acceleration in inflation, which reached 270% year-on-year in April 2023.

Suppliers of consumer goods and services, for their part, are on the defensive to justify raising their prices in dollars in a market that is almost 85% dollarized.

They are particularly citing the 6000% increase in the rate of the “customs dollar” in Lebanese pounds. The rate rose from 1,500 pounds to 45,000 pounds before being aligned with the Sayrafa rate, the Banque du Liban’s platform, which now stands at 86,200 pounds to the dollar.

They also believe that the rise in the customs dollar affects the calculation of value-added tax (VAT), which is ultimately assumed by the end consumer.

Economic agents also plead their case, insisting that the rise in the dollar rate imposed by customs and higher taxes in general have had a direct impact on the configuration of their fixed costs.

In the same vein, the Beirut Merchants Association points out that their turnover has increased in nominal terms, i.e., by taking inflation into account, but has fallen in real terms. According to a source at the Association, the value of the index of quarterly turnover in retail sales rose marginally from 28.90 points at the end of December last year to 29.23 points in the first quarter of 2023.

Limited dollarization

Contrary to what some members of the public believe, the limited and optional dollarization, made official by Caretaker Minister of the Economy Amin Salam, is a reaction to economic instability and high inflation. As such, it cannot claim to solve the problem of rising consumer prices. Its initial aim was to protect people’s assets against the continued devaluation of the national currency.

The use of a limited and optional dollarization in commercial transactions is explained by a desire to essentially introduce a means of payment and a unit of account when the high cost of using the national currency for transactions leads the public to seek alternative solutions.

However, one of its disadvantages is that this procedure remains anchored in the habits of agents even after the value of the currency has stabilized and inflation has slowed.

A word of warning

Demand from wholesalers is generally average, explains a private sector salesman to This is Beirut. He rather draws attention to the danger of product and service suppliers constantly raising their prices. He points out that the revenues expected from the massive presence of expatriates and Western tourists during the summer season are one-offs and can in no way be used as a buffer to alleviate the twin deficits of the balance of payments and the state budget. “Lebanon’s reputation as an expensive country will harm everyone and would be irreversible,” he said, warning against actions that could undermine the competitive capacity of the country, referring in particular to the hotel, restaurant, gastronomy, and trade sectors. In this last sector, he points out that Lebanon has become competitive since the introduction of value-added tax (VAT) in the Gulf countries.

Tariff shield and competition

Though state control of prices is imperative, it is almost impossible in the current economic climate. The response of the Ministry of the Economy has been known since the dawn of time. It lacks the manpower for such a task.

As for the use of tariff shields for electricity and gas as an indicative measure for certain productive sectors, as is the case in France, it is not feasible at the moment. The vacancy in the executive makes it impossible to think along these lines.

All that remains is for competition between agents in the same sector to bring the domestic market out of its lethargy.