I arrived in Beirut, Lebanon and broke a 100 USD and guess how much I got back? Some 4,000,000 Lebanese Lira!! For decades, the Lebanese Lira (Lira is the Arabic word for Pound) has been pegged to the US dollar at around 1,500 Lira per 1 USD but since 2019, the value of the Lebanese currency has been dropping sharply to reach a critical point in 2020, a situation which was labelled by the World Bank as one of the top 3 most severe economic crises episodes, globally, since the mid-nineteenth century.
But how did this happen?
Well, it’s a mix of many different factors. One of the main ones is an unstable government and its inability to address the country’s fiscal imbalances and to curb spending, which has resulted in a large trade deficit and low levels of foreign currency reserves. Lebanon shares its eastern border with Syria and the ongoing Syrian refugee crisis has created a difficult operating environment for businesses and deterred foreign investment.
To address the shortage of dollars, the government has imposed restrictions on the amount of dollars that can be withdrawn or transferred out of the country. As a result, many individuals and businesses in Lebanon have strayed away from the official market, which is 1 USD = 1,500 Lebanese Lira, and resorted to the black market (which was 1 USD = 40,000 Lira on the day I went to the black market) to access US dollars, leading to a depreciation of the Lebanese Lira relative to the US dollar. This depreciation of the currency has also increased the cost of imports and fueled inflation.
The situation was further exacerbated by the outbreak of the COVID-19 pandemic in 2020, which led to a record decrease in foreign currency inflows, including remittances and tourism revenue.
And then the final nail in the coffin…
In August 2020, same as the COVID year, Beirut was rocked by a massive explosion that left a trail of destruction in its wake. The explosion was one of the largest non-nuclear explosions in history caused by the ignition of 2,750 tons of ammonium nitrate that had been stored in a warehouse for several years at the Port of Beirut, located on the western edge of the city along the Mediterranean Sea. The explosion was so powerful that it was felt across the city and beyond (watch with caution: https://www.youtube.com/watch?v=LNDhIGR-83w), killing at least 200 people and injuring over 6000, causing widespread damage to buildings and infrastructure, including homes, schools, hospitals, and businesses. The country was already going through a severe economic crisis but this took the situation to an absolute low.
More importantly, the explosion was the “loudest alarm bell ever” that brought to light the systemic issues and corruption that have plagued the country for years, including the mismanagement of hazardous materials, a lack of government accountability, and the erosion of public trust in the government.
What does this mean for the people of Lebanon?
In response to the crisis, the government has imposed austerity measures, including cuts to public sector salaries, pensions, and electricity supply. Many private sector companies have also been forced to reduce salaries or lay off workers due to declining demand and reduced access to financing. In a country where most products are imported, the price of basic goods like groceries have now super inflated. This has reduced the purchasing power of people in Lebanon by about 10 times!! People who had saved US dollars in their bank accounts prior to 2019 (known as “not fresh dollars”) are not able to access them anymore. On the other hand, “fresh dollars” in Lebanon are newly-issued or newly-printed US currency that has not been in circulation or in use prior to 2019. This has created a gulf in social class within the country where people who have access to these “fresh dollars” are now able rake in a fortune.
What did this mean for me?
For all the clouds over Lebanon’s sky, travelling to Lebanon now might just give you the best bang for your buck and as ironic as this may sound, this might just be the best time for you go travel there and see some of the pangs of financial mismanagement in action, something you won’t see too often in global history. And while the Lira currency fades away, what has surely not faded away is the people of Lebanon, it’s natural landscapes, and it’s delicious food.
I can’t wait to tell you more about how I had spent my millions, Lebanese millions that is…
- Travelling to Lebanon now might just be the best and most unique time to visit
- Exchange your money at the black market rate, not the official market rate
- No, you won’t go to jail for dealing in the black market in Lebanon.