Recent political developments in Lebanon, including the anticipated election of a new president and the formation of a government, have raised hopes among citizens for an end to the country’s prolonged crises. These crises, spanning political, economic, and social dimensions, have crippled governance and institutions. Many Lebanese are optimistic about reversing the devastating effects of the currency collapse, frozen bank deposits, halted lending, and widespread distrust in both banks and the national currency.

This wave of optimism has led to speculation about a potential decline in the exchange rate of the US dollar to as low as 70,000 or even 50,000 Lebanese pounds. But how realistic are these projections, and what conditions must be met for the Lebanese lira to regain strength and improve citizens' purchasing power?

Key Factors Influencing Exchange Rates

Globally, exchange rates are influenced by supply and demand for currencies, interest rates, inflation, economic growth, trade deficits, and fiscal and monetary policies. In Lebanon, additional factors, such as trust in the national currency and the banking sector, as well as political and security stability, play a significant role.

The Lebanese pound has suffered a dramatic depreciation in recent years due to a series of crises, including:

• The country’s default on Eurobond payments.
• Chronic fiscal mismanagement.
• Budget and electricity deficits.
• Systemic corruption.
• The collapse of the banking sector and a subsequent loss of trust in the lira.

As a result, the exchange rate has skyrocketed to 89,500 pounds per dollar—60 times higher than pre-crisis levels. This has caused a sharp decline in national income, a surge in prices, and a severe erosion of purchasing power, particularly among public sector employees paid in Lebanese pounds.

Outlook for 2025

Despite these challenges, the exchange rate has stabilized recently, thanks to efforts by the central bank to curb speculative trading. Positive developments, such as increased demand for liquidity in Lebanese pounds, have sparked questions about whether the dollar’s exchange rate might decline further.

Central Bank sources told Annahar that the exchange rate could drop from 90,000 to approximately 75,000 pounds per dollar by 2025. However, this outcome depends on a series of domestic and international conditions, including:

1. Ending Israeli Aggression: A complete cessation of Israeli hostilities and a decisive ceasefire within 60 days, with no violations.
2. Political Stability: The election of a consensus-driven, reform-oriented president and the formation of a government capable of implementing urgent reforms.
3. Banking Sector Reform: The enactment of a banking restructuring law and a clear plan to resolve the deposit crisis, allowing depositors to recover funds in amounts exceeding current disbursements.
4. Reviving Credit Activity: The restoration of bank lending and credit with reasonable interest rates to stimulate economic activity, supported by amendments to monetary laws.
5. International Support: Securing Arab and international financial aid to assist Lebanon’s reconstruction efforts, as the required funding is too large for the Lebanese treasury to bear alone.

Impact on Public Sector Salaries

If the dollar’s exchange rate drops from 89,500 to 75,000 pounds in 2025, the real value of public sector salaries will increase. For instance, a salary of 75 million pounds, currently equivalent to $838, would rise to $1,000. This represents a 16% increase in dollar terms, enhancing the purchasing power of public sector employees.

However, such an adjustment would require the central bank to allocate $175 million monthly for public sector salaries, compared to the $150 million currently allocated. This is feasible only with sustained political and security stability.

Sustainable Recovery and Policy Options

Central Bank sources caution against expecting a rapid or sustained decline in the exchange rate without concrete progress on the aforementioned issues. Any short-term improvement without structural changes would be temporary and unsustainable.

A clear monetary policy is essential for stability. The International Monetary Fund (IMF) advocates for a floating exchange rate to enhance economic flexibility and enable effective monetary policies. However, in Lebanon, such a shift would need to be gradual to avoid social upheaval and must be accompanied by comprehensive reforms in the economic, financial, and banking sectors.

The central bank is currently analyzing the lira’s value in relation to money supply and economic stability. Once conditions improve, it plans to regulate the money supply to align with the country’s GDP, ensuring a balanced economic environment.