Lebanon’s newly formed government, led by Prime Minister Nawaf Salam, is confronted with a host of critical challenges, primarily reconstruction efforts, the implementation of the ceasefire agreement, and adherence to United Nations Security Council Resolution 1701. Adding to all of these tasks, a key focus will be implementing essential economic and financial reforms, which are required by international donors in exchange for support.

The Lebanese pound has lost nearly 90% of its value since 2019, with the country’s financial crisis contributing to the collapse of the banking sector and other industries. However, following the formation of Salam's government, the national currency has shown surprising resilience. As of recent months, the exchange rate has remained steady at around 89,500 Lebanese pounds to the dollar, contrary to expectations that the formation of the government would prompt a slight depreciation of the currency. While the stability of the pound has provided a measure of hope, the Israeli war that significantly disrupted economic activities in the country has not caused the expected drop in the exchange rate.

The question arises: why has the exchange rate remained stable, and what steps must the government take to address this issue?

Walid Abu Suleiman, an economic expert, told Annahar that the Lebanese pound's exchange rate has been "semi-fixed" at approximately 89,000 Lebanese pounds per dollar. According to Abu Suleiman, this stability is due to the Central Bank’s control over the money supply of the Lebanese pound, with a clear monetary policy aimed at stabilizing the currency. He explained that, under this policy, any shocks—whether positive or negative—are unlikely to affect the exchange rate.

Abu Suleiman pointed out that even during the recent Israeli war, the exchange rate remained unaffected due to the decision to maintain it at this level.

To improve the situation, Abu Suleiman stressed the importance of significant economic and financial reforms. These include restructuring Lebanon's debt and banking sector, revisiting the national budget, and addressing corruption and waste. Such measures, he argued, would restore much-needed confidence in the country’s economy and support the Lebanese pound’s value.

He added that, should these reforms be implemented and the exchange rate gradually freed, there could be a potential improvement in the currency’s performance. Conversely, without these reforms, he warned that the current situation would persist, given the decision to keep the exchange rate fixed.

In other signs of optimism, Lebanon’s dollar-denominated bonds saw a significant rise, with yields increasing by up to 1.1 cents, reaching about 18.3 cents on the dollar across most maturities. This marks the highest level since March 2020. Abu Suleiman attributed this increase to the election of a new president and the formation of the government, which helped end the constitutional vacuum. He added that bondholders have anticipated the possibility of restructuring Lebanon’s Eurobonds.

The country has been in default on foreign currency debt for nearly five years, and Abu Suleiman emphasized that debt restructuring will likely require an agreement with the International Monetary Fund (IMF). He explained that, for bondholders to receive repayment, a third party—typically the IMF—is needed to guarantee the sustainability of Lebanon’s debt and ensure repayment.

In southern Lebanon, currency exchange shop owner Fouad noted that citizens rushed to exchange their Lebanese pounds for dollars after the election of a new president and government, fearing a further decline in the currency. However, after a short period, many returned to exchanging only what was necessary.

Despite the apparent stability in the exchange rate, experts agree that economic and financial reforms are essential for rebuilding confidence in Lebanon’s economy. Failure to implement these necessary measures could result in the continuation of the current economic crisis, leaving the country’s financial future dependent on the government’s ability to enact meaningful reforms.