As political leaders in crisis-stricken Lebanon bicker over positions in the yet-to-be-formed government, the country’s runaway inflation rate jumped to 211% in May 2022, according to new data. Economist Steve Hanke insists that a currency board is a solution to Lebanon’s monetary problems.

The fuel black market fuels inflation

The inflation rate in crisis-torn Lebanon jumped to 211% in May, making it the 23rd time in a row that the consumer price index (CPI) has risen, according to a report. The revelation of the latest inflation figure comes as the country’s politicians are reportedly struggling to form a new government more than a month after parliamentary elections.

According to a national news report, politicians’ failure to create a new government is delaying the implementation of key reforms that allow Lebanon to receive a $3 billion bailout package from the International Monetary Fund (IMF). The report also cites a note from Byblos Bank which tries to reveal the factors that could worsen the inflation situation. The note states:

The inability of the authorities to control and contain retail prices… together with the fluctuation of the Lebanese pound exchange rate on the parallel market and the gradual lifting of subsidies on hydrocarbons, have encouraged opportunistic wholesalers and retailers to increase prices. prices of consumer goods disproportionately.

The bank is said to have added that the smuggling of imported products, as well as the emergence of a black market in fuel, had contributed to the latest spike in the inflation rate. As noted in the report, transportation costs alone increased by 515% over a 12 month period. The healthcare sector saw the second highest increase, with prices rising 468% over the same period.

Currency exchange recommended

The National News report also claims that Lebanon, whose public debt now exceeds $100 billion, needs to have a government in place to be able to access the additional $11 billion pledged by donors in 2018. Nevertheless, this funding does not become available only after the necessary reforms have been carried out.

Meanwhile, Johns Hopkins University professor and economist Steve Hanke recently argued in a Tweeter that an IMF bailout will not stop what he called “Lebanon’s economic death spiral”. Instead of trying to save a collapsed currency, Hanke recommends a currency board.

“Since January 1, 2020, the Lebanese pound has depreciated by 92% against the US dollar. The Mikati government will not stop Lebanon’s economic death spiral with a flawed IMF deal. The only way for Leb to establish confidence and stability is to install a Currency Board”, explained the economist.

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is an award-winning journalist, author and writer in Zimbabwe. He has written extensively on the economic problems of some African countries as well as how digital currencies can provide Africans with an escape route.

Image credits: Shutterstock, Pixabay, Wiki Commons