By our friend James @ Frontier Markets
When you hear the word “hyperinflation”, the first countries that tend to spring to mind are Venezuela and Zimbabwe. These nations now have a new member joining their club: the economically challenged Lebanon.
Lebanon has now claimed the unwanted title of being the first country in the Middle East and North Africa (MENA) region to encounter hyperinflation as its inflation rate exceeds 50% for 30 consecutive days. The annual inflation rate is almost 90% and monthly inflation over the last few periods has increased by at least 20% each month. Food price inflation has been a major driver in the push towards this situation after costs surged by 190% since last year and just shy of 110% during the first six months of 2020.
The currency, pegged to the US dollar since 1997, has suffered a significant erosion in its value. The Lebanese pound has lost over 80% of its value against the greenback since the start of the year and has also experienced shortages in the currency as a result. Strict capital controls and withdrawal limits have been imposed to prevent capital flight from bank accounts and prevent banks from collapsing as a consequence.
The current situation in Lebanon has caught the eye of leading index compiler Morgan Stanley Capital International (MSCI), with the company warning Lebanese officials on the accessibility and liquidity issues created by restrictions on capital movement and effectively placing it on a “review list” for whether or not it should continue to be classified as a Frontier Market.
As it stands, Lebanon will require significant modifications to it fiscal, monetary and exchange rate regimes in order to stabilize the economic situation (hyperinflation, spiraling debt and significant devaluation of the Lebanese Pound), as well as accelerating negotiation with the International Monetary Fund (IMF) for a significant rescue package.