Lebanon: navigating economic volatility

As we review the ongoing crisis in Lebanon, Alex Davis of our data team, and Emily Stewart of our client engagement teams have paired up to provide information about the markets and details on how organizations are handling the challenges associated with inbound and outbound Lebanon assignments.

How has the market evolved?

The official exchange rate for the Lebanese Pound has been pegged to the dollar at its current rate of approximately 1,505 to the dollar since 1997. Starting in late 2019, a parallel market rate emerged as Lebanon’s liquidity problems became apparent. Their central bank defaulted on debt in 2020, instituted financial controls limiting withdrawals as foreign currency reserves dwindled, and printed large amounts of local currency which all fuelled a weakening of the pound on the parallel market and high inflation.

The divide between the official rate and the parallel market rate has become substantial. The current value of the pound on the parallel market rate is roughly 20,600 to the dollar. In addition, other government sanctioned exchange rates which expatriates may be able to access have emerged such as the bank rate which is currently 8,000 to the dollar and ‘Sayrafa’ rate which is currently 20,200 to the dollar.

The Banque du Liban has recently released US dollars into the currency market and made a push to make the ‘Sayrafa’ rate the standard for international card and ‘fresh dollar’ accounts. This influx of dollars into the market has also strengthened the parallel market rate from lows in mid-January.

Recent reports have also revealed a government plan to devalue the official rate in order to reach a deal with the IMF. This devaluation would see the official rate lose more than 90% of its value and unifying the multiple exchange rates.

How are organizations tackling Lebanon’s exchange rate struggles?

In navigating the ongoing challenges surrounding exchange rate volatility in Lebanon, several creative solutions to deliver pay and allowances effectively have surfaced:

• Applying a different rate: As the “official market rate” can skew COLA and other assignment allowances in a highly positive direction (Lebanon inbound) and highly negative direction (Lebanon outbound), some organizations may choose to use the “bank rate” or the “Sayrafa” rate to calculate these allowances.
• Localizing: For Lebanon out-bound assignments, some companies are choosing to move Long-term assignments onto local packages in their respective host locations. Whilst this option may be preferred for lower-cost host countries, we would caution organizations that in some circumstances it could prove difficult to return employees later.
• Paying in hard currency: Other companies managing their Lebanon-outbound assignments are choosing to rework employment contracts and fix salary in an alternate hard currency.
• Pegging to US inflation: One further solution we’ve seen for Lebanon-outbound assignments has been to peg salary/home spendable to US inflation, to help control dramatic changes in the COLA.