BEIRUT – Lebanon’s incoming finance minister signed a contract on Friday with a New York-based company to conduct a forensic audit of the country’s central bank, a key demand of the international community to restore confidence in the crisis-struck Mideast nation.
Alvarez & Marsal had pulled out of an earlier deal late last year, complaining that after months of work, the company was unable to acquire the information it needed to conduct its audit. The withdrawal was a blow to calls for accountability in Lebanon, mired in decades of corruption many see as a key reason for the economic meltdown.
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Lebanon was without a fully functioning government for over a year as rival groups haggled over the shape of the new Cabinet and the economic and financial crises escalated.
Now, a week since it was named, the 24-minister Cabinet said it will make negotiations with the International Monetary Fund its priority. Removing subsidies, which eat billions of dollars from the coffers of the cash-strapped government will also take precedence.
On Friday, the new energy minister, Walid Fayad, raised gasoline prices by nearly 40% as reports swirled that subsidies would be fully lifted by the end of the month. The central bank had warned it doesn't have enough foreign currency to support the subsidies bill.
A forensic audit of the Lebanese central bank has been a key demand by the IMF and international donors who have said that they will not give money to Lebanon without major reforms to fight corruption and widespread waste in state institutions. The aborted audit was complicated by an internal power struggle in Lebanon, with political groups disagreeing on the scope of the financial problem and trading accusations.
Reinstating the forensic audit was among the first order of business for Finance Minister Youssef El Khalil. A former central bank official since 1982, El Khalil was last the executive director of the central bank’s financial operations department.
But for experts, little has changed since the last audit fell apart. Lingering issues are lack of independent oversight, securing direct access to the central bank’s accounting, information technology systems and staff, said Mike Azar, an independent debt advisor.
The fact that the current minister is a former central bank official appears to be a conflict of interest, Azar also said. “He should recuse himself from overseeing the audit,” Azar added. “If these issues are not addressed, the audit is unlikely to be successful.”
El Khalil’s office said the auditors will present a report 12 weeks after they start their review. No date has been given for when they will begin.
The country’s current economic and financial crisis, considered by the World Bank as one of the world’s worst in the last 150 years, is rooted in decades of corruption and mismanagement. The small country of 6 million, including Syrian refugees, has been grappling with shortages of fuel, medicine and basic goods as foreign reserves dwindle and the economy contracts.
Following Friday's gas price hikes, Lebanese will have to pay 174,300 Lebanese pounds, or $116, for 20 liters of the 95-octane gasoline, and 180,000 Lebanese pounds, or $120, for the 98-octane gasoline, according to the official exchange rate.
But there are multiple exchange rates, including an exchange rate set by the central bank to organize imports. The Lebanese currency, pegged for 30 years to the dollar at 1,500 Lebanese pounds for $1, was trading Friday on the black market at nearly ten times that rate.
Long queues outside gas stations have often descended into chaos or violence and caused major traffic jams. Gas stations rationed the amount of gasoline they distributed. Prices of diesel for power generating, amid an almost non-existent national grid, have also increased more than tenfold — making it impossible for many families to secure electricity for their homes. Many businesses had to shut down.
Georges Brax, a spokesperson for Lebanon’s gas station owners’ association, said Friday's price hikes would be the last before the full lifting of subsidies.