Name : Khaled Ahmad

Name of supervisor : Mr. Michel Saliby

Thesis Topic : The Effect of the Lebanese Pound
Devaluation on the Lebanese Economy
Date of Defense : 6/24/2020

Khaled Ahmad - BBA Defense

6/19/2020 The Effect of the Lebanese Pound Devaluation on the Lebanese Economy 1
 Introduction
• Several political, regional tensions, and many different
factors decreased the Lebanese economy for years now
• GDP stood at 1% compared to 2% in the region, while
inflation rate reached 6%
• In order to face current economic crisis,
Lebanese government tend to apply a fiscal policy called
currency devaluation

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 Statement of Problem
• In order to adjust the economic status of the country,
devaluation is a highly considered tool, that is highly
suggested by the Lebanese consultant Lazard
• Lebanese pounds devaluation consequences on the
Lebanese economy

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 Purpose of Study
• What is a currency devaluation

• The effects of the currency devaluation on the Lebanese

overall economy

• The importance of the currency devaluation 

• The pros and cons of the currency devaluation on the

short term and long term in the Lebanese territory

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 Research Question

• What are the effects of the Lebanese pound devaluation on

the Lebanese economy? 

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 Significance of Study

This research paper aims to assist:

• Policy makers, economists and the Lebanese government in
their decision making regarding the currency devaluation. 
• Students who have interests in learning more about financial
policies, focusing here on currency devaluation policy. 

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 Definitions of Key Terms
• Currency devaluation:  Fiscal policy that bothers on
deliberate reduction in the value of home currency
• Contractionary monetary policy: Is a form of
economic policy used to fight inflation
• Inflation rate: The rate at which prices increase over time,
resulting in a fall in the purchasing value of money

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 Literature Review
• Devaluation is usually taken as means of correcting the deficit
in the balance payments
• Real depreciation might fail to increase net exports, if the
Marshall-Lerner condition (MLC) is not satisfied (Alexander
1952)
• Devaluation could reduce the domestic absorption
and improve the balance of the payments (Tsiang 1961)

Khaled Ahmad - BBA Defense

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 Literature Review
• Investment will fall from its pre-devaluation level, but on the
other hand, investment in the export sector will be increasing 
• A real depreciation would make competitive pressures better,
as it improves international price competitiveness allowing
higher mark-ups
• Increase in raw materials cost will affect income and salary as
workers and owners will try to shift the extra cost on each
other (Bhaduri and Marglin 1990) 

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 Literature Review
• Devaluation can influence economic activities only in the
short-run (Han 1959)
• Devaluation is highly contractionary in LDCs (Sheehy 1986)
• Botswana's pula was devalued to a more competitive level
• Devaluation would give exporters and domestic producers a
more favorable position against the rest of the world
• A weak pula would attract investors to the country (Daily
news, 2005)
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 Research Method and Design
• Research philosophy used is realism, by developing
knowledge from experts in financial field. 
• The researcher uses the inductive approach by collecting the
data to develop a theory
• The research strategy used is a qualitative semi-
structured interview
• The researcher used the qualitative data technique to find
and collect the data
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 Research Method and Design
• This research is also limited to a specific time frame and
hence the cross-sectional time horizon is used
• The researcher used the virtual qualitative
interview, through meeting applications such as Zoom
Meeting and WhatsApp Video calls
• The researcher collected data using online semi-structured
interviews with different experts in the field

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 Population
The population of this study is consisted of:
• Dr. Bassem Bawab, AUB's banking and finance Doctor
• Mr. Michel Mrad, a financial expert
• Mr. Joseph Habchy, a financial and operations consultant at
Bank Med

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 Assumptions and Limitations
• The researcher assumes that a well conducted devaluation
of the Lebanese pound will result in improving the
economic situation of the country
• The major limitation in this research was the difficulties of
conducting semi-structured interviews in-person due to the
pandemic of the  coronavirus COVID-19; where non-verbal
clues in a face-to-face interview are lost

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 Findings
• Currency devaluation is a financial policy, consisted of
lowering the power of the local currency compared to foreign
currencies
• Devaluing the local currency is a must under current
circumstances
• Huge recession of exports sector
• Waste of foreign currency by everyone led to the current low
supply of foreign currency 
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 Findings
• Export sector will increase while imports will decrease 
• Shift from foreign products to localized products resulting in
more jobs opportunities
• Lebanese pound devaluation will result in increasing foreign
investments
• IMF obligated Lebanon to adapt currency devaluation
• Decrease of the local nominated debts

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 Findings
• Exports will be relying mostly on agriculture products and
small manufactured items that can have imrpoved
international competiteveness
• The need to separate political sector from the economic sector
• Lebanese people will face tough times during the intial short-
run of the devaluation process
• Currency devaluation, if properly conducted, may lead to
improving the current economic crisis
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 Evaluation of Findings
Literature Review Interview Responses
- Decrease in personel spendings
Domestic Absorption 
- Decrease in government spendings
- Decrease in local investments
Local Investments 
- Increase in the exports investments
- Low cost of products can make them
International Competitiveness
reach international competitiveness
- Reduce in the local Lebanese pound
Local Nomiated Debts
debts of the government to the local banks
- A low Lebanese pound currency
Foreign Investments
will attarct some foreign investors
- Lebanese pound devaluation will lead to
Positive Results In Most LDC  a positive adjustment of the lebanese
current economic crisis

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Conclusions and Recommendations
• If well conducted devaluation is a highly potential solution
for Lebanon's payment deficit
• New foreign investors might be attracted by the devalued
Lebanese pound
• Tough short-run on all people but that might result in better
economic status
• Recommendation to the government to start adopting this
policy with continuous attention and focus
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