Lebanon's restaurants charge in scarce dollars as pound sinks to new low

Imagine ordering a coffee for one price, then three hours later being charged more for the same hot drink. You'd think it was a scam but it's an unfortunate reality for Lebanese living through an unprecedented currency crisis.

A customer at Goro, a restaurant in Beirut's Gemmayzeh neighbourhood, experienced precisely this feeling while visiting one of the popular haunts of Beirut nightlife and dining.

Within three hours, the price of his coffee jumped by 9 000 Lebanese pounds, the equivalent of $0.18 on the parallel market, where the national currency topped the symbolic 50,000 mark on Thursday, the first time such an unwelcome milestone has been reached.

"Ordered my first coffee at 10.30am, the second one at 1pm. The Lebanese Lira lost value during that time, resulting in two different charges", he wrote in a tweet on Friday, widely shared on social media.

The sudden increase is due to the restaurant pricing its menu in dollars.

Customers can pay the bill in dollars or in the local currency, but at the parallel market rate, which remains highly volatile and can undergo sudden changes in mere hours.

Once pegged at 1,500 against the US currency, the Lebanese pound has now lost 97 per cent of its value since the start of the crisis caused by a drastic shortage of dollars, which plunged 80 per cent of the population into poverty and led the country to the verge of financial collapse.

More and more restaurants have switched to the dollar instead of the Lebanese pound, which is gradually disappearing from menus.

Restaurateurs say they have no choice. "Because of the volatility of the Lebanese pound, our suppliers are only accepting dollars," said Kamal Darwich, a manager at Onno in Beirut.

He said the price increases also covered rocketing expenses such as gas and electricity, as restaurants have to rely on expensive private generator suppliers in the near absence of state electricity. Salaries, however, are not entirely in dollars but are paid as a mix of both currencies.

The move falls in line with the circular issued last June by Lebanon's caretaker Tourism Minister Walid Nassar, a decision he described as "exceptional and optional" which allows tourist ventures to display their prices in dollars.

Restaurant owners are not the only ones that have taken the leap to hedge against exchange risk.

The greenback is now used for an increased number of transactions, including household appliances, clothing, health insurance, rent and education fees, signalling a gradual dollarisation of the economy.

"The Consumer Protection Law regulates the choice of currency for economic transactions: traders have to display prices and print the invoice in Lebanese pounds, according to its articles 5 and 25," tax lawyer Karim Daher said.

"The chaotic dollarisation of the economy, which is currently happening, is an infringement of the Consumer Protection Law. Should Lebanon move towards a dollar-based economy, authorities will need to adopt the appropriate legal framework and not only temporary decisions."

For some, dollarisation might be the solution for Lebanon.

"It is the best way for consumers to be sure they are paying a fair price, as traders would not need to increase their margin to limit their exposure to the Lebanese pound's volatility, at least for food imports," said Hani Bohsali, the head of the union of Lebanese food importers.

Seizing an opportunity

But other experts fear economic actors are taking advantage of the situation to serve their interests, as the cost of some goods and services are not entirely dependent on the dollar.

"In the case of restaurants, for instance, part of their costs are billed in Lebanese costs, such as salaries. Some of the products are also produced locally, like wine and arak," said researcher Kamal Hamdan, head of the Consultation and Research Institute in Beirut (CRI), an organisation that has been publishing its own price index since 1977.

He said the phenomenon only deepened inequalities between the privileged ones who have access to hard currency, and the rest of the population. "Dollarisation has serious consequences on the vast majority of employees paid in Lebanese pounds, who are greatly impacted by inflation, which has halved their purchasing power," he said.

He stressed that chaotic situations, such as a currency collapse typically induce "opportunistic behaviour".

"In 2022, the index price recorded an annual average increase of 174 per cent, whereas the dollar rose by 93 per cent against the lira," he said.

This means that part of the inflation, one of the highest in the world, surging to 189 per cent in the first 11 months of last year from the same period a year earlier, cannot justified by the collapse of the lira.

Importers, distributors and traders have all been accused since the beginning of the crisis of taking advantage of the currency situation to increase their margins.

Mr Hamdan said: "This has been allowed because the state is not enforcing any price regulation, despite having enacted a competition law in 2022; the Lebanese market remains a complete chaos."