Banks ‘lose’ $250m in aid funds

AT LEAST $250 million (about R3.5 billion) in UN humanitarian aid intended for refugees and poor communities in Lebanon has been lost to banks selling the local currency at highly unfavourable rates, a Thomson Reuters Foundation investigation has found.

The losses – described in an internal UN document as “staggering” and confirmed by multiple sources – come as Lebanon grapples with its worst economic crisis, with more than half the population living under the poverty line, according to the World Bank.

They stem from a plunge in the value of the Lebanese pound since the economy began to collapse in late 2019, sending prices soaring and forcing many Lebanese into poverty.

The unfavourable exchange rates offered by Lebanese banks have hit Syrian and Palestinian refugees and poor Lebanese particularly hard as they are able to buy far less with the cash handouts they receive from the UN.

Pre-crisis, refugees and poor Lebanese received a monthly payout of $27, equal to about 40 500 Lebanese pounds, from the World Food Programme

(WFP). That has now risen to about 100 000 Lebanese pounds per person, but its real value is a fraction of what it was before – about $7 at the current rate.

“The buying power used to be very good, we could get an acceptable food basket,” said Abu Ahmad Saybaa, a Syrian refugee who runs a Facebook page that highlights the challenges faced by refugees in Lebanon. “But now (the handouts) can’t get us more than a gallon of cooking oil.”

An aid official and two diplomats from donor countries confirmed that between a third and half of all direct UN cash aid in Lebanon had been swallowed up by banks since the outset of the crisis in 2019.

During 2020 and the first four months of 2021, banks exchanged dollars for UN agencies at rates on average 40% lower than the market rate, the aid official said.

Lebanon maintains an official exchange rate of about 1 500 pounds to the dollar, but since the crisis has only been able to apply that rate to a handful of essential goods. All other imports have to be bought at much higher exchange rates, resulting in soaring prices.

Most of the losses came from a 2020 UN assistance programme worth about $400 million that provides around 1 million Syrian refugees in Lebanon with monthly funds for food, education, transport, and winter weather-proofing of shelters.

Lebanon is home to over 1 million Syrian refugees, nine in 10 of whom live in extreme poverty, according to UN data. The country received at least $1.5 billion in humanitarian aid in 2020. An internal UN assessment in February estimated that up to half the programme’s value was absorbed by Lebanese banks used by the UN. to convert donated US dollars.

The document said that by July 2020 a “staggering 50%” of contributions were being lost through currency conversion. The Association of Banks in Lebanon (ABL), which represents the country’s commercial banks, denied using aid to raise capital.

It said the UN could have distributed in dollars, or negotiated a better rate with Lebanon’s central bank.

The $400m UN programme, known as Louise, receives funding from the US, the European Commission, Germany, the UK, Canada, the Netherlands and France among others, according to its website. It comprises the WFP, the UN refugee agency (UNHCR) and the UN Children’s Fund (Unicef).

A comparison of the rates at which the banks converted US dollars in 2020 and 2021 with the concurrent market exchange rates to calculate the amount of aid lost. The losses amounted to about $200m in 2019 and 2020 and at least $40m so far in 2021.

Dollarization of aid, which was recommended and lobbied for by donor countries and independent analysts, would keep the full value of the donations for beneficiaries regardless of fluctuations in currency rates.

But Lebanese authorities have resisted efforts to dollarise aid inflows.

Meanwhile, donor nations have grown increasingly impatient and fearful of reputational damage tied to the millions in taxpayer money absorbed by banks.