FX reserves up
by over $1 billion

Central Bank policy forces the State to balance the budget

The Central Bank (BDL) has succeeded in increasing its foreign currency (FX) reserves by more than $1 billion until early March without incurring any costs. This was achieved while keeping a stable exchange rate since the beginning of the summer of 2023.

Liquid FX reserves increased by $885 million between the end of July 2023 and mid-February 2024, according to BDL data. They stood at $9.5 billion in mid-February. This means they increased by $124 million in the second half of February.

Besides stopping financing the State and protecting deposits, BDL’s Acting Governor Wassim Mansouri has also been able to rid the FX market of speculators. He has also succeeded in conducting cautious interventions on the FX market to buy dollars without affecting the exchange rate.

BDL is also converting public sector salaries paid in lira by the State into dollars in order to prevent an increase in the lira money supply which causes inflationary pressures.

The State has become able to pay salaries from its own revenues as it has been forced to curb waste and tax evasion after it realized it cannot seek BDL financing. The monetary stability also encouraged businesses to pay due taxes. All this has contributed to the increase in public revenues. “We believe the State will be able to meet its payroll obligations in the foreseeable future from Treasury revenues, but if it couldn’t, BDL will not intervene,” said a source at BDL. Newly-approved pay increases to public sector employees are estimated to add $120 million per month to the liquidity needed by the Treasury to meet payroll requirements.

Lira in circulation has been reduced by more than 30 percent since July and has since stabilized in the LL52 trillion to LL58 trillion range. “At this range, we feel comfortable to keep the exchange rate stable,” said the BDL source.