Citi Research recently released its Lebanon Economics Issue titled “At what level could a new exchange rate be set?” in which it attempted to determine an exchange rate that ensures fiscal and external sustainability. Citi Research commented that the recent formation of a new government in Lebanon forms a first step towards tackling the upcoming hurdles. Citi added that the next challenge lies in setting up an economic stabilization plan, most probably entailing an IMF program that will revolve around three intertwining pillars namely the restructuring of the public debt, the restructuring of the banking system and a new exchange rate regime. The interconnection of the factors stems from the large exposure of the banking sector to sovereign debt, while any devaluation of the peg would be reflected in significant write-offs on both sides of the balance sheet. Citi Research referred to the recovery plan prepared by the previous government, yet commented that the chances of ratifying a new one are higher now given the readiness of some Western countries to assist Lebanon coupled with the massive deterioration of the situation over the past 18 months.  In this regard, Citi Research revealed that the new plan will most likely adopt a significantly lower exchange rate compared to the previous one given the dramatic depletion in foreign exchange reserves. Always in the same context, Citi commented that the exchange rate that would achieve a stable current account surplus would amplify foreign currency liabilities in terms of the local currency, and consequently the debt to GDP ratio. Always on the exchange rate front, Citi Research revealed that while the official LBP 1,500 per USD exchange rate, the LBP 3,500 per USD previous plan base exchange rate, and the LBP 3,900 per USD bank withdrawal rate are well outdated, the black market exchange rate entails several premia related to liquidity and uncertainty. Accordingly, Citi Research calculated that an exchange rate of LBP 10,000 per USD would see a sustainable reserves to money supply ratio of around 25%. Another approach by Citi Research was to assess the bilateral real exchange rate with the United States, using CPI levels over the December 2018 – July 2021 period. Accordingly, Citi Research commented that the USD rate was overvalued by 50%, necessitating a 33% depreciation to correct for the overvaluation, attaining as such an exchange rate of LBP 10,000 per USD as well. Finally, Citi Research commented that there is an inverse relationship between the exchange rate and the level of foreign exchange liabilities that will need to be restructured, concluding that a 70% haircut on foreign currency debt would tame the debt to GDP ratio to around 90%.