Dollarization, Exchange Rate Crisis and Vulnerability of the Pharmaceutical Sector in Lebanon: A Dynamic Macro-Sectoral Approach

This article examines how dollarization reinforces the vulnerability of strategic sectors that are highly dependent on imports, using the Lebanese pharmaceutical sector as a case study. To this end, it employs a recursive dynamic computable general equilibrium model calibrated on a 2019 social accounting matrix to assess the effects of exchange rate shocks, constraints on access to foreign currency, and the weakening of healthcare financing mechanisms. The results show that these effects are transmitted mainly through three channels: the pass-through of import prices, the contraction of imports resulting from foreign currency scarcity, and the loss of household purchasing power resulting from the increase in out-of-pocket healthcare expenditures. The simulations reveal an increase in pharmaceutical prices, a decline in imports, a contraction in effective demand, and a deterioration of sectoral equilibria. These effects become particularly pronounced when price shocks and foreign currency constraints occur simultaneously. The results also highlight the central role of institutional healthcare financing mechanisms in amplifying or mitigating the effects of the crisis. The article therefore contributes to the literature on dollarized economies by proposing a conceptualization of sectoral vulnerability under dollarization, applicable to essential sectors exposed to supply disruptions.