Lebanon debate: Lebanon faces up to its severe challenges

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Lebanon’s economy was already under pressure before the arrival of countless refugees from Syria. The IMF has flagged up serious problems in the public finances and the country itself recognizes the need for reform in many areas. Nevertheless, a stable political base and strong banking sector offer cause for optimism

Lebanon debate
Executive summary
• Lebanon’s economy is struggling with low growth and Syrian refugees have added to the burden
• Central bank is financing start-ups to stimulate the economy
• Banks and businesses are pushing for fiscal reform to counter the rising deficit
• Infrastructure spending is also much needed
• However, the country is politically resilient and the banking sector is strong

Euromoney We meet during tough times for Lebanon. The economy faces twin challenges: a lack of cohesion in domestic politics, leading to declining public finances; and external pressures, with the influx of refugees from Syria. How is the economy bearing up?

Marianne Hoayek (MH) is director of the executive office, Banque du Liban.MH, Banque du Liban On the monetary side, we are doing very well. However, the economy is not at its best. As a central bank we are isolated from what’s happening but if things continue this way, everybody will be affected.

Euromoney Why is the economy struggling? Is it chiefly domestic issues like public finances, or the pressures created by Syria?

Marianne Hoayek (MH) is director of the executive office, Banque du Liban.
Further reading 
Lebanon debate
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Salamé keeps Lebanon going

MH, Banque du Liban The Syrian refugees represent one and a half million people that are suddenly on our territory. The World Bank said the expense of the presence of the refugees is about $5 billion. That is very hard for an economy such as Lebanon’s, which is already not doing well, to absorb.

At the same time, the institutions in the country are paralyzed. We don’t have a president, the government is not functioning properly and now you have the parliament talking about extending its mandate, and none of these factors help the economy.

Euromoney Is it fair to say that, in these circumstances, a far greater burden is falling on the central bank than one would otherwise expect?

Marianne Hoayek (MH) is director of the executive office, Banque du Liban.

MH, Banque du Liban Exactly. The governor is taking the lead and the bank is playing a role far bigger than what naturally falls to most other central banks.

Euromoney Let me ask the banks for their views on the state of the economy.

Saad Azhari (SA) has been chairman of Blom Bank since 2008SA, Blom Bank We have definitely been affected by the Syrian crisis. Marianne mentioned $5 billion, but I think that’s a yearly figure: the World Bank is saying the total cost has already been $10 billion. That cost is felt in the deficit and in the loss of GDP.

As to growth, the IMF has increased its estimate of GDP growth from 1% to 1.8% for this year, but it’s still much lower than the 8% or 9% rates we used to have a few years ago. And we don’t expect to see a big improvement in GDP growth due to the regional circumstances.

The banking sector is faring well: we don’t have the strong growth of three years ago, but still we have acceptable increases in deposits, and loans are growing at a reasonable level due to incentives from the central bank. We are very resilient in banking and have been able to maintain profits: in the first six months of this year the profits figures for the banking sector were about the same level as the year before.

Euromoney The IMF, in an otherwise quite damning report, called for a modest increase in GDP over the next two years, to 1.8% next year and 2.5% the year after. Given the environment you are describing, is increasing growth realistic?

Saad Azhari (SA) has been chairman of Blom Bank since 2008

SA, Blom Bank At the beginning of this year when we had a new government, we saw some positive things. We’ve seen improvements in capital flows, confidence increased, but then unfortunately we had some terrorist events that affected tourism. Overall, though, this year we are seeing slightly better expectations than at the end of last year. And you are only speaking of 1.8% or 2%. Nobody is expecting more than 2% and that is still a very low rate of growth for Lebanon.

Gaby Kassis (GK) is, general manager, Bank AudiGK, Bank Audi That barely matches the growth in the population, which means there is no real growth.

One could argue there is another side to GDP which is not recognized. The Syrian influx has weakened growth in output, but on the slightly positive side, there has been a contribution by the Syrians to the spending pool in terms of lodging, food and beverages. It has slightly made up for some of the losses.

Nonetheless, there is a loss of job opportunities, as we have at least 20% unemployment today because of the cheaper unskilled Syrian workers who do the jobs that the Lebanese will not be able to compete for. Also, it will strain our infrastructure.

But although it has caused some political bickering over the last few years, we have still not seen any dramatic changes on the security side because of the refugees. There are incidents, and then everything gets controlled. It’s somehow typical of Lebanon: we see tension up to a limit, we reach the tip, and it gets controlled.