Lebanon Finds a Way to Grow

Through all its challenges, Lebanon has maintained stability in its banking and financial system. There have never been de-faults, and its banks, having an innate caution and conservatism, just don’t run in to trouble.

By Chris Wright

Lebanon today faces considerable challenges both domestic and external. It’s hard enough trying to spur growth and reform in a country with a rudderless government and no president. Do so while trying to absorb one and a half million Syrian refugees into the economy – in a country with barely four million people to start with – seems an unachievable burden.

Yet Lebanon is still growing despite its considerable problems. The growth is modest – the IMF projects 1.8 percent in 2014 and 2.5 percent in 2014, compared to 1.5 percent in 2013 – but it is, remarkably, still positive.

Lebanon is a story of finding the positives, which is not always easy. Take Syria. The World Bank said in September that, by the end of 2014, Syria’s conflict will have cost Lebanon $7.5 billion in cumulative economic losses, cutting real GDP growth by 2.85 per cent a year between 2012 and 2014, while doubling unemployment to above 20 percent and widening the deficit by $2.6 billion.

Yet Lebanese economists can find benefits in this unremittingly negative scenario. “The issue of the Syrian refugees is a double-edged sword,” says Marwan Barakat, group chief economist and head of research at Bank Audi in Beirut. “On one hand, it is definitely putting pressure on the country’s infrastructure and adding to the fiscal strains in Lebanon. But at the same time, the presence of Syrian refugees is contributing positively to consumption.” Indeed, consumption has actually increased by 6 percent over the past three years, fuelled by Syrian spending on basic staples: food and beverages, pharmaceuticals and energy. “So there is this other side alleviating the contractionary pressures on the Lebanese economy. We don’t have a recession. We have a slowdown, but we don’t have a recession.”

Domestically, the picture is different again. Ask almost anybody in the Lebanese private sector and they will speak in glowing terms about the central bank, Banque du Liban, and its long-serving governor Riad Salameh, while simultaneously expressing great frustration with the inertia of the government. On one hand, the government’s considered stimulus packages – sometimes straightforward soft loans, sometimes carefully targeted technical packages like Circular 331, which aims to encourage bank investment into the knowledge sector – have been a clear success. On the other, there is still no president, and the appointment of one was delayed for the fourth time in August. And when the government is active, it doesn’t always do the things economists would like it to, notably when it agreed to a considerable increase in public sector wages (something that is likely to cost the Treasury at least $1.2 billion) at a time when others hoped money might go on infrastructure development.

Public sector risks

Consequently, Lebanon’s public sector numbers are a concern. “The IMF expects risks to the public debt’s sustainability to increase under the prevailing policies,” says Byblos Bank. Specifically, it projects public debt to rise from 141 percent of GDP in 2013 to 145 percent in 2014 and 148 percent in 2015; and it believes the fiscal deficit will widen from 9.2 percent of GDP in 2013 to 11.1 percent in 2014 and 11.9 percent in 2015. The primary budget deficit is scarcely better, expected to rise from 0.8 percent of GDP in 2013 to 2.4 percent in 2014 and 2.5 percent in 2015.

在此清楚地掌握需要财政改革，特别是电力效用的改造。“电力部门是第一件事需要修复，”博洛姆银行董事长Saad Azhari说。“40％的赤字来自于此。黎巴嫩需要重要的基础设施项目，但大多数政府支出都是薪金和利益。对基础设施的投资很少，这将将来会导致未来的增长更高。“实际上，Electricitéduliban是黎巴嫩机构萎靡不振的象征;电力是不可靠的，补贴瘫痪了国家财政，盗窃传输网格是侮辱，因为byblos说，“预计在没有对电力部门的改革而没有增加关税的公共财政的重大阻力。“

财政部表示关税变更是在讨论表中的讨论，并有一个计划的电力最终需要25亿美元的投资。但问题是通过政治意愿通过。桌上的措施是一件事;当没有连贯的领导是另一个的时候，让他们穿过。

In this environment, Salameh and the central bank have found themselves in a position of authority far greater than that of most other central banks, and probably not one he actually wants. “The central bank has been the only one doing any thinking,” says one banker in Beirut. “It’s been single-handed, and it’s about time we saw something on the legislative side.”

中央银行已申请两轮刺激措施：2013年的14亿美元和2014年以贷款的贷款形式为8亿次刺激，他们每个人都会引发更新的贷款。“它在贷款利率推动增长方面发挥了重要作用，”阿扎里说，由于刺激的后果，2013年的贷款同比增长了8至9％。Azhari也是中央银行试图鼓励投资技术初创企业的大信徒。“我们必须在房地产和旅游以外的地区看到增长。这个很重要。”

刺激计划将我们带到了关于黎巴嫩的一个非常积极的故事：银行系统的看似坚不可摧的性质。黎巴嫩已经通过内战，与以色列的战争，暗杀;然而，它没有任何后果的银行失败，超过20年（也许不巧合，Salamé的任期刚刚达到21年）。如果一个看黎巴嫩的银行存款图表，那么它是一个无情的向上倾斜楔，只有几次战争造成的薄层。这是显着的。

Moody’s, among others, doesn’t think as well of the banking sector as one might expect, because of its very high exposure to the state: it is pretty much funding the sovereign and Moody’s feels that represents a systemic risk. However, Lebanese bankers believe that’s missing the point.

Why? Well, nowhere else quite looks like Lebanon. There are far more Lebanese outside Lebanon than there are within it. There are three or four times as many, in fact. And they unerringly send home money in considerable quantity, remittances of around $8 billion a year, or 20% of GDP. Azhari points out that in the 2008-9 financial crisis (which, incidentally, barely touched the Lebanese banking sector), money was flowing in to Lebanese banking, because people felt the banking system was safer in Beirut than outside it. Through all its troubles, Lebanon never defaulted, and its banks, having an innate caution and conservatism, just don’t run in to trouble.

It would help if the rating agencies shared this view. Lebanon is rated B- in large part because of what is seen as this sovereign threat to the sector, but it appears the market doesn’t agree; Lebanon’s 10-year paper trades on a level more consistent with a BBB credit. Nevertheless, a higher rating would surely make capital raising easier and cheaper, which might at least create an affordable way of starting infrastructure spending.

Keeping an eye on liquidity

银行的核心力量是一个敏锐的眼睛on liquidity. “Liquidity has been maintained at a good level,” says Barakat. “Liquidity in foreign currency is the most important, and we have a level of 42 percent of customer deposits there, which represents a sound bugger for any scenario of capital transfers outside of Lebanon.” Considering money doesn’t tend to flee anyway – the deposit base dropped by just 4 percent during the 2006 war with Israel – that looks more than sufficient. Barakat calculates the capital adequacy ratio of the sector, under Basel 2, at 14.5 percent, which is well above both local and international minimums.

Banks have, though, had to go overseas in order to develop such scale and stability, and everywhere one looks one sees a regional rather than a local model. Bank Audi, BLOM BANK, Bank of Beirut and Bank Mediterranean have all grown in the region and the world, not only in neighbouring Syria (obviously no longer such a good earner, though banks report their loans there have largely been repaid) and Jordan, but in Egypt, Qatar, the UAE, Saudi Arabia, Turkey and even Sudan, as well as operations outside the region. The combined assets of Lebanese banks are considerably bigger than the Lebanese GDP, and this – alongside the prudence of the sector – will insulate it for years to come.

But Lebanon needs more. Where else will growth come from? Not, in the short term, through real estate, which is volatile and suffering at the moment; nor from tourism, with numbers badly hit by regional security issues, and hotels running at below 50 percent occupancy, sometimes well below. Instead, aside from the central bank’s hopes for tech and knowledge, Lebanon’s lifeline may come from oil and gas.

根据能源部预测，黎巴嫩拥有的地中海可以含有96万亿英尺的天然气和8.5亿桶油。正确使用，它应该意味着延尾的电力短缺，对公共债务问题的解决方案，以及振兴经济的巨大工作来源。

然而，贝鲁特对所有这一切都存在紧张感，因为担心它可以糟糕地处理，甚至可能在惯性中错过了利用该部门的机会。一方面，一个人听到了远见的主权财富基金的谈话;另一方面，实际完成的任何东西都有珍贵的小迹象 - 没有钻孔，没有项目，没有钻井平台。再一次，它归结为政治意愿和骨折领导，甚至中央银行肯定无法参与建立石油和天然气开发项目。

In short, Lebanon finds itself on a familiar fulcrum upon which its economy really could tilt either way. One side would show the weight of the refugee influx and poor public finances, exacerbated by a rising rate cycle in the US, dragging the economy towards recession and putting unreasonable pressure on its long-suffering banking system. The other, which would be greatly assisted by an end to Syrian conflict and the reconstruction opportunities that would follow, would see the oil and gas sector galvanizing Lebanon towards economic growth, providing an environment in which its public finance problems can be tackled and a government and president can finally gain traction. Which way it goes will be decided in the year ahead.