Economic crisis looms over Lebanon: Economic experts

economic crisis, Lebanon, economy, government formation, lira, GDP, imports,
Lebanon is facing an economic crisis. Seen here is its central bank. © Karan Jain Flickr

Economic crisis looming over Lebanon – such are the news reports coming out from the Western Press. Living in Beirut we already knew it. They are not a alone in this opinion – many Lebanese MPs and economic experts have warned any further delay in government formation is likely to result in the collapse of the Lebanese economy.

In its recent report, the noted economic news journal The Economist reported that a crisis looms over Lebanon’s economy.

The “country is tipping into a property slump—and perhaps a banking crisis that threatens its currency. An economic crash could destabilize a country already swamped with refugees and plagued by sectarian divides,” states the Economist in its report surrounding the imminent economic crisis facing Lebanon.

A devaluation of Lebanon’s currency could be painful for the country given its heavy dependence on imports.

“The number of permits issued in the first half of 2018 was 9% lower than in the same period last year. Property transactions dropped by 17% year on year in the first quarter,” said the Economist regarding the looming economic crisis. While the central bank used to subsidize mortgages and offer 30-year loans with 3% interest rates, it halted the scheme in March 2018.

In contrast, Lebanese MP Ibrahim Kanaan, head of the Finance and Budget committee, stated there are no risks to the financial situation in Lebanon. Compared to ther economies, Kanaan asserted that Lebanon’s economy is the most stable. “… we are the most stable in Lebanon”, said Kanaan while trying to implement a reformist vision and bring about financial reforms.

Supporting Kanaan’s view, Walid Abu Sulaiman, a Lebanese financial expert said, Western media reports concerning the dangers of an economic crisis hanging over Lebanon is nothing new – “they did not reveal anything surprising or new to the situation of the Lebanese economy because these facts are known,” said Abu Sulaiman.

So as to support his approach, Abu Sulaiman told Asharq Al-Awsat that with global ratings firm Standard & Poor’s assigning B/B- to Lebanon’s long and short-term foreign and local currency sovereign credit ratings, the country’s economic outlook remains stable.

“The Central Bank has enough foreign currency reserves to defend the Lebanese pound in case of any incalculable developments, and prevent its deterioration,” said Abu Sulaiman in dismissal of Western reports of a pending economic crisis in Lebanon.

He went on to add, “The banking sector in Lebanon is solid” and that bank deposits have grown to an acceptable level of more than $180 billion – 3 times Lebanon’s GDP.

“The delay in the formation of the new cabinet has an undeniable impact on investments and therefore on growth,” explained Marwan Barakat, chief economist at Bank Audi to Agence-France Presse (AFP) thus underscoring the growing economic crisis in Lebanon.

Of the 11 economic indicators he studies, 7 were “in the red” in the first seven months of 2018 in comparison with the same period in 2017.

Given the deterioration of 7 economic indicators out of 11, he felt Lebanon is indeed facing an economic crisis. Lebanon’s real estate sector also saw building permits falling by 20.1%. Further, the value of cleared checks, which is an indicator of investment and consumption, has also dropped by 13% for the January to June period, according to Lebanon’s Central bank.

Further supporting his view is that Lebanese banks have increased interest rate on Lebanese Lira which touched 15%. with public debt at $82 billion – equivalent to 150% of its GDP.