Precariously, Lebanon again finds itself in need or rebuilding portions of infrastructure after the Hezbollah – Israeli military conflict in summer 2006 with damage estimated upwards of 4 billion USD.
The population of the country has declined to a current level of 4 million of which 250,000 Lebanese live in Canada alone.
POLITICS: please contact BankINTRO.com for further details.
ECONOMY: recovering from the 2006 conflict with Israel which reflected in lower tourism arrivals, drop in retail sales, drop in foreign direct investment. Conversely, Lebanon is now in line to receive billions of US dollars (USD) in donations from foreign governments, recently estimated at upwards of 9 billion USD. Today, Lebanon has one of the world's heaviest debt burdens, the plague of black debt. Crushing national debt load at 35 billion USD (2005) equivalent to over 150 percent of market GDP. A trade deficit at 8 billion USD (2007) is another pressure point for the Lebanese pound. There are no natural economic resources; the Lebanese economy for the most part is dependent upon the service sector, banking & tourism and tobacco which are one of the largest industries within Lebanon.
Economic Statistics
Total GDP as measured by purchasing power parity came in at 40 billion USD (2007) with corresponding GDP/Capita at 10,000 USD. GDP using market measures stands at 25 billion USD (2007). Real GDP growth for 2008 estimated at 6 percent, 2009 at 5 percent. Inflation for year 2008 projected at 11 percent, 2009 at 6.2 percent, year 2007 at 4.8 percent. Year 2007 fiscal deficit came in at 12.2 percent. The current account deficit recorded a deficit of 2 billion USD (2007). External debt measured at 31.6 billion USD (December 2007). Unemployment is in the 20 percent range. Major trade partner: Syria.
POSITIVE: the inflation rate has dropped tremendously from year 1992 at 170 percent to year 2000 at 1 percent, remittances from abroad, social freedoms. CONCERN: violence, emigration of young educated Lebanese. Difficulties for the economy include: national debt, tax evasion and government itself – bloated bureaucracy, red tape and corruption.
BANKING SYSTEM: one of the few bright areas. The Lebanese banking system is the most liberal in the Middle East, surprisingly stable, liquid & capitalized. A large number of Arab Gulf investors have significant monies on deposit. Central bank of Lebanon (Banque du Liban) have the Repo interest rate at 12 percent (August 2008). International reserves stand at 11.6 billion USD (June 2007). In 2005, foreign financial support was given to the Banque du Liban to help support and maintain confidence in the Lebanese pound.
REGIONAL ANALYSIS: Syria, Israel
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KNOWLEDGE: Syrian Influence – Cash Windfall from Lebanon
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CURRENCY: ISO symbol (LBP), Lebanese pound. At time of review on October 19, 2008, the Lebanese pound had an exchange valuation at 1501.8 LBP to 1 US dollar (USD) and/or 2013.7 LBP to the Euroland euro (EUR). Exchange rate regime is that of a USD peg at a rate of 1507.5 LBP (plus/minus band) which has provided currency stability for Lebanon.
CURRENCY HISTORY: historical exchange quotes include: January 2007 at 1512 LBP to 1 USD, year 2005 at 1516, January 2003 at 1507, January 2001 at 1510, January 1998 at 1526.1, year 1997 at 1539, year 1996 at 1571, 1995 at 1621, 1994 at 1680 and year 1993 at 1741. Prior to year 1975, the Lebanese pound was pegged at 3 LBP to 1 US dollar.
CURRENCY FORECAST: greater currency pressure is currently prevalent: public debt burden, investor sentiment and confidence in the Lebanese pound is low. Although international funds have been earmarked to help rebuild infrastructure, Lebanon is lacking the entrepreneurs and ideas as many of the educated young are leaving, those wealth generators to create the self-sustaining future prosperity. BankINTRO.com believes that depreciation pressure on the LBP after a prolonged period of relative stability during the 1990's - 2008 during reconstruction and massive capital inflows is likely.
Lebanon is currently near the end of a stability cycle, significant economic challenges lie ahead. The USD has had a strong appreciation run over the last 2 months, further exchange pressure on Lebanon to maintain indirect currency strength via its USD exchange peg. The unfolding global financial crisis suggests Lebanon may encounter further exchange rate turbulence ahead. The LBP warrants a higher risk ranking (lower subjective score) as significant devaluation risk persists.
