In the absence of governance, Banque du Liban (BDL) is doing all the heavy lifting to keep the economy afloat with tourists staying away, consumers hesitating to spend and the growing population of Syrian refugees putting further strain on a state that could not provide basic services even before they arrived. Assessing the impact of the bank’s work — in the form of stimulus packages unveiled in 2013 and 2014 — is tricky to say the least.
A section titled “overview of the recent monetary, banking and financial developments in Lebanon” on the central bank’s website claims 1.5 percent of the 2.5 percent of real GDP growth in 2013 resulted from the bank’s stimulus package that year — which saw the central bank extend $1.46 billion in loans to commercial banks at 1 percent interest along with a mandate to pass the lending on to “support housing, education, renewable energy projects, innovate projects, research and development ventures, entrepreneurship and other productive sectors of the economy.” The “overview” does not go into details on the breakdown of lending, nor which sectors helped boost growth and how. And, while the page does not seem to have been updated since February 2014, the central bank’s real gross domestic product (GDP) growth estimate for 2013 is far above the World Bank’s estimate of 0.9 percent growth.
New indicators
Indeed, according to the World Bank, BDL’s growth estimates — based on the BDL-coincident indicator (BDL-CI) — are in need of improvement. The World Bank notes, in an evaluation report on Lebanon’s economy published in spring 2014, that BDL’s indicator “was developed in 1993, immediately following the end of the Civil War and is composed of eight variables. Notwithstanding the profound structural changes in Lebanon’s economy that took place since the end of the Civil War, the weights of the eight BDL-CI variables in the index have remained fixed since 1993.” The World Bank found that BDL’s indicator misestimated growth every year between 2006 and 2011. In 2006, the BDL-CI estimated a 1.4 percent contraction in growth while in reality GDP grew by 1.6 percent, according to the World Bank’s report.
In response, the World Bank devised two new measures — a coincident indicator to chart current growth and a leading indicator to predict future growth — with which to gauge economic activity in Lebanon. The World Bank argues its measures are far more accurate, and the coincident indicator was used to devise the 0.9 percent growth estimate for 2013. The leading indicator, meanwhile, was estimating growth of 1.8 percent for 2014 at the very beginning of the year. However, the bank trimmed its growth estimate for 2014 to 1.5 percent following five suicide bombings that hit Lebanon in January — only a portion of the terror attacks in 2014, most of which happened in the first six months of the year. The early 2014 report notes, however, that even the estimate of 1.5 percent growth included an “assumption that political uncertainty related to the presidential and parliamentary elections are rapidly resolved and that the security situation improves slightly.”
[pullquote]“The economy’s not growing … There have been no decisions at the executive level, so the central bank had to step in”[/pullquote]
Policy paralysis
While the security situation did improve somewhat following various security plans in different parts of the country — notwithstanding the August kidnapping of over 20 members of the police and Army by militants fighting in Syria — the political situation only deteriorated in 2014. Parliamentarians failed to elect a new president when Michel Sleiman’s term ended in late May, and they gave themselves another 31 months in office in November 2014, in part because there is no president but also because they did not pass a new election law. The legislature did pass a flurry of bills in April — which included criminalizing domestic violence, revising the “old rent” system and making civil defense volunteers full-time state employees — but again postponed passing a controversial wage increase for public sector workers and teachers, the full funding of which parliamentarians have still not agreed upon.
Lawmakers and the government have also ignored all of the administrative reforms international agencies like the World Bank and the International Monetary Fund have long been calling for. To cite just one example, Lebanon is still without a budget in 2014. The last budget passed by Parliament and the government covered the year 2005. It is this unwillingness to make important decisions — particularly important fiscal decisions — that likely prompted BDL to intervene with stimulus money in 2013 and 2014.
“The economy’s not growing,” Nassib Ghobril, head of research at Byblos Bank, tells Executive. “There have been no decisions at the executive level, so the central bank had to step in,” he says, adding that this is an “implicit admission that the economy is struggling and in need of stimulus.” BDL Governor Riad Salameh in January 2013 announced $1.47 billion in loans to commercial banks at a 1 percent interest rate to boost growth. By the beginning of 2014, as Executive reported at the time, $468 million of it wasn’t spent and was rolled over into 2014 along with an additional $332 million, for a total of $800 million for 2014. At a Beirut conference in June, Salameh said that nearly all of the $800 million had been spent and announced the bank would inject another $400 million. In October, Salameh said that 2015 would see the bank give another $1 billion in low-interest loans. BDL itself has not offered a guess as to how the money is helping — aside from its likely overestimation of contribution to GDP growth in 2013. Ghobril said Byblos Bank anticipates a paltry 0.8 percent growth in 2014.
Silver lining
As has been the case since 2011, the large influx of Syrian refugees and security problems relating to the conflict in neighboring Syria held down growth in Lebanon in 2014. The World Bank, in a 2013 economic report, estimates that “cumulative losses in economic activity could reach an estimated [$]7.5 billion,” between 2012 and 2014. The report notes that poverty among the Lebanese was also on the rise during the same period with nearly 170,000 Lebanese “pushed into poverty [over and above the 1 million currently living below the poverty line].” As Executive went to press, there were over 1.1 million Syrians registered as refugees with UNHCR, the UN’s refugee agency, according to statistics dated November 18, 2014, on UNHCR’s website. That’s nearly a 40 percent increase from the more than 800,000 registered on January 2, 2014. While more people strain both the state’s ability to provide services and the host community’s patience, the crisis is channeling some money to infrastructure projects that will, theoretically, benefit Lebanon after the conflict in Syria ends. UNHCR funding for ‘community support programs’ that aim to benefit both Syrian refugees and Lebanese is anticipated to reach $25.5 million by end of 2014, a drastic increase from the $11,700 and $160,600 spent on such programs in 2011 and 2012, respectively. About 54 percent of the 2014 money is expected to go toward social cohesion projects designed to create “opportunities for Lebanese and Syrian families to relax, learn and play together,” according to a UNHCR pamphlet on the community spending. Some 24 percent of the money is designed to improve public services, up from 9 percent of the $13.5 million spent in 2013. Since 2012, UNHCR figures show that public service spending is expected to total nearly $7.4 million. While this is shy of the $1.1 billion the World Bank estimates the Lebanese government has had to spend to “meet some of the surge in demand for public services” the crisis prompted, it is nonetheless a welcome contribution.
[pullquote]without real reforms … fiscal decisions and help from abroad, Lebanon’s economic outlook will get increasingly worse as the crisis in Syria continues[/pullquote]
Donor fatigue
In dealing with the fallout of the Syrian crisis, Lebanon is hoping for help from the international community. That help, however, is not materializing. A multi-donor trust fund administered by the World Bank has received only $30 million, according to the most recent information on the fund on the bank’s website from September 2014. UNHCR’s Lebanon-specific donor appeal is also 54 percent underfunded as of November 5, according to UNHCR’s website. It is becoming increasingly clear that without real reforms, important — albeit painful — fiscal decisions and help from abroad, Lebanon’s economic outlook will get increasingly worse as the crisis in Syria continues.
