Another Ahed achievement: Lebanon economy has long been sluggish. Now a crisis looms

Jorje

Jorje

Legendary Member
Lebanon’s economy has long been sluggish. Now a crisis looms
But the country’s politicians are busy haggling over cabinet posts



Print edition | Middle East and Africa
Aug 30th 2018| BEIRUT
THE main feature of Beirut’s skyline is not minarets or church steeples, but construction cranes. From the roof of a posh downtown hotel you can see 17 of them, throwing up luxury apartments that cost up to $1m each. Wealthy Lebanese sip wine on their terraces and discuss investment opportunities. They rub shoulders with Gulf tourists drawn by Beirut’s libertine nightlife. Lebanon’s economy relies on tourism, construction and finance for growth. All three seem to be thriving.
That, however, is an illusion. The country is tipping into a property slump—and perhaps a banking crisis that threatens its currency. An economic crash could destabilise a country already swamped with refugees and plagued by sectarian divides. Trouble in the banking sector, which draws investors from around the region, might be felt beyond Lebanon’s borders.

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Start with tourism, which was bouncing back from a period of regional unrest. Arrivals hit a five-year high in 2017. But they are still below their peak of 2010 and the industry is fickle. In November Saudi Arabia briefly detained the prime minister, Saad Hariri, and forced him to resign (a move he later reversed). Hotel occupancy plunged by 14 percentage points within a month. Saudi visitors, who account for the biggest share of tourist spending, are down by 19% this year. Investment is sluggish. Kafalat, a firm that guarantees loans for small and medium enterprises, handled 117 tourism projects last year, a 6% drop from 2016. Annualised figures from the first half of 2018 show a further 18% decline.
More worrying is the construction industry, which accounts for nearly one in ten jobs. Despite the cranes dotting Beirut, construction is slowing. 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.
Developers fear a deeper slump is coming. For years the central bank subsidised mortgages, offering 30-year loans with interest rates as low as 3%. In March it abruptly halted the scheme. Bankers say it was abused. Instead of buying houses, some borrowers put the principal into higher-interest savings accounts to turn a profit. Many young couples cannot afford unsubsidised loans, which carry rates of 8-9% and shorter repayment periods. Some have cancelled their weddings as a result.
From bad to worse
Lebanon’s economy was already struggling. Annual GDP growth was 8% in 2010, before neighbouring Syria plunged into civil war. Since then it has averaged less than 2%. The slowdown in the housing market will drag it down further. In Hamra, the commercial hub of west Beirut, electronics stores are almost empty despite deep discounts. Fewer new homeowners means less demand for refrigerators. Many shops have cut salaries or fired staff to get by. “This is the worst it’s been in 40 years. Everything is coming to a halt,” says Rafi Sabounjian, a small-business owner.

On paper, at least, the banking sector looks solid. Commercial banks hold $200bn in deposits, four times as much as Jordan, which has more people. The central bank (the Banque du Liban or BdL) sits on $44bn in assets, excluding gold, enough to cover more than two years of imports. Its governor, Riad Salamé, says everything is fine. He points to the months after Mr Hariri’s detention, when the central bank spent $1bn to prop up the Lebanese pound, which is pegged at 1,500 to the dollar. Reserves recovered almost immediately.
But those numbers are misleading. In 2016 the BdL pioneered something called “the swap”, a complicated scheme in which it borrows foreign-currency holdings from commercial banks. It uses the dollars to maintain the currency peg. The banks get eye-popping returns, raking in 40% for a one-year loan. With no economic growth, the swap works only if it can attract ever-larger sums. “It’s a pure pyramid scheme,” says Jean Tawile, a banker and adviser to Kataeb, a political party.
The BdL does not publish its net reserves. Toufic Gaspard, its former head of research, wagers that “swapped” deposits are worth $65bn—meaning net assets are already negative. Fearing a devaluation, banks are increasingly desperate to attract foreign currency. Interest rates even for short-term deposits are at their highest level in nearly a decade. High rates mean small firms cannot obtain credit. A decade ago commercial lending in Lebanon grew by 15-20% annually. This year it is shrinking.
The currency peg has been a pillar of the economy since 1997. Receipts are printed in dollars and pounds; shoppers use the two interchangeably. This is starting to look unsustainable. Devaluation would be painful for a country that imports so heavily. It would be good for exporters—but Lebanon hardly has any. Last year it exported $2.8bn worth of goods, about half as much as Iceland. The current-account deficit is more than 20% of GDP.
Lebanese politicians made a fortune from the banking boom. Of its 20 biggest commercial banks, 18 are wholly or partly owned by politicians or well-connected families. Now they seem oblivious to the looming crash. Instead they float fanciful schemes for growth. Some hope Lebanon will become a hub for rebuilding post-war Syria. That plan faces many obstacles, not least that nobody knows who will foot the estimated $200bn bill for reconstruction.
Foreign donors pledged $12bn in aid at a conference in Paris in April. But most of this is loans, not grants, and Lebanon can ill afford more debt. The IMF expects its debt-to-GDP ratio, currently about 150%, to hit 180% in five years. By then debt service will burn through three-fifths of government revenue, leaving almost nothing for capital expenditures (already quite low).
In May voters went to the polls for a long-delayed parliamentary election. Mr Hariri took a beating, losing 13 seats, 40% of his total. Still, he will probably remain prime minister—if he ever forms a government. Instead of discussing reforms, lawmakers are haggling over cabinet posts, which they use to disperse spoils. With the economy heading for a crash, there may not be much to hand out.
This article appeared in the Middle East and Africa section of the print edition under the headline "When the music stops"

Lebanon’s economy has long been sluggish. Now a crisis looms
 
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  • Indie

    Indie

    Legendary Member
    Orange Room Supporter
    I feel sorry for the regular people affected by all this, but not for those in the real-estate and construction sector who have been destroying the country to build and sell units most Lebanese can't afford.

    Overall, the whole situation in Lebanon is disgustingly depressing. There seems to be no light at the end of the tunnel.
     
    Aoune32!

    Aoune32!

    Well-Known Member
    The overall situation is pretty bad. Not sure how the hell we got here in the first place.
     
    manifesto

    manifesto

    Well-Known Member
    How many times do fearmongering joirmalists have to recycle this article? Every year they warn us that we're heading into an economic crisis.
     
    Aoune32!

    Aoune32!

    Well-Known Member
    How many times do fearmongering joirmalists have to recycle this article? Every year they warn us that we're heading into an economic crisis.
    The crisis has been going on for sometime. :)
    It is not new. The economy is in tatters. When a country GDP is 150% then you have a problem. 1.8 million people don't have health insurance, the minimum wage is like $400 where to live in Lebanon you need $1500 minimum. Time will come when people will say enough is enough.
     
    Aoune32!

    Aoune32!

    Well-Known Member
    We need investment and simply not selling our country to foreigners. We need proper management, we need accountability and we need to start exporting more than we import. If we look at just these couple of things we can see clearly why there is debt.

    Electricity crisis 20 years at least 25 billion if not more.
    Displaced from the Mountain - 20 billion
    Displaced from the South - 20 billion
    Export/Import - 3 billion/20 billion

    How in the world do you want a country to survive? hawde kelloun without actually investing in our country.. our armed forces receive like 1.5 billion from the central gov and then we wonder why our Army is not strong enough? LOL
     
    light-in-dark

    light-in-dark

    Legendary Member
    Erase the beasts of Lebanese war. Erase the militias which have done war. Erase politicians of wissayeh Sourieh wa israelieh add the politicians of wissayeh tirkyeh iranieh, seoudieh, amerikieh masrieh katarieh francawieh, inklizieh.
    erase corrupted people than we can say isla7 wa taghyiir.
     
    Libnene Qu7

    Libnene Qu7

    Super Ultra Senior Member
    Orange Room Supporter
    So it's this 3ahed's "acheivement" that ever since 1990 our successive governments have been building up this snowballing debt?
     
    TheMaronite

    TheMaronite

    New Member
    thumbs up if you believe that the mandate of former president michel sleiman is better than that of michel aoun
     
    Iron Maiden

    Iron Maiden

    Paragon of Bacon
    Staff member
    thumbs up if you believe that the mandate of former president michel sleiman is better than that of michel aoun
    Thumbs up if you think the shit i took this morning is more is more interresting than post
     
    HannaTheCrusader

    HannaTheCrusader

    Legendary Member
    Orange Room Supporter
    i hope the LL crash

    let the muslim and their zummes who robbed us for decades pay the price

    we the 213K who voted for tayyar and co , we dont care
    we know it will be toiugh, but wy tougher on the others even more

    we have NOTHING TO LOSE ANYMORE

    BRING ECONOMIC ARMAGEDDON ON
    we cant wait for it yto happen

    90% of civil servants are muslims
    90% of Lebanese university profs are muslims
    90% of economy in muslims hands
    90 % of Christians pay taxes while barely 10% of muslims do

    WLEK WE DON'T CARE
    BRING ON THE COLLAPSE
    WE SHALL SEE WHO WILL CRY MORE

    AS FOR 3AHED BEING RESPONSIBLE, MA THE 80% OF SWINES in lebanon already blame the 3ahed even before it started
    yalla, let them suffer the way we are suffering
     
    Venom

    Venom

    Legendary Member
    The best way to get rid of these corrupt politicians is by a collapse in the economical system. It won’t be a surprise if the Leb gov default on its debt.
     
    Jorje

    Jorje

    Legendary Member
    i hope the LL crash

    let the muslim and their zummes who robbed us for decades pay the price

    we the 213K who voted for tayyar and co , we dont care
    we know it will be toiugh, but wy tougher on the others even more

    we have NOTHING TO LOSE ANYMORE

    BRING ECONOMIC ARMAGEDDON ON
    we cant wait for it yto happen

    90% of civil servants are muslims
    90% of Lebanese university profs are muslims
    90% of economy in muslims hands
    90 % of Christians pay taxes while barely 10% of muslims do

    WLEK WE DON'T CARE
    BRING ON THE COLLAPSE
    WE SHALL SEE WHO WILL CRY MORE

    AS FOR 3AHED BEING RESPONSIBLE, MA THE 80% OF SWINES in lebanon already blame the 3ahed even before it started
    yalla, let them suffer the way we are suffering
    Walaw? Ou3a Khayak!!
     
    Jorje

    Jorje

    Legendary Member
    So it's this 3ahed's "acheivement" that ever since 1990 our successive governments have been building up this snowballing debt?
    Look I'm not the one glorifying the country under the "3ahed".

    When will you grow up, start taking responsibility and act like adult men and women?
     
    manifesto

    manifesto

    Well-Known Member
    El 3awnieh fala2ouna enno things will get better once Aoun becomes president.

    Now that Aoun and FPMers are in power, their argument is "we can't fix what's broken".
    Under Aoun's command, things are not even as bad as they used to be. They are worse.

    There has never been more failed promises in the history of Lebanon.
     
    W

    wdawle1

    Member
    The sanctions and war in syria are playing role in our economic collapse.HA weapons is also big issue for our economy, due to sanctions.
     
    Libnene Qu7

    Libnene Qu7

    Super Ultra Senior Member
    Orange Room Supporter
    Look I'm not the one glorifying the country under the "3ahed".

    When will you grow up, start taking responsibility and act like adult men and women?
    We don't take responsibility lessons from ex-warlords and militias, nor from civil groups who are sponsored by banks that make money from the ballooning government deficit. Other than that you are free to criticize.

    El 3awnieh fala2ouna enno things will get better once Aoun becomes president.

    Now that Aoun and FPMers are in power, their argument is "we can't fix what's broken".
    Under Aoun's command, things are not even as bad as they used to be. They are worse.

    There has never been more failed promises in the history of Lebanon.
    With 15 years of physical and psychological destruction, followed by 30 years of economic and political destruction, I think you can understand that 2 years of presidency will not be the magic wand you were hoping for it to be.
     
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