The Lebanese Economy in 2009 30 May 2010 · The Lebanese Economy in 2009 SAL The Lebanese Economy...

The Lebanese Economy in 2009

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The Lebanese Economy in 2009 30 May 2010

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Important Disclaimer This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient. Copyright 2010 BLOMINVEST SAL No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of BLOMINVEST SAL.


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For your queries Research Department Marwan Mikhael Mahmoud Harb Cynthia Zeilah Rebecca Nakhoul Research Department

Head of Research [email protected] Tel: +961 1 737 247 Fax: +961 1 737 414

Senior Economist [email protected] Tel: +961 1 747 802 Ext: 1440 Fax: +961 1 737 414

Analyst [email protected] Tel: +961 1 747 802 Ext: 1413 Fax: +961 1 737 414 Analyst [email protected] Tel: +961 1 747 802 Ext: 1418 Fax: +961 1 737 414 [email protected] Tel: +961 1 747 802 Fax: +961 1 737414


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From zero to hero in three years

Following several years of political unrest marked by a sluggish economic growth,

Lebanon appears to be swimming against the tide. In 2006, at a time when the global GDP

was growing at 5%, Lebanon suffered from the July war and ended the year with zero

percent economic growth rates. After three years, developed countries were going through

their worst recession since the great depression of the 30’s while Lebanon was having one

of its best years since the end of the civil war.

Against all odds, Lebanon benefited from the global financial crisis. First, when the

crisis erupted, customers lost confidence in the world’s financial institutions and turned

towards banks that did not invest in complex financial instruments. Second, the crisis led

central banks across the globe to drastically decrease interest rates, while stock markets

were depressed, thus pushing investors to look at higher returns elsewhere. Finally,

Lebanon had already elected a president in 2008 and was enjoying a period of politico-

security stability. The combination of the high differential in interest rates between Lebanon

and developed countries, the strength of its banking sector, and the political stability, led to

large capital inflows to Lebanon in the aftermath of the crisis. These capital inflows put

downward pressure on interest rates and partly went to investment in the real estate sector.

In this context of large capital inflows, the Lebanese economy performed

impressively in 2009. Real gross domestic product (GDP) increased a bit more than 8

percent, building on the sustained expansion that gained traction in the middle of 2008.

Inflationary pressures remained subdued, as global commodities and goods prices fell

following the crisis. Nevertheless, real estate prices shot through the roof as demand from

Arabs and Lebanese expatriates surged with the global decline in interest rates. The number

of tourists reached unprecedented levels hovering 2 millions during the year, outpacing the

previous record set in 1974 at 1.48 million. Moreover, major international newspapers, TV

channels, and tourism guides, such as New York Times, CNN, Paris Match, and Lonely

Planet named Lebanon as one of the top destinations in 2009, thus boosting tourist inflows.

However, economic growth rates of the past two years may not be sustainable in

the long term as the country lacks the necessary infrastructure and the adequate

regulations. The government should embark on a large infrastructure development projects

in partnership with the private sector in order not to overload its treasury. This will include

roads, Electricity, and water projects. The government should also implement the structural

reforms regarding telecom, electricity, health, and social sectors. Authorities will have to

introduce the right regulatory framework to improve the business environment and

encourage fore ign d i rect investments in sectors other than rea l esta te .


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Looking ahead, Lebanon needs bold decisions and out of the box ideas to solve its

economic problems. The deficient infrastructure is starting to weigh on the development of

the various economic sectors. We are still lacking a comprehensive economic policy on the

government side. The budget of 2010 presented to the Council of Ministers appears to be a

combination of measures with the sole goal to keep a slightly positive primary surplus.

Nonetheless, we expect the country to record a growth rate of 6-6.5% in 2010, as

the private sector remains one of the most dynamic in the region. The number of tourists

may reach 2.4 million, an increase of 30% compared to 2009. All the other sectors of the

economy are also expected to register decent growth rates, especially with the recovery of

the global economy.

Marwan Mikhael

Head of Research


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Table of contents

I. 2009 at a glance ............................................................................................................ 6

II. Real Sector.................................................................................................................... 7

A. Consumption and Demand .................................................................................................... 9 B. Tourism ................................................................................................................................. 10 C. Construction and Real Estate ............................................................................................... 12 A shift towards small and medium-sized apartments .............................................................. 15 D. Agriculture and Manufacturing Sectors ............................................................................... 17 The Belgian Example ................................................................................................................ 19

III. External sector .......................................................................................................... 20

A. Current Account.................................................................................................................... 20 B. Capital Account .................................................................................................................... 22

IV. Public Finance Sector .............................................................................................. 23

A- Fiscal Balance ....................................................................................................................... 23 B. Spending ............................................................................................................................... 24 C. Revenues .............................................................................................................................. 26 D. Public debt ............................................................................................................................ 28

V. Monetary Sector ........................................................................................................ 30

A. Money supply ....................................................................................................................... 30 B. Money Market ...................................................................................................................... 31 C. Treasury bills market ............................................................................................................ 32 D. Monetary policy .................................................................................................................... 33

VI. Banking Sector .......................................................................................................... 36

A. Deposits ................................................................................................................................ 36 B. Profits .................................................................................................................................... 37 C. Lending ................................................................................................................................. 37

VII. Financial Markets .................................................................................................... 38

A. Stock Market......................................................................................................................... 38 B. Eurobonds Market ................................................................................................................ 43

VIII. The Lebanese Economy in Figures ..................................................................... 46


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I. 2009 at a glance

2009 registered a strong economic performance with the main engines of growth

found in the real sector. First, consumption expanded significantly, contributing appreciably

to growth or at least more than during previous years. The expansion of local demand

counteracted the bouncing effect of the regional sluggishness on agriculture and industry

through the erosion of demand for Lebanese exports of goods. Moreover, the tourism

sector witnessed an unprecedented boom, with the number of visitors reaching an all-time

record of 1.85 million. Third, the real estate sector also prospered, backed by a well-rooted

demand for housing and lavish funding that generated an astonishing increase in property

prices.

Mirroring this strong performance, the balance of payments registered a robust

surplus of $ 7.89 billion, whereas in return, net foreign assets of BDL reached $ 25.26

billion. This mainly resulted from a significant increase in the capital account surplus due to

massive inflows. Moreover, the current account deficit is estimated to have slightly

narrowed, as remittances and structural trade deficit remained nearly stable while the

services surplus probably soared given the boom in tourism.

On the public finances front, revenues progressed at a higher pace than both

outlays and GDP, triggering a drop of deficit-to-GDP ratio, while budget deficit only

increased by little more than 1 %. The debt-to-GDP ratio also declined by 5 percentage

points. However, despite the primary surplus registered in 2008, public debt climbed by

more than 8 %, as the government was borrowing beyond its needs, for monetary

sterilization purposes.

As a matter of fact, large capital inflows put a downward pressure on interest rate

differentials between the use of funds and deposits, and therefore on banks profits. Banks

found themselves overwhelmed by deposits with limited domestic investment

opportunities. The Central Bank tried to mop up the excess of liquidity and to help banks

finding investment opportunities through the issuance of certificates of deposits (CD) and T-

bills and by encouraging loans in all currencies through reserve requirement incentives.

Consequently, banks’ profits turned up and climbed by a vigorous 20.2 %, as a sizeable

fraction of excessive savings were channeled into investments in the real economy.


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Moving to financial markets, the stable political climate led Lebanese listed stocks

to pitch in 2009 lifting the BLOM Stock Index (BSI) up by 33 % to close at 1,566. Thus, the

Lebanese gauge ended as the third best performer among its Arab peers. Though Solidere

shares were the main player in the market, capturing the bulk of trades and climbing by an

average of 43 %, banking stocks hiked 45 %, outperforming Arab banking shares. The

resilience of the Lebanese economy and the global decline in interest rates also weighed

positively on the eurobonds market as investors’ appetite towards Lebanese papers

improved, what pushed up eurobonds prices. Hence, Lebanese sovereign Eurodollar bonds

ended the year at premium, while they were traded at discount by the end of 2008.

Accordingly, the BLOM Bond Index (BBI) ended the year up by 16 % to close at 110.047

points.

However, Lebanon continued to suffer from the same structural problems, as little

was done to progress on the reforms front. Consequently, the country’s public finances

remain vulnerable and its wealth redistribution mechanisms are still inefficient while its

social safety nets are porous as the whole public sector still awaits for the long due

reforms.

II. Real Sector

The Lebanese economy delivered a strong performance in 2009 despite the political

deadlock that lasted between the parliamentary elections in June and the formation of the

new government in November. Real gross domestic product (GDP) is estimated to have

risen by an impressive 8 % in 2009 with the nominal GDP reaching $ 33.42 billion, even

though growth slowed down in the second half of the year compared to the same period

last year as a result of uneven developments in 2008. The latter ended with a higher real

growth rate of 9.3 %. However, its first five months were characterized by an unstable

political situation that led to a low growth rate during the first half, while the last six months

registered a very high growth that exceeded 12.5 % following the Doha agreement and the

election of a new president.

This solid growth in 2009 was mainly driven by the real estate and services sectors

as per usual, but also by consumption that contributed more significantly to GDP expansion

than during previous years. The politico-security stability and the resilience of the country

towards the global financial and economic crisis stimulated construction, tourism, and

financial services that thrived throughout the year, while attracting massive capital inflows.


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GDP & Growth

010,00020,00030,00040,000

2004 2005 2006 2007 2008 20090%

5%

10%

Nominal GDP ($M) Real GDP Growth (%)

Sources: IMF, National Accounts, BLOMINVEST Bank

As for prices, the rapidly growing consumption, the colossal capital inflows, the

high growth rate and the mild overheat of some sectors, especially tourism, did not

generate major inflationary tensions. Inflation remained moderate as the yearly average

Consumer Price Index (CPI) only inched up by 1.24 % between 2008 and 2009, whereas the

end-of-period CPI climbed by 3.4 % year-on year as prices declined sharply in the 4th quarter

of 2008, following the global financial crisis. As a matter of fact, consumer price increase

was mainly toned down by the reduction in imported inflation, in the wake of the drop in oil

and commodities prices during 2009 after an exponential growth in 2008. Average oil prices

fell by 33.74 % to 66.09 dollars in 2009, from 99.75 dollars in 2008, as the global demand

continued to retreat for the second consecutive year. Consequently, the value of main

imports categories inched down or increased at a much slower pace than their volume. For

instance, the dollar price of mineral and chemical products and plastics imports plunged by

14.56 % while their volume shot up by 15.72 %. Moreover, the value of foodstuff and farm

produce imports increased by only 8 % whereas their volume hiked by 18 %.

Inflation (%)

-5

0

5

10

2004 2005 2006 2007 2008 2009

Source: Central Administration for Statistics


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A. Consumption and Demand

Consumption played a major role in the aggregate economy’s performance in 2009

and contributed to GDP growth more significantly than during previous years. In fact, all

demand indicators reflect a healthy vigor of consumption that offset the fall of industrial and

agricultural exports, due to the depression of regional demand.

Consumption by travelers to Lebanon contributed to the expansion of local demand

through indirect channels. Indeed, tourist spending increased by 13 % as shown by the

value added tax (VAT) refund at Lebanese borders. Moreover, non-residents purchases

through payment cards inside Lebanon hiked by 43.3 % to more than $ 26 million. Finally,

non-residents cash withdrawals inside the country advanced by 17.83 % to $ 71.83 million.

This export of services pushed up demand from residents, as shown by the results

of checks clearing and payment cards activities. In fact, the number of cleared checks in

2009 increased by 6.26 % to 12.22 million. Their value grew at a higher rate of 7.35 % to $

56.38 billion, mirroring an increase of the average amount per transaction. In addition, the

number of outstanding payment cards rose by 4.22 % to 1.63 million, more than 97 % of

which are held by residents. Purchases by residents through payment cards inside the

country surged by 22.22 % to $ 1.13 billion. In parallel, residents cash withdrawals climbed

by 19.82 % to $ 4.63 billion.

Reflecting a burst in consumption as a whole, consumption of durable goods

expanded as shown by the 3.53 % increase in car imports that reached 100,278 vehicles, a

record in years. If new cars registrations did not follow the same trend and dropped by

3.7 %, it is mainly due to the market being flooded by used cars imported primarily from the

United States at low prices.

This solid performance of demand can be explained by the fact that 2009 was the

first year without major political or security crisis since 2004, in addition to the increase in

wages. The return to stability restored consumers’ confidence that climbed by 24 %

according to the Consumer Confidence Index of Araa’ Research, and encouraged

households to increase their spending and carry out postponed purchases. Moreover, the

LBP 200,000 wage increase that was granted by the government for all public servants and

private sector employees provided households with extra resources to spend.

The stability of remittances and the massive capital inflows also provided Lebanon

with a comfortable cushion of liquidity that enhanced consumption. Lebanese expatriates

transferred some $ 7 billion to Lebanon in 2009, as per estimates by the World Bank.

Almost 90 % of these remittances are usually used for consumption. Moreover, capital


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inflows rose by more than 26 % to a record level of $ 20.65 billion, thanks to the resilience

of the Lebanese financial and banking sector towards the global crisis. Consequently, in the

context of a severe credit crunch on an international and regional level, retail loans climbed

by 33.45 % year-on-year as of end September 2009, to $ 6.31 billion. Knowing that housing

loans represented only 40.59 % of this amount, the consistent increase of credits to

individuals mirrors a solid increase of consumption funding by banks and financial

institutions.

Finally, modern distribution channels are constantly improving in Lebanon and

implementing mass consumption trends and behavior in the country. In fact, large malls and

supermarkets exceed 90 while the number of middle size commercial centers reaches 300.

In addition, several major malls are currently under construction within the periphery of

Beirut.

Nevertheless, the expansion of local demand did not fully benefit to the local

economy. This is because the increase of local consumption usually entails a rise in imports

rather than a growth in production and revenue, knowing that Lebanon’s industrial and

agricultural production remains limited. Consequently, the volume of imports bounced by

more than 17 % to 14.63 million tons, showing that part of the contribution to GDP growth

from the expansion of demand was through an increase in income for importers and

traders.

B. Tourism

At a time when the tertiary sector around the globe drowned into sluggishness, the

local tourism industry prospered in 2009 and became one of the main engines of economic

growth. The number of tourists who visited Lebanon during the year reached an all-time

record, peaking at 1.85 million, almost hitting the 2 millions target set by the authorities and

increasing by 38.9 % compared to 2008 and 82 % from 2007. This result broke by far the

previous peak of 1.4 million registered in 1974, last year of the golden era before the

beginning of the civil war.

The Lebanese tourism sector was the best performer on a global scale in 2009,

according to the World Tourism Organization (WTO). The return to politico-security stability

after several years of unrest boosted confidence in Lebanon and encouraged both Arab and

European tourists to visit the country. In addition, Lebanon hosted some major international

events in 2009, among which the Francophonie Games that were the occasion for many

foreigners to discover the country.


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Number of Tourists

0

500,000

1,000,000

1,500,000

2,000,000

2004 2005 2006 2007 2008 2009

Source: Ministry of Tourism

Moreover, the constant efforts deployed by Lebanese entrepreneurs to develop and

invest in the local tourism sector and promote its image seem to have finally paid-off in the

global media. In fact, major international newspapers, TV channels and tourism guides like

the New York Times, CNN, Paris Match and the Lonely Planet named Lebanon as one of the

top destinations in 2009, boosting tourist inflows to the country.

The boom of tourism was one of the major stimulants to growth in 2009. In fact,

tourism constitutes 9.3 % of the Lebanese GDP ($ 3.10 billion) and directly employs 9.6 %

of the labor force (149,800 jobs). Yet, its backward and forward linkages touch indirectly all

sectors of the economy with a multiplier effect that is three times as much in terms of GDP

and employment. Thus, it is estimated that this sector generated in 2009 $9.39 billion, or

28.1 % of GDP, and hired 439,600 people, or 28.1 % of total employment in 2009.

Indeed, the hotel business flourished as shown by the 27.5 % increase in the hotel

occupancy rate that reached 70.9 %, the second highest in the Middle East. In comparison,

the average occupancy rate was 61.3 % in the Middle East, 61.1 % in Europe, 60.7 % in

Asia-Pacific and 55.3 % in the Americas. Moreover, the revenue per available room in local

hotels registered the highest growth in the Middle East and North Africa, surging by 62.1 %

to 145.5 dollars. On the regional level, the revenue per available room retreated by 9.6 % to

124 dollars.

The air transport activity followed a similar trend. The number of passengers at the Beirut

International Airport (BIA) hiked by 22 % to 4.98 millions, a record compared to previous

years. In parallel, the number of flights at the BIA posted a growth of 27.1 % to 57,543.

However, the global economic and financial crisis had a bouncing effect on tourism.

Indeed, the beneficial effect of the upsurge in the number of travelers to Lebanon was

moderated by the growth at a slower pace of tourist spending. The fact that tourist

spending increased by only 13 % when the total number of tourists climbed by more than


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38 % suggests the average spending per tourist has substantially declined, due to the drop

in purchasing power caused by the global turmoil.

C. Construction and Real Estate

The Lebanese real estate sector, a vital driver of the local economy, has managed to

weather the global financial turmoil that harshly hit peer regional markets. By all criteria, its

performance in 2009 was outstanding, even when compared to the exceptional growth of

the construction activity registered in 2008.

Housing demand remains rock-hard and emanates from end-users. Acquiring a

residence is a sign of success and a goal for numerous local and expatriate workers.

Furthermore, the government is subsidizing loans through the National Housing Institute

(NHI) in partnership with commercial banks. The latter also provide their customers with a

wide and growing range of housing loan products and hold 60,000 housing loans in their

portfolios with a total value of $ 3.2 billion. The NHI funds more than half of these loans or

32,450 credits.

Lebanon benefited from the setbacks of global and regional real estate sectors.

When nearly all markets in the Middle East and North Africa plunged, the local real estate

sector appeared to be a safe haven for investors. Many Lebanese expatriates and Gulf

investors converted their holdings into property in Lebanon as real estate purchases by

foreigners surged by 17.6 % in 2009 and some 40 % of loans granted by Banque de

l’Habitat were distributed to non-residents.

Speculation remains limited, as monetary authorities had already set regulations at

end 2008 to immunize the sector against the regional turbulence that took place later on.

BDL capped banking loans funding construction projects at 60 % of the value of the project.

In other words, short-term speculative investments in the real estate sector are limited by

the obligation for developers to self-finance 40 % of their projects’ value.

The combination of local and non-resident demand led to a 2.3 % increase in the

number of real estate transactions that reached 83,622. In parallel, the total value of

transactions rose by 8.3 % to $ 7.015 billion. Since the value of sales augmented at a higher

pace than their volume, the average value of transactions jumped by 5.8 % to $ 83,910,

reflecting a substantial increase in property prices.

Moreover, with the phenomenal upsurge in tourist inflows, it became necessary to

increase the hotel supply in Beirut and other areas. Consequently, many well-known

international chains recently invested several hundred million dollars in the construction of


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new hotels in Lebanon, boosting both tourism and real estate sectors. Three major hotels

were launched during the second half of 2009 and four others are expected to open their

doors between 2010 and 2013, not to mention all the small and medium-sized institutions

that are currently under construction.

Property Sales Transactions ($M)

0

2000

4000

6000

8000

2004 2005 2006 2007 2008 2009

Source: Directorate of Real Estate

As for commercial real estate, it also got its share of price hikes. Four Lebanese

locations appeared among the top ten regional areas in terms of rental prices, according to

a report released by Cushman & Wakefield. Beirut’s downtown, ABC mall Achrafieh, Verdun

and Kaslik came respectively in the second, fourth, fifth and seventh position on a regional

level. Moreover, five Lebanese areas were among the top-ten regional locations in terms of

rents’ increase. Beirut’s downtown ranked first in the Middle East with a growth rate of

80 %. Kaslik came second with 20 %, followed by Hamra (+13.3 %, 4th), ABC mall

Achrafieh (+12 %, 5th) and Verdun (8.35 %, 6th). Globally, Lebanon registered a 26 %

increase in rents, surpassing by far the 0.8 % growth of rental prices on a regional level.

On the supply side, construction activity was vigorous throughout the year, echoing

efforts deployed by developers to match the expansion of demand. The number of

construction permits climbed by 11 % to 15,136 while the total weight of cement deliveries,

another indicator for the building activity, also jumped by 16.07 % to 4.9 million tons.


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Building Permits ( 000 sqm)

0

5,000

10,000

15,000

20,000

2004 2005 2006 2007 2008 2009

Source: Order of Engineers

However, it seems that the tremendous increase of land prices has compelled

property developers to reduce the surface of their projects, as land price now accounts for

more than half of the cost of an apartment. Consequently, while the number of construction

permits rose by 11 %, construction area fell by 11 % to 14.33 million square meters (sqm),

entailing a 19 % drop in the average area per transaction to 947sqm.

Average Area per Transaction (sqm)

700800900

1,0001,1001,200

2006 2007 2008 2009

Source: Order of Engineers


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Land prices mainly hiked in Beirut where available land for new building represents

less than 10 % of the city’s area. Thus, developers shifted to Mount-Lebanon that captured

80 % of loans granted by the National Housing Institute as well as a 47 % stake of total

construction space followed by the North region with 19.9 %.

However, despite the country’s resilience to external shocks, the strong economic

performance and the return to political stability, Solidere’s shares did not regain their July

2008 peak of 40 $ since they were indirectly affected by the global and regional crisis

through two channels. As a matter of fact, many investors liquidated their holdings of the

company’s shares because they were in need for cash to cover their losses on regional and

international markets. Moreover, Solidere is developing several projects in the Middle East

and was exposed to the trials of the regional market, especially after Dubai’s debt problems.

These two factors curbed the rebound of Solidere’s shares and limited their growth.

Box 1:

A shift towards small and medium-sized apartments

The exponential increase of real estate prices will probably entail a shift towards the

construction of small and medium-sized apartments, especially in Beirut and its close

suburbs, to meet the needs and financial constraints of the middle class. Large apartments

located in the capital and its near periphery are becoming unaffordable for middle-class

employees as shown by the following scenario:

We consider a 150 square meters apartment, priced at $2,000 per sqm, way below the

average of $3,000 price in Beirut. In a baseline scenario, a prospective buyer would make a

20 % down payment and contract a classical 16-years loan. Interest rates on these types

of loans are defined as 40 % of the interest rate on T-bills for 1 year + 3 % and currently

reach 5.26 %. Given that the buyer will have to subscribe to a life insurance policy, his

monthly payment will reach $ 1,068 during the one-year grace period and $ 1,960 starting

from the second year. Thus, his monthly salary must be as high as 6,000 $, that is 20 times

the minimum wage and much more than the average income of members of the middle

class.

Banks are trying to circumvent this hurdle by lengthening loans maturities. As a result, we

are now witnessing the appearance of loans with maturities up to 30 years, a phenomenon

that was unthinkable 2 years ago.


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Although the skyrocketing real estate prices seem as a bubble that is going to burst

at some point in time, we think that prices went through a correction movement in 2009,

since properties in Lebanon have been undervalued for several years, due to politico-

security risks. This price increase is due to a brisk increase in demand with the supply taking

some time to adjust.

The real estate sector will probably continue to expand during 2010 before the

market starts to get saturated and the prices to level off. No burst is expected as demand is

generated by real housing needs and will remain solid, especially that numerous bank

funding solutions are available. Both demand and supply will probably soar furthermore,

Box 2:

Solidere Shares, an Indicator of The Real-Estate Activity

Construction Permits and the Price of Solidere's Share

-1,000,0002,000,0003,000,0004,000,0005,000,0006,000,000

Jan

-04

Jul-04

Jan

-05

Jul-05

Jan

-06

Jul-06

Jan

-07

Jul-07

Jan

-08

Jul-08

Jan

-09

Jul-09

Jan

-10

010203040

Construction permits (sqm) Solidere Shares

Sources: Order of Engineers, Bloomberg

The real-estate activity in Lebanon depends heavily on the politico-security stability that is

frequently reflected by Solidere’s share evolution. An improvement in the political situation

usually translates into an upsurge in the shares of the national real-estate titan that

automatically drop following any deterioration or crisis. Hence, the fluctuations of Solidere’s

shares seem to be a reliable leading indicator of the construction activity. The above graph

shows that construction permits follow almost the same path as Solidere shares with an

average lag of six months. For instance, as Solidere’s A Classe share peaked at $ 37.17 in

June 2008, constructions permits reached a record of 5,265,200 square meters six months

later, in December of the same year. And when Solidere’s A Classe share bottomed at

$ 14.71 in January 2009, construction permits reached a trough of 556,405 sqm just six

month later, in July 2009.


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following the anticipated decline in interest rates that will lower the cost of borrowing and

encourage households to invest in real-estate, due to the decline of deposits’ yields.

Moreover, in spite of the great number of projects under construction and of the

multiplication of actors, the local property market still offers priceless development

opportunities. Even if the upscale and luxurious residential segment –the main engine of the

sector currently- comes to saturation, developers could easily shift to middle-class housing

projects and to tourism related projects, such as hotels, as these parts of the market are still

under-exploited and have a great potential of growth.

D. Agriculture and Manufacturing Sectors

The performance of the local agriculture and manufacturing sectors was quite

mitigated in 2009, due to two factors: the global retreat of consumers’ purchasing power

and the vitality of local demand.

On one hand, with consumers in the Middle East and other areas losing purchasing

power due to the economic crisis, the erosion of the regional and international demand

depressed both industrial and agricultural exports. The former fell by 11.6 % to $ 2.64 billion

while despite the restoration of the Export Plus program, the latter also dropped by 7.23 %

to $ 154 millions. This is not due to a price effect, since the volume of agricultural exports

also decreased by 10.75 % to 567,458 tons.

Industrial Exports ($M)

0

1,000

2,000

3,000

4,000

2004 2005 2006 2007 2008 2009

Source: Ministry of Industry

On the other hand, the two sectors were stimulated by a zestful consumption

propped up by the vitality of local demand. This more than offset the effect of the drop of

regional demand on the local primary and secondary sectors.

Consequently, the combination of the two factors led to a positive performance

throughout the year. As a sign of the steadiness of the secondary sector, industrialists even


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doubled their imports of industrial machinery that increased by 5.96 % to $ 200 million, an

indicator of investments in the industry.

However, the contribution of the two sectors to GDP remains quite small due to a

set of structural problems that have been marring the primary and the secondary sectors for

decades. Industry contributes 9% to the GDP while agriculture’s share is below 6 %.

In fact, agriculture faces a series of challenges related to human resources,

technology, regulation and environmental issues. This sector suffers from an inadequate

irrigation infrastructure, lack of skilled workers and automation, scarce private investments,

rampant urbanization, rural depopulation, obsolete practices, uncompetitive crops

encouraged by inefficient subsidies, fierce competition from neighboring countries as well

as pollution, inappropriate use of pesticides, depletion of groundwater, and soil erosion.

Industrial Machinery Imports ($M)

050

100150200250

2004 2005 2006 2007 2008 2009

Source: Ministry of Industry

Industry’s expansion is undermined by similar problems, namely the deficient

infrastructure of transports, exorbitant energy costs and insufficient electricity supply,

competition from products of energy-subsidizing countries, absence of industrial clusters,

high prices of land, lack of investments, and migration of skilled technicians and workers.


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Nevertheless, some agricultural or industrial niches are starting to attract significant

private investments. The development of activities like organic farming and software

development is progressively triggering a shift towards a modern, high value-added and

competitive agriculture and industry.

Box 3:

The Belgian Example

Country Area (km2)

Population GDP in 2009 ($ billion)

Exports in 2009

($ billion)

Imports in 2009

($ billion)

Debt-to-GDP ratio in 2009

Lebanon 10,452 ~4,000,000 33.427 3.48 16.24 152.84 % Belgium 30,528 10,827,519 444.67 350 332.64 95.40 %

Belgium can serve as a model for Lebanon in terms of economic specialization and foreign

trade. In fact, this relatively small European country with almost no natural resources since

the depletion of its coal reserves is one of the strongest and most dynamic international

exporters. Belgium emerged as the world leader in terms of exports per capita with almost

25,000 euros of exports per resident in 2009, compared to $14,300 for Germany, the second

world exporter in absolute terms, just behind China. Its total exports even mount up to

almost three quarters of its nominal GDP and reached 265 billion euros in 2009. This is

mainly due to the strategic position of Belgium in the center of Europe but also to its skilled

labor force, its specialization in diversified panel of high value added activities, its well

developed transportation infrastructure and its numerous IT facilities. With an industrial

tissue primarily formed of small and medium-sized enterprises, Belgium massively imports

semi-finished goods, raw materials and fuels. In return, it exports, mainly to EU countries,

finished products as well as components that enter in the production of manufactured

goods. The country’s chief exports are chemicals and pharmaceutical products (27 %),

machinery (11.5 %), transport equipment (10.1 %), plastics (7.9 %), mineral goods (7.7 %),

base metals (7.7 %) and foodstuffs (4.7 %).

Lebanon could reiterate the Belgian experience as its position in the Middle East is strategic

and its labor force is highly skilled, thanks to a developed educational system. However,

building a trade model based on exports of high value added manufactured goods, requires

heavy investments in the transportation and ICT infrastructure that remain deficient in

Lebanon. It will also be necessary to foster the creation of industrial clusters by granting

incentives to the private sector. Finally, it will be indispensable to improve the business

environment by establishing a transparent regulation framework, eliminating bureaucratic

obstacles, improving access to financing and encouraging sound governance practices.


S A L


20

In any event, Lebanon will not be able to compete with peer countries in the region

in low value added and energy-intensive industries, as the high energy cost, compared to

Gulf countries, and high labor costs compared to neighboring countries put the country at

disadvantage. In fact, most neighboring countries subsidize through direct or indirect

channels the energy consumption of their industrial sectors. Hence, Lebanon has to shift to

high skilled labor intensive industries with high value added that can constitute a

competitive niche for its industrial exports.

III. External sector

Aside from the structural trade deficits in goods, the external sector recorded a

solid performance in 2009. The balance of payments achieved a hefty surplus of $ 7.89

billion or 23.61 % of GDP. Consequently, BDL’s net foreign assets increased by $ 8.6 billion

to $ 25.26 billion, while commercial banks’ net foreign assets retreated by $ 794 million

following massive conversions to Lebanese pounds. Foreign reserves of the Central Bank

reached $28.3 billion (excluding gold) as of end December, compared to a corresponding

figure of $19.7 billion in 2008 - thus raising the goods imports cover to a comfortable 21

months, well above the 4 months considered adequate.

Balance of Payments

02000400060008000

10000

2005 2006 2007 2008 20090

10

20

30

BoP ($M) BoP (%GDP)

Source: BDL

A. Current Account

As far as the current account is concerned, its deficit is estimated to have slightly

narrowed to less than $ 2.9 billion. In fact, trade deficit virtually stabilized while the surplus

in services probably expanded substantially in H2 2009 in spite of a drop in H1, following

the boom in tourism. This probably compensated the slump of net income from abroad that

shrunk by 178 % during H1 2009 as well as the anticipated minor deterioration in current

transfers, given the stabilization of remittances and a likely increase in transfers by

immigrant workers above their 2008 level of $ 3.02 billion.


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21

Regarding the balance of trade, the persistent trade deficits in goods, or resource

gaps, that have continuously characterized the Lebanese economy, slightly increased in

2009 by 0.78 % to $ 12.75 billion∗. This is primarily due to low exports that advanced by only

0.17 % to $ 3.48 billion, and perhaps the absence of an effective industrial policy. In

addition, a favorable domestic climate drove consumption and imports more than what the

figures actually convey, mainly because of the reduction in the price of primary

commodities, which fell by 31 % year-on-year. This translated into a 17 % increase in the

volume of imports to 14.64 million tons over and above the recorded 0.65 % increase in

their value that reached $ 16,24 million. What backs up this assertion is that port container

activity increased by 5.2 % in 2009 to reach 994,601 – a clear indication of a higher level of

imported goods.

The evolution of exchange rates also played a significant role in pushing imports up

and exports down. The average nominal effective exchange rate (NEER) appreciated by

2.83 % in 2009 to 94.01, tracking the evolution of the average dollar-euro exchange rate that

climbed by 5.88 % to 0.72 € /$. Hence, the purchasing power of Lebanese consumers

increased while the cost of exports bounced, triggering, as mentioned above, an expansion

in imports and a standstill in the value of exports.

Except for pearls, precious stones and the wine industry, Lebanon does not have

positive net exports (exports minus imports) in any product category so as to trace any

potential comparative advantage. Just like in 2008, mineral products –mainly oil derivatives-

represented the first item of Lebanese imports with 20 % or $ 3.32 billion followed by

transport equipments, especially cars, (15 % or $ 2.40 billion) and machinery and electrical

equipment (12 % or $ 1.93 billion). In terms of exports, pearls and precious stones ranked

first with 32 % or $ 1.09 billion tracked by machinery and electrical instruments (15 % or

$ 509 million) and base metals (9 % or $ 314 million).

∗ The above-mentioned values of imports, exports and trade deficit are calculated based on figures provided by Customs.


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22

Trade Balance

0

5,000

10,000

15,000

2004 2005 2006 2007 2008 2009

Source: Customs

Surprising is that trade performance appears to depend on domestic policies and

corporate practices as much as it depends, if not more, on free trade treaties and WTO

memberships. Switzerland constituted the number one destination for Lebanese exports (at

22 % or $ 555 million), though it is not a partner to the EU-Mediterranean free trade

agreement. The United Arab Emirates (10 % of exports or $ 501 million) and Iraq (8 %, or

$ 408 million) were respectively the second and third destinations of Lebanese exports.

Among Lebanon’s suppliers, the United States came first with 11 % ($ 1.76 billion), followed

by France (10 %, $ 1.57 billion) and China (9 %, $ 1.44 billion).

Better still, the favorable context, coupled with almost a halt to the negative

conditions in the external environment during H2, improved tourist receipts and along with it

the trade surplus in services that is estimated to have exceeded its 2008 level of $ 5.28

billion. Remittances were minimally affected by the global turmoil, retreating by a trivial

1.4 % level to $ 7 billion or 20.94 % of nominal GDP against a global average of 1.8 %. In

comparison, remittances to developing countries are estimated to have fallen by 6.1 %

while transfers to Egypt slid by 20 % in H1 and those to Morocco plunged by a similar rate

during the first 8 months of 2009.

B. Capital Account

Given that the current account registered a deficit close to $ 3 billion and that the

balance of payments displayed a surplus of $ 7.89 billion, the net capital flows must have

reached close to $ 10.5 billion in 2009. What is interesting is that in terms of capital inflows,

the banking sector alone received $ 5.06 billion in foreign liability deposits in 2009, against

$ 1.93 billion in 2008. In other words, despite the stoppage of the financial hemorrhage

globally by mid 2009, financial inflows continued to come Lebanon’s way throughout the

year, no doubt assured by the safety and liquidity of its banking system and the increasing

spread on its deposits – 2.50 % over 3M-$Libor as of December 2009.


S A L


23

Another sizable flow in this context is foreign direct investment (FDI), which has

been mostly directed towards real estate, tourism and financial services sectors. FDI is

estimated to have increased from its 2008 level of $ 3.6 billion to reach $ 4 billion,

emanating mainly from Arab countries, as the government is stepping up its efforts to

improve the investment environment.

IV. Public Finance Sector

A- Fiscal Balance

Even if no progress was made regarding structural reforms, some favorable

outcomes were registered on the fiscal front in 2009. In absolute terms, fiscal deficit

remained relatively stable and augmented by only 1.31 % or $ 38.47 millions to $ 2.96

billion, from $ 2.92 billion in 2008. This slight increase resulted from the $ 1.466 billion extra

spending that were almost offset by the $ 1.427 billion jump in receipts.

In relative terms, the fact that revenues have climbed at a higher pace than both

payments and nominal GDP triggered a drop in public deficit. Total revenues have surged by

20.62 % in 2009 while total spending advanced by 14.77 % and nominal GDP grew by

11.4 %. Consequently, the ratio of deficit to GDP dropped to 8.85 % from 9.76 % in 2008

and the ratio of deficit over expenditure fell by more than three percentage points to 26 %.

Correspondingly, the primary surplus hiked by 80.55 % to $ 1.078 billion, or 3.22 %

of GDP compared to 1.99 % in 2008. This significant upswing resulted from the increase in

total receipts that exceeded the $ 947 million rise in primary expenditures.

However, the primary surplus could have been much higher, would the government

not intensify its monetary sterilization. To preserve the peg and sponge extra liquidities

generated by massive financial inflows and conversions to Lebanese pound, BDL had to

issue costly Certificates of Deposits while the government over financed its budget deficit,

as shown by the accumulation of more than $ 6 billion in public deposits with the Central

Bank. This sterilization policy measures resulted in a 16.68 % increase in interest payments

that eroded the benefits of a high primary surplus and caused a substantial rise in public

debt.


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24

Public Expenditures and Revenues

0

5,000

10,000

15,000

2004 2005 2006 2007 2008 2009

Total Expenditures ($M) Total Revenues ($M)

Source: Ministry of Finance

B. Spending

Outlays recorded a high increase in 2009, driven by personnel costs, interest

payments and several transfers, mainly to the National Social Security Fund (NSSF),

hospitals, and High Relief Committee (HRC). Total expenditures rose by 14.77 % to $ 11.38

billion or 34.04 % of nominal GDP, compared to 33.14 % in 2008.

The breakdown of payments shows that the highest increase of all items was

registered by the personnel cost that surged by 24.33 % to $ 3.27 billion. This inflation of

the State’s payroll resulted mainly from the LBP 200,000 wage increase decided by the

government for all public servants and private sector employees. In parallel, interest

payments surged by 16.68 % to $ 3.83 billion. This increase was powered by a 28.66 %

upsurge in domestic interest payments that reached $ 2.43 billion due to the over

indebtedness of the State justified by the requirements of the sterilization policy.

The burden of debt service was weighed by the BDL’s decision to allow only a

limited decline in interest rates that were maintained at high levels, in order to secure the

financing of budget deficit and accumulate foreign reserves. Fearing a reverse trend that will

make it more difficult for the State to raise funds on financial markets, the monetary

authorities didn’t cut interest rates significantly in spite of colossal capital entries and the

global drop of interest rates. This strategy provided Lebanon with a comfortable cushion of

liquidities but kept the cost of borrowing for enterprises at a high level, discouraging private

investments.

As for transfers to Electricité du Liban (EDL), they retreated by 7 % to $ 1.5 billion, due to

the drop in oil prices. More than 94 % of these transfers are payments to KPC and

Sonatrach, EDL’s fuel suppliers, pertaining to consumption made during the second half of

2008 and the first half of 2009. Oil prices prevailing during this period were much lower than

those between mid 2007 and mid 2008. This explains the decrease of transfers that will


S A L


25

probably climb again during the second half of 2010, following the recent upward trend in

oil prices.

Transfers to EDL

0500

1,0001,5002,000

2005 2006 2007 2008 200905101520

EDL transfers EDL transfers /Total Expenditures


It is worth mentioning that the structure of public expenditure is quite rigid since the

rising debt and the steady increase of its service don’t allow the State much room for

maneuver. The government is bound to structure its expenditures in a way to register a

relatively high primary surplus, so as to stamp out its debt dynamic and honor its financial

Box 4:

EDL: A Double Deficit

In the absence of a major reform to the energy sector, EDL suffers from a double deficit,

both in terms of electricity production and financial results.

The national electricity company produces 1,500 to 1,800 megawatts hour (MWh) per year,

while the consumption of the population reaches 2,500 to 3,000 MWh and is expected to

grow at an annual rate of 8 %. Consequently, Lebanon’s electricity deficit ranges between

28 % and 50 % of demand and causes shortfalls estimated between $ 2.5 and $ 5 billion in

economic activity.

On the financial level, EDL suffers from a structural deficit and was able to pay only 8.3 %

of its fuel bill. Consequently, the Treasury continued to finance the company through

transfers that amounted to $ 1.5 billion in 2009, or 4.48 % of GDP and 20.4 % of primary

expenditures. These transfers dropped 7.03 % from their 2008 level due to exogenous

factors related to a fall in oil prices. Moreover, a simple breakdown reveals that payments

to EDL’s fuel suppliers, Sonatrach and KPC, represented 94.33 % of total transfers while

the debt service accounted for the remaining 5.67 %.


S A L


26

obligations towards its creditors. This policy seems to be inevitable at medium term or until

reforms aiming at streamlining public finances are conducted and start to pay out. Yet, it

drastically limits public investments since capital expenditures represent only 3.2 % of total

spending and 1.09 % of nominal GDP.

C. Revenues

Revenues rose 20.4 % year-on-year to $ 8.424 billion following an upsurge in both

tax and non-tax revenues. The former constituted 70.6 % of total government revenues and

reached $ 5.95 billion or 17.79 % of GDP, revealing a growth of 24.9 %. The latter have

been equally successful and shot up by 17.5 % to $ 2.035 billion, mostly following a 21.1 %

upsurge in government property revenues to $ 1.629 billion. The fact that tax revenues

climbed at a higher pace than nominal GDP in the absence of any major tax increase reflects

a solid improvement in collection.

In details, the receipts of three major components of tax revenues, namely income

tax, value-added tax (VAT) and taxes on international trade, improved significantly. The

proceeds of income tax reached $ 1.22 billion or 14.48 % of total revenue, increasing by

17.6 % from 2008. This probably resulted in part from the LBP 200,000 increase of salaries

granted by the government to all local employees. Furthermore, the income of VAT and

taxes on international trade jumped by 11.8 % and 67.8 % respectively to $ 1.916 billion and

$ 1.76 billion. In particular, excise taxes totaled $ 1.260 billion in 2009, 109.8 % higher than

a year earlier, led by a 790 % rise in revenues from fuel excises and a large increase in the

value of imported cars and alcoholic beverages, where a minimum excise amount per tank

was set by the Council of ministers in January irrespective of international price changes.

These figures show that indirect taxes (VAT and international trade) brought in more than

43.6 % of total revenues. Thus, the resort to these taxes has proven to be fertile and easy to

collect and administer.

Concerning non-tax revenues, the most prominent item is telecom transfers that

yielded $ 1.357 billion or 16.11 % of total revenues. Telecom transfers registered an 18.5 %

increase from last year, following an aggressive strategy by the ministry of

Telecommunication comprising reduction in prices, expansion of the network, and enlarging

the bundle of services provided to customers.


S A L


27

Box 5

Telecom: a Dramatic Lag

Investements in the Telecom Sector & Penetration Rate of Mobile Phones in Lebanon

0

30,000,000

60,000,000

90,000,000

120,000,000

150,000,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0102030405060

(in %)

Investments in the Telecom Sector ($)Penetration Rates of Mobile Phones (%)

Source: World Bank

Major structural reforms are urgently needed in the telecom sector through the

liberalization of the telephony market, the privatization of mobile phone operators, the

development of the internet infrastructure, the modernization of the regulation framework,

etc. In fact, the Lebanese telecom sector that contributes to 9.5 % of GDP remains

underdeveloped by all major indicators. The country ranked 14th among 19 Arab countries

in terms of connectivity in a report published by the Arab Advisors Group. Moreover, the

International Telecommunication Union (ITU) classed Lebanon at the 167th position among

207 countries and at the 16th position among 20 MENA countries in terms of mobile phone

penetration. Lebanon also ranked 63rd on a global level and 3rd in the region in terms of

Internet penetration.

In fact, penetration rates of information and communication technologies (ICTs) in

Lebanon remain quite low. While the average monthly cost of a Lebanese prepaid mobile

phone card is the second highest in the Arab world, the local mobile penetration rate

reached 57 % in 2009, against 208.64 % in the UAE.

Furthermore, investments in the telecom infrastructure in Lebanon remain unbelievably

low, which seriously damages the quality of services provided to users. According to the

World Bank, Lebanese public and private investments in telecoms were null between

2003 and 2008, while Jordan invested the equivalent of 0.45 % of its GDP in this sector in

2008. On a cumulative basis, only $ 673.8 million where invested in the Lebanese ICT

infrastructure between 1994 and 2008 against $ 3.26 billion in Tunisia.


S A L


28

In this context, it is perhaps true that these raw numbers do not lend support to

privatization of the telecom sector. At an approximate price tag of $6 billion, the resulting

sales revenue – if all of it is used to reduce the public debt- will save interest payments of

$ 450 million (at 7.5 % interest rate) while current telecom receipts are twice as much. But

these calculations miss the following: most crucially, that close to 40 % of telecom receipts

are in the form of excise taxes that would accrue to the government in either case; the tax

on corporate profits that would be generated on the income of the privatized telecom

companies; the efficiency gains to the economy and their indirect multiplier effects from the

presumed benefits of privatization; and the crowding-in effects from lower debt burdens

and interest rates.

D. Public debt

The ratio of public debt to GDP continued its decline in 2009 reaching 152.84 %

compared to 157.06 % in 2008. Yet, this ratio is still one of the highest in the world and

reflects the vulnerability of Lebanon’s public finances. Overall, total gross debt rose 8.6 %

to $ 51.09 billion and total net public debt totaled $ 44.11 billion, increasing by 6.3 % year-

on-year.

The composition of public debt barely changed between 2008 and 2009. Foreign

denominated debt advanced slightly, increasing by a shy 0.52 % to $ 21.26 billion or

41.61 % of total gross debt, compared to 44.97 % at of end-December 2008. As for the

debt in local currency, it jumped by 15.30 % to $ 29.83 billion or 58.4 % of total gross debt,

from 55.02 % the year before.

The bulk of the public debt in Lebanon is held by commercial banks that remain

willing to purchase and roll over government securities. These banks held 58.4 % of total

debt, followed by BDL with 19.4 % and financial institutions and individuals with 10.6 %,

whereas concessional loans represented 5.8 %. Moreover, residents held 88.4 % of total

debt.


S A L


29

Holders of The Local Currency Debt

BDL23%

Commercial Banks60%

Public entities14%

Miscellaneous 3%


Holders of The Foreign Currency Debt

Miscellaneous 15%

Bilateral, Multilateral and Foreign Private Sector Loans

8%

Paris II Related Debt15%

Paris III Related Debt6%

Commercial Banks56%


Lastly, what matters ultimately for reducing the debt-to-GDP ratio is having the rate

of nominal GDP growth larger than the interest rate – a condition that was satisfied in 2009

as this ratio fell by 2.68 %. So, in this context, the fundamental concern should be

maintaining growth momentum in an environment of moderate interest rates.

Public Debt

0

20000

40000

60000

2005 2006 2007 2008 2009120140160180200

Public Debt ($M) Public Debt (%GDP)


All in all, the management of the public debt in Lebanon remains passive. Although

a department for public debt management (PDM) has been created in the Ministry of

Finance (MoF), it is not operational yet. Hence, debt management comes down to paying


S A L


30

interests on time and issuing Eurobonds when needed. Moreover, issuance of Tbills is

being managed more by the Central Bank than by the MoF. BDL is intervening on the

secondary market to trade Eurobonds for monetary purposes. This intervention is helping

guarantee the liquidity of government securities and improving the accuracy of their pricing.

V. Monetary Sector

On the monetary front, 2009 was characterized by abundant capital inflows mostly

converted to Lebanese pounds that triggered an expansion of broad money aggregate and

put severe pressure on banks’ profitability. This pushed the Central Bank to act

simultaneously on three different fronts, pursuing sometimes-conflicting goals. First, BDL

intervened on the exchange market, buying dollars and increasing rapidly its foreign

exchange reserves so as to strengthen its ability to defend the anchorage. Second, it

adopted a sterilization policy aiming at sponging liquidities, and trying at the same time to

offer alternative investment opportunities to the banking sector through encouraging

lending to the private sector and issuing CDs and T-bills. Third, it followed an

accommodative monetary policy, allowing an easing of interest rates, to lower the cost of

financing for the real sector, prop up growth and reduce pressures on banks’ profitability

margin, thus triggering an expansion of money supply.

A. Money supply

Strong capital inflows in the fourth quarter of 2008 and throughout 2009 due to the

financial crisis as well as the global and local ease of interest rates fueled a 19.54 %

increase of the broad monetary aggregate M3 to $ 82.07 billion. Consequently, money

continued to be over-supplied in 2009, pushing domestic interest rates lower in the context

of the improvement of Lebanon’s sovereign risk status.

In details, money supply data shows that deposits in Lebanese pounds surged

42 % in 2009 to reach $ 31 billion while savings in foreign currencies added 9 % to $ 66.18

billion. Hence, the dollarization rate of deposits dropped by 4 percentage points between

January and December to 64.5 % whereas that of loans slightly retreated to 84 %, thus

putting more pressure on banks stuck with their Lebanese pound deposits. The dollarization

rate of broad money in circulation fell a yearly 5.55 percentage points to 58.38%.


S A L


31

M3 Growth (%)

05

10152025

2004 2005 2006 2007 2008 2009

Source: BDL

The combination of large capital inflows and the drop in dollarization rate of

deposits generated an expansion of the counterparts of money supply. It pushed central

bank reserves (foreign currencies excluding gold) to a record high of $ 28.3 billion at end of

December 2009, an increase of 43 % compared to end 2008. If we include the value of gold

held by BDL, these reserves reach $ 38.36 billion. This increased the Central Bank’s capacity

to defend the peg and inspired confidence to the markets.

B. Money Market

Lebanese Interbank Rate (end-of-period, %)

05

10

1520

Jan

-00

Jul-00

Jan

-01

Jul-01

Jan

-02

Jul-02

Jan

-03

Jul-03

Jan

-04

Jul-04

Jan

-05

Jul-05

Jan

-06

Jul-06

Jan

-07

Jul-07

Jan

-08

Jul-08

Jan

-09

Jul-09

Source: BDL

Voluminous capital inflows in foreign currencies provided financial institutions with

sufficient liquidity in the short and even medium term. The abundance of liquidity coupled

with massive conversions to the Lebanese pound led BDL to cut the overnight inter-bank

rate repeatedly throughout the year. The central bank lowered this rate by 0.5 percentage

points in January to 3.5 %, from 4 % in December 2008. BDL reduced again the inter-bank

rate by 25 bps to 3.25 % in August and set it at 3 % in December 2009. These successive

cut downs are in phase with BDL’s strategy aiming at lowering interest rates in the

economy and encouraging lending for individuals and companies, as the inter-bank rate is a

benchmark for the cost of lending and the remuneration of deposits.


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32

C. Treasury bills market

Given the high capital inflows and the accommodative monetary policy adopted by

BDL, the Lebanese yield curve maintained its gradual fall since the end of November 2008.

Accordingly, 2Y T-bill rates lost 250 bps, the most in 2009 to 6.32 %, followed by 3Y and 1Y

fixed income instruments with respective losses of 188 bps and 184 bps to 7.10 % and

5.73 %. As for lower yielding short term papers, 6M treasury rates dropped 139bps to

5.72 % and 3M yields fell 55bps to 4.55 %.

Monthly Average 2-Year TBs Yield (%)

05

101520

Jan

-00

Jul-00

Jan

-01

Jul-01

Jan

-02

Jul-02

Jan

-03

Jul-03

Jan

-04

Jul-04

Jan

-05

Jul-05

Jan

-06

Jul-06

Jan

-07

Jul-07

Jan

-08

Jul-08

Jan

-09

Jul-09

Source: BDL

Interest rates were pushed lower by the solid demand for Lebanese government

TBs that remained consistently high through 2009. Commercial banks stayed as Treasury

bills’ main subscribers capturing 60.09 % of the total, tracked by BDL with a 22.53 % stake

and public institutions with 13.63 %.

In the absence of a secondary market for T-bills due to frequent periodic issuance,

BDL continued to use the primary market to manage liquidity. During H1, it increased

steadily its portfolio of T-Bills to cover the cost of its highly remunerated medium term CDs

(5-7 years) that were issued for sterilization purposes with interest rates hovering around

9 %. Consequently, BDL’s portfolio of T-bills increased steadily during H1, reaching $ 6.98

billion in June from $ 6.34 billion in March and $ 5.82 billion in December 2008. This caused

the money supply to expand, in contradiction with BDL’s sterilization policy.

Later in the year, following the suspension of the emissions of 5-years CDs, BDL’s

drastically limited its purchases of T-bills to curb the expansion of money supply and avoid

inflationary pressures. Thus, BDL’s portfolio of T-bills decreased from $ 6.98 billion in June

to $ 6.85 billion in December.


S A L


33

BDL 's Portfolio of Securities

02468

1012

Jan

-00

Jul

-00

Jan

-01

Jul

-01

Jan

-02

Jul

-02

Jan

-03

Jul

-03

Jan

-04

Jul

-04

Jan

-05

Jul

-05

Jan

-06

Jul

-06

Jan

-07

Jul

-07

Jan

-08

Jul

-08

Jan

-09

Jul

-09

Source: BDL

D. Monetary policy

1. Interest rate policy:

In the context of large capital inflows, the Central Bank took several measures to

alleviate the cost of de-dollarization on the banks. BDL started to allow a smooth decline in

interest rates so as to encourage demand for credits. Consequently, the spread with US

benchmark started to decline after it reached high levels in the wake of the global financial

crisis.

The fact remains that a strategy based on accumulating reserves infinitely while

maintaining high interest rates (even after their modest decline) is not sustainable in the

long term. High interest rates are damaging the economy and slowing-down investments by

Box 6:

Treasury Bills: A New Maturity

In order to create a yield curve in LBP and to replace BDL’s issuance of medium term CDs,

the Ministry of Finance introduced a 60-month Treasury Note in the Treasury Bill Auctions on

one hand and rescheduled primary market’ auctions timing on the other.

In details, the Treasury alternated its weekly Thursday auction held across maturities in two

separate lots. The Ministry of Finance started to issue three, six and sixty month TBs every

two weeks starting 23 July 09, and twelve, twenty-four and thirty-six month papers each

couple of weeks beginning July 16. Moreover, auctions were transferred to Mondays.


S A L


34

causing borrowing to be expensive while banks are having a hard time finding investment

opportunities with reasonable risks.

Hence, BDL will have to adopt a new strategy focusing mainly on being more

aggressive in reducing interest rates, even if such an evolution could translate into a decline

of its reserves. This would stabilize deposits in compliance with the capacity of absorption

of the economy, deter hot money inflows, increase the demand for loans, strengthen the

profitability of banks without any need for costly CDs issuance and stimulate economic

growth. Therefore, BDL has to start adopting a new discourse focusing more on interest

rates rather than on reserves, so as to educate the public and financial markets and

maintain their confidence in the Lebanese pound and the local banking system, regardless

of the evolution of reserves.

Lebanese Benchmark

2%

4%

6%

8%

10%

3M 6M 12M 24M 36M

Dec 08 Dec 09

Source: BLOMINVEST Bank

Spread LBP - USD Deposits

2.5

3.0

3.5

4.0

4.5

2005 2006 2007 2008 2009

Source: ABL

2. Reserve requirements policy: In line with its strategy aiming at providing banks with alternative investment

opportunities, BDL developed credit incentives by issuing several circulars to encourage

lending both in Lebanese pound and foreign currencies. In May 2009, it issued three

circulars related to the reduction of reserve requirements on the equivalent amount of loans


S A L


35

awarded by banks in Lebanese pound to the health, education and commercial sectors as

well as housing and student loans. The circulars abolished all and 60 % of reserve

requirements on equivalent subsidized and non-subsidized loans respectively. It also

amended its subsidy program that have benefited to industrial, high-tech, agricultural and

tourism companies since 1997. Prior to the publication of the circulars, business groups,

including their subsidiaries, were entitled to borrow a maximum of LBP 15 billion. Starting

May 2009, each commercial group was authorized to borrow a maximum of LBP 15 billion

per activity, with a cap of LBP 60 billion for the entire group.

Another set of circulars was issued in June, to encourage lending in foreign

currencies. BDL reduced reserve requirements by 200 % of the equivalent amount of loans

provided in foreign currencies to environmentally friendly non-subsidized projects. The

Central Bank also lowered reserve requirements by 100 % of the equivalent amounts of

loans in Lebanese pounds granted respectively to the National Housing Institute and to

microfinance organisms. Reserve requirements were also reduced by 60 % of the

equivalent amounts of housing loans provided in Lebanese pounds, in compliance with a

set of predefined conditions. Finally, a circular issued in December cut reserve requirements

by 80 % of the equivalent amounts of loans provided in Lebanese pounds to Banque de

l’Habitat.

All in all, the accommodating monetary policy implemented by the Central Bank is

estimated to have generated more than LBP 1,000 billion in extra credits and to have

contributed to economic growth by 0.5 to 1 percentage points.

3. Exchange rate policy: In 2009, BDL continued to adopt an exchange rate policy based on the peg. The

stability of the banking sector and the maintenance of high differential interest rates with

developed countries led to large capital inflows thus putting pressure for the appreciation of

the Lebanese pound. In this context, the BDL adopted a sterilization policy and absorbed

the huge excess of foreign currencies with the exchange rate stabilizing at the lower band

of the peg between 1500-1501 LBP/$.


S A L


36

VI. Banking Sector

A. Deposits

During the last couple of years, the banking sector in Lebanon managed to weather

the global financial crisis that started in October 2008. It has proven to be a safe haven for

local and regional investors who perceived the aforementioned sector as the strongest and

the most secure in the region. This drove Lebanese banks to gain momentum for the

second consecutive year in 2009.

Capital inflows and remittances generated primarily from Lebanese expatriates in

the Gulf fueled a substantial upsurge in bank deposits. Despite the global financial and

economic turmoil, remittances remained stable at roughly $ 7 billion. Consequently, both

resident and non-resident private sector deposits at Lebanese commercial banks soared

23.1% in 2009 from a year earlier to hit a record of $ 95.76 billion, pushing total assets to

surge 22.3 % to reach $115.3 billion, accounting for more than three times of the nation’s

gross domestic product. As for non-resident private sector deposits alone, they rose

substantially by 44 % in 2009 to $16.5 billion, representing 17 % of total deposits.

Non-Resident Private Sector Deposits ($M)

0

5,000

10,000

15,000

20,000

2005 2006 2007 2008 2009

Source: BDL

Worth mentioning that the dollarization rate of private deposits fell from 69.6 % in

2008 to 64.5 % last year prompted by the depressed interest rates worldwide and the

widening yearly average spread on LP–US dollar deposits from 3.55 % to 3.8 % as local

political stability and larger spreads over international rates improved investors confidence

in the domestic currency.


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37

Dollarization of Private Deposits (%)

50556065707580

2005 2006 2007 2008 2009

Source: BDL

B. Profits

Nonetheless, the influx of global liquidity put a pressure on profit margins of the

banks. The liquidity increase notwithstanding, the effect of declining spreads (between

return on the uses of funds and return on deposits)- from a peak of 2.50 % on dollar

accounts in October 2008 to 1.53 % in December 2009- put some serious downward

pressure on interest margins of all banks with those of the top 12 banks rising 4.15 % in

2009 versus a growth of 32 % in the previous year.

Consequently, the Alpha banks group, i.e Lebanese banks with deposits over

$2 billion, reported a rise of 19.3 % in profits to $1.29 billion as compared to a 31.85 %

growth in 2008. As for the whole sector, the growth of banks’ profits decelerated in 2009,

and is estimated to have registered 20.2 %, the lowest rate in four years, with profits at

$ 1,465 million. During the first half of the year, the sector’s profits even dropped, falling by

7.5 % to $ 568 million. This means that during H1-09, the price effect from lower spreads

has outweighed the quantity effect from larger deposits. This trend was reversed during H2-

09, thanks to the adjustment strategies adopted by banks that intensified their lending

activity and to a policy of gradual declining in interest rate implemented by BDL.

C. Lending

The average lending rate in LP was set at 9.56 % in 2009 versus 9.96 % a year

earlier, while the same average in US dollars was 7.25 % compared to 7.48% in 2008.

Moreover, commercial banks were trying to find further uses of their accumulated deposits

by either investing more in Treasury-bills (TBs) or extending private loans. But banks have

enough exposure to TBs since half of their LP deposits are already invested there; therefore

the alternative resolution was to enhance their lending.


S A L


38

However, this effort was not sufficient as total private sector loans grew at a slower

pace than deposits, recording a year on year increase of 13.5% to $28.37 billion. Hence, the

loans to deposits ratio fell from 32.1 % to 29.6 %.

Loans to Deposits Ratio (%)

262830323436

2005 2006 2007 2008 2009

Source: BDL

VII. Financial Markets

A. Stock Market

Lebanese stocks surged in 2009 lifting the BLOM stock index (BSI) up by 33 % this

year as investors were bullish about the market given the enhanced political climate.

Though almost two thirds of the BSI increase was achieved by the end of H1 2009, the

Lebanese equity benchmark recorded its yearly high level of 1628.74 points on November

9th 2009, a session ahead of the formation of the new unity cabinet, proving once again the

correlation of the Beirut stock exchange’ performance to the Lebanese political risk.

After an eight-month down-fall stretching from the first of July 2008 till the end of

March 2009 that cost the index 1,085 points, the BLOM Stock Index (BSI) started a

corrective move since, adding 525 points to close at 1,566 by the year end, representing a

48% adjustment.

Activity over Lebanese stocks traded in both the Beirut and London stock

exchanges fell to a daily average of $5.7M in 2009 as compared to $9.9M the previous year.

The local market kept its 70 % lion share from the total traded value whereas London took

the rest. Thus, the turnover at the Beirut stock exchange totaled $1,04B in 2009, sliding

40 % from last year’s $1.7B, as 102.6M shares exchanged hands compared to a number of

105.5M registered in 2008.


S A L


39

Blom Stock Index

10001100120013001400150016001700

Jan

-09

Feb

-09

Mar

-

09

Apr -09

May

-

09

Jun

-09

Jul

-09

Aug -

09

Sep -

09

Oct -09

Nov -

09

Dec -

09


On a relative scale, Lebanese banking stocks were considered cheap compared to

the Middle East and North Africa (MENA) region, as the price earning (PE) ratio of the local

banking sector was 9 compared to 14.7 for MENA banks. However, this doesn’t apply to the

real estate sector, as the Lebanese market was not hit by the turmoil that harshly affected

the region. Hence, Solidere’s PE ratio was 19.72 against 15.53 for the region’s peer real

estate companies. As for the price to book (PB) ratio, Lebanese banks’ average level

was set at 1.2, in line with the sector in the MENA region. Moreover, PB ratios for the real

estate sector implies that the market value for Solidere’s assets is higher by 2.14 times than

its accounting value whereas the mean ratio is equal to 1.4 in the MENA area.

Nevertheless, the BSI ended up 2009 as the third best performer among its Arab

peers, right after Tunisia and Egypt that recorded respective gains of 48.22 % and 35 %. On

the other hand, the BSI under-performed the MSCI emerging markets index that boomed

73%, however, beating the 19% advance of the MSCI Arabian markets index.

Arab stock indices that peaked between mid October and the start of November

following the Global economic recovery, slumped by the end of the month affected by the

default crisis witnessed in Dubai, to slightly pick up before the end of year. In details, Arab

gauges tumbled after the state-owned company “Dubai World” proposed to delay

repayment of its $3.5B debt maturing by the end of December 2009, which raised the risk

of the largest government default since the Argentine debt restructuring in 2001. Its

important to note that the company’s debt stands at $59B, almost three-quarters of the

emirate's $80B debt. Hence, the Dubai financial markets’ index that was performing 47 %

higher than the end of 2008 by mid October, compared to 37 % for the BSI, tumbled 25 %

since to close with a 10 % year on year rise at 1,804.

To elaborate, the real estate giant Solidere, was the main player in 2009 as it took

75 % of the total value traded as compared to a stake of 65 % in 2008. Though Solidere


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40

stocks struggled against the collapse of the global real estate market as they hit their yearly

low of $14 by the end of January, 2009, they bounced since leading gains in the BLOM

Stock Index as they represent more than 34 % of the Beirut stock exchange total market

capitalization. However, the developer’s stocks performance slid by the mid November till

the year end as investors remained weary about Dubai’s debt problems given the fact that

Solidere run multiple projects in the Gulf region. In summary, Solidere A jumped 45 % to

$24 on a daily average of $2M, 35 % of the daily mean value of Lebanese stocks traded in

Beirut and London. As for the developer’s class B shares, they climbed 42.4 % to $23.8. It’s

important to note that Solidere shares have the main impact over the BSI as they represent

almost 36 % of the index weight.

In the banking scene, the trend converged with the rest of the sectors as the BLOM

Lebanese Banking Index hiked 45.43 % to 3,658 points at a time Arab banking shares

tumbled with the BLOM MENA Banking Index decreasing 6.85 % to 2,581. This is mainly

due to the fact that Lebanese biggest Banks showed a healthy growth in profits for the

whole year, at a time when Arab banks were still recovering from the financial crisis before

getting damaged again by the Dubai default shake. In details, three leading Lebanese

banks; BLOM, Audi and Byblos, generated profits of $ 334 million in the first half of 2009,

3.7 % higher than 2008’s figures. Furthermore, the growth pace accelerated in the third

quarter with the three banks’ income surging an annual 12.22 % to $ 341 million.

This was reflected in the banks stocks’ performance as they started to pick up in the

second half of the year. Audi bank’s shares that represented 46 % of the total traded

banking value, gained the most this year with 67 % for its GDR shares to close at $ 89. Its

common stock price increased 59 % to $ 83. Moreover, BLOM bank shares also registered

a good yearly performance with BLOM GDR edging 23.27 % up to close $ 89.8 and BLOM

common rising 12.37 % to $ 84. As for Byblos bank, its stocks progressed 31 % to $ 2.09

for its common shares while its priority shares scaled up 28 % and outpaced its common

shares to $ 2.10.


S A L


41

BLOM Banking Indices

200025003000350040004500

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09

Lebanon MENA Region


In international markets, Solidere as well as BLOM and Byblos GDR’s price

performance came in line with their local stocks performance with respective gains of

44.85 %, 20.69 % and 30.38 % to $ 23.9, $ 86.89 and $ 103. As for Audi GDR, it beat its

value in Lebanon to close at $ 86.5.

In conclusion, 2009 proved to be another challenging year for the Beirut stock

exchange. However, given the resilience that Lebanon has earned throughout the years of

economic and political hardship, the coming year, comparatively speaking, is bound to be a

positive one.


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42

Box 7:

Technical Analysis

Relative Strength Index

0

30

60

90

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09

Sources: BLOMINVEST Bank, Reuters

Technical analysis of the market’s chart is showing a buying signal since mid June 09 as the

BSI 50 days moving average is crossing above the 200 days average. As for the market’s

relative strength index (RSI) for 50 days, which is a price-following oscillator that ranges

between 0 and 100 and measures the internal strength of a single security, ended the year

in the normal trading band (between 30 and 70), without showing any overbought or

oversold signal.

However, the RSI index has gestured overbought* signals twice during 2009, with the first

extending from the start of February till the start of July while the second beginning in

September 25, 2009 and ending October 22, 2009. Though the former, after breaking below

the band’s 70 level, led a decline in the price index’ performance, the latter was a false

signal. This occurred as the overbought signal in the first case was coupled with a Bearish

divergence between the BSI and the market RSI graphs. A bearish divergence is when

prices are making higher highs but the RSI is making lower highs. This is a sign that the up-

move is weakening. Still an exciting indicator to observe: Bollinger Bands , that are charted

by calculating a moving average of price (20 days in our study), then creating two bands with

a specified number of standard deviations (SD=2) above and below the moving average. By

definition, prices are high in the upper band and low in the lower band. Bollinger bands over

the BSI chart are showing a very high prices.

What is interesting about Bollinger Bands is that they provide warning of an impending price

move whenever the two bands narrow. That said, by the end of March2009, a contraction of

the two bands was followed by a sharp move in prices that lifted the BSI by more than 40%.

Furthermore, Bollinger bands tapered by mid September 2009, thus the Blom stock index

rallied 13% till the year start. *In technical analysis, overbought describes a situation has risen to such a degree that an oscillator has reached its

upper bound. This is generally interpreted as a sign that the price of the asset may decline.


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43

B. Eurobonds Market

The BLOM Bond Index (BBI) ended the year at 110.047 points, surging a yearly

16 %, but still below the JP Morgan emerging market bond index that hiked 28 % since

year start. After hitting its all time bottom of 88.31 points by the end of October 2008,

Lebanon’s BBI rallied along a steep uptrend that gradually led it to reach a new record high.

By mid November, the BBI hit its highest level since inception at 110.041 points after which

it started moving in whipsaws between a lower band of 109.913 and its highest level.

Consequently, the weighted yield that slipped 394 bps since year start to 5.51 %, reduced

the gap against US benchmarks by 507 bps.

Positive developments in the Eurobonds’ market pushed Eurobonds prices up, thus

ending the year at premium, above par value, at a time when they were traded at discount

by the end of 2008. Long term papers were best gainers this year with the issue maturing in

April 2021 (coupon 8.25 %), surging 34 % to end the year at a price of 110.69. On the other

hand, the worst performing papers were short term papers maturing in May 2011 (coupon

7.875 %) as their prices went up a yearly 8 %.

The Lebanese sovereign Eurodollars bonds’ weighted duration, which is the average

time required for the repayment of interest and principal, grew to 4.31 years by the end of

2009 compared to 3.73 years in 2008. This was mainly driven by the introduction of new

long term maturing Eurobonds like the $ 1.5 billion, 9 %, 20/03/2017 issue as well as the

$ 250 million, 7 %, 03/12/2024 papers.

As for the primary market, investors remained bullish after the economy proved its

resilience to the global financial crisis. By mid-March 2009, the Lebanese government

swapped 83 % of its $ 2.3 billion Eurobonds maturing in 2009 for longer-dated papers, and

covered the remaining 17% with new subscriptions. The new issue yields were 7.5 % for

the $ 600 million US dollar denominated bonds maturing in 2012 and 9 % for $ 1.5 billion

Eurodollar bonds maturing on 2017. As for the € 211 million euro denominated bonds issue

settling in 2017, it’s yield set at 7.75 %. Accordingly, the swap transaction boosted

investors’ appetite towards Lebanese papers what pushed up the eurobonds prices.


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44

Blom Bond Index

9297

102107112

Jan

-09

Feb

-09

Mar

-09

Apr -09

May

-

09

Jun

-09

Jul-09

Aug -09

Sep -09

Oct -09

Nov -09

Dec -09


In December 2009, the Lebanese government issued another $ 500 million in

Eurobonds, split into two tranches amounting $ 250 million each and maturing in 2015 and

2024. The new issues witnessed heavy demand from both Lebanese and foreign investors,

with the latter reaching 27 % of the total demand. Moreover, the five years maturity was

seven times oversubscribed with a coupon of 5.875 %, the lowest sovereign loan rate in

Lebanon’s history. As for demand over the 15 years maturity issue that has a coupon of

7 %, it was one and a half times oversubscribed with foreign demand reaching 43 % of the

total.

In fact, the government benefited from the fall in interest rates both in local and

international markets and from the low credit default swap (CDS) of Lebanon at 255 bps.

Hence, these low rates will help the government reduce its debt servicing cost, given that it

had to pay rates as high as 9-11 % for the Eurobonds in the past. Moreover, the successful

placement of the bonds is attributed to the growing confidence in the Lebanese economy

and particularly in the banking sector.

CDS 5 Years (bps)

200300400500600

02/01/0

9

02/02/0

9

02/03/0

9

02/04/0

9

02/05/0

9

02/06/0

9

02/07/0

9

02/08/0

9

02/09/0

9

02/10/0

9

02/11/0

9

02/12/0

9



S A L


45

Another key measure showing that Lebanon’s credit risk is getting better is the

improvement in the credit default swaps (CDS) for 5 years. To swap the default risk,

investors pay a premium of 263 – 284 bps. The contracts’ premium dropped almost 260 bps

in 2009 reflecting enhanced confidence in the country as the government retains a good

ability to finance itself owing to a reliable local investor base. In fine points, Eurobond and

CDS spreads have moderated and now move around the emerging market averages.

Moreover, despite the sovereign’s current credit rating of B, Lebanon’s CDS fares much

better than “B” rated countries such as Venezuela at 1090-1129 bps and Argentina at 891-

940 bps.


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VIII. The Lebanese Economy in Figures

Indicators 2005 2006 2007 2008 2009 Real Sector

Nominal GDP ($, Million) 21,900 22,400 25,057 29,933 33,427 Real GDP Growth (%) 1 0.6 7.5 9.3 8 CPI Inflation (end of period, %) -2.6 5.58 9.33 5.5 3.4 Number of Tourists 1,139,524 1,062,635 1,017,072 1,332,551 1,851,081

External Sector Balance of Payments ($ Million) 748 2,965 2,036 3,462 7,899 Total Imports ($ Million) 9,339 9,399 11,815 16,137 16,242 Total Exports($ Million) 1,880 2,282 2,816 3,478 3,484 Balance of Trade ($ Million) -7,459 7,117 -8,999 -12,659 -12,758 Imports Coverage (months) 15 16.5 12.5 14.7 20.9 Remittances ($ Million) 4,924 5,183 5,500 7,180 7,001 Foreign Direct Investment ($ Million) 2,629 2,669 1,996 2,664 2,674

Public Finance Sector Public Revenues ($ Million) 4,910 4,850 5,800 7,000 8,424 Public Expenditures ($ Million) 6,770 7,030 8,360 9,950 11,389 Primary Balance ($ Million) 480 120 730 600 1,078 Fiscal Deficit ($ Million) 1,850 3,040 2,550 2,920 2,960 Public Debt ($ Million) 38,500 40,500 42,100 47,000 51,100 Debt-to-GDP ratio (%) 176 181 168 157 153

Banking Sector Private Deposits ($ Million) 57,000 60,600 67,500 77,800 95,766 Loans to the Private Sector ($ Million) 19,100 21,400 20,400 25,000 28,374 Profits ($ Million) 519 754 962 1,219 1,465

Monetary Sector Money Supply M3 ($ Million) 49,200 53,400 59,800 68,600 82,077 BDL’s Net Foreign Reserves ($ Billion) -1.03 -1.50 -3.39 1.62 9.36 BDL’s Foreign Assets ($ Billion) 9.84 10.21 9.78 17.06 25.66 Average 2-Year TBs Yield (%) 8.5 8.5 8.5 8.43 7.44

Financial Sector BLOM Stock Index (end of period) 1,309 1,185 1,502 1,178 1,566 BLOM Bond Index (end of period) 105.37 99.31 97.76 94.71 110.05 BLOM MENA Banking Index for Lebanon (end of period)

2,733.08 2,392.51 3,376.02 2,515.08 3,669.27

The Lebanese Economy in 2009 30 May 2010 · The Lebanese Economy in 2009 SAL The Lebanese Economy...

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