Lebanon - Economic and financial market overview
Published on: 24/07/2017
Despite the global and regional economic challenges Lebanon has maintained its financial stability over the past quarter century. The financial sector, especially the banking sector has grown rapidly over the past years.
The Lebanese banking sector could maintain its profitability and growth despite the domestic shocks and surrounding turmoil. In 2016 the total assets of the Lebanese banks were exceeding USD 204 billion, securing stability to the Lebanese pound and to interest rates. Deposits of commercial banks increased by USD 10 billion at the end of 2016. Deposits of non-residents rose by 12 % to USD 31 billion in 2015.
The Lebanese financial model – designed by the Banque du Liban - has managed to inspire confidence in the Lebanese Financial System. Financial soundness indicators of the Lebanese banks are stable and strong as well. According to the World Competitiveness Report 2015-2016 the Lebanese banking sector is ranked as 23rd (among 139 countries) preceding Japan, the US and Germany.
Remittances from Lebanese immigrants played an important role in supporting the solvency of the banking sector. According to the Migration and Remittances Fact book 2016, in 2015 Lebanon was the 17st largest recipient of remittances in the world and the 2nd largest in the Arab world with USD 7.5. billions of remittances.
Lebanon has a low inflation rate as well. The average inflation rate from 2008 until 2017 is 2.12% only.
The highly liquid banking sector, confidence in the financial markets and in the Lebanese Pound and as well as the inflow of remittances played an important role and enabled the Lebanese economy to maintain its financial stability.
The outlook for 2017 is positive as well. With the election of President Aoun and the formation of a new Government, many several new reforms have been introduced in order to further boost the economy.
The highly liquid Lebanese banking sector enables commercial banks to financially support governmental and private sector projects.
Various credit incentives provided through the commercial banking sector contributed a lot in boosting and fostering the traditional sectors; developing the knowledge economy and supporting the creative media industry.
Banque du Liban, the Central Bank of Lebanon has introduced unconventional monetary policy packages to sustain the country’s growth and job creation potential. The stimulus packages of 2013 and 2014 have contributed approx. 50% of real GDP growth. These packages provided support in housing, education, R&D projects, innovation projects, renewable energy projects and other productive sectors. Due to the success of the first two stimulus packages, BDL announced a third and fourth stimulus packages in 2015 and 2016, which coupled the funds revolved from 2014, with an average USD 1 billion per year.
Recently BDL placed special focus on supporting the country’s knowledge industry as well. Special focus lies on the country’s human capital and the potential to turn Lebanon into an innovative hub. Lebanon has a highly educated and qualified population, which has the potential to turn innovative ideas into successful business, thus creating new job opportunities and eventually expanding the country’s GDP. In view of this BDL has issued Intermediate Circular 331 to encourage local banks to support startups and other companies in the knowledge economy.
In our previous article you can read more about supports provided by BDL in order to foster the entrepreneurial ecosystem and to improve Lebanon’s knowledge economy.
The Investment Development Authority of Lebanon (IDAL) has introduced two incentive schemes as well for larger and SME investment projects to support entrepreneurship in the country. Here you can read more about the investment incentives provided by IDAL.
As part of its modernization plan, BDL has established the Financial Stability Unit to monitor the financial sector, the Corporate Governance and the Compliance Unit in order to ensure that banks and regulated entities are in compliance the international regulations and laws.
Due to the above described reforms and financial stability, Lebanon has remained an attractive destination for international and regional investors. FDI inflows reached USD 2.6 Billion in 2016.
The Parliament of Lebanon has recently (19/07/2017) approved 20 tax measures. Among the new measures was increasing the corporate tax rate from 15% to 17%; raising the income tax on interest rates on deposits from 5 to 7% and to increase the VAT from 10% to 11%.
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Shanda Consult is advising on numerous investments, ranging from Energy/Telecom/IT to industry, technology, tourism and agriculture investments.
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Source: Payments and Securities settlement systems in Lebanon