Saturday 30 May 2020

Reforms needed to rein in deficit in Lebanon: Bank Audi

BEIRUT, February 13, 2015

Structural reforms need to be implemented by Lebanese authorities to stimulate the economy and reduce the fiscal deficit, and not bank on the decline in oil prices alone, according to a recent report.

Bank Audi’s Lebanon Economic Report for 2014 pointed out that Lebanon’s budget deficit was still too high even with the drop in the price of crude in international markets and the vast savings resulting from a reduction in allocations to Electricite du Liban, said the Daily Star report.

The state-owned EDL has drained the treasury for years because the authorities have been subsidising electricity bills since the price of oil rose above $25 per barrel.

The Audi report also questioned the World Bank and International Monetary Fund reports, which feared that the drop in oil prices might reduce the remittances of Lebanese expatriates in the Arab Gulf states and ultimately lead to a drop in customer deposits.

Higher oil prices would result in high growth in the Gulf Cooperation Council and subsequently foster employment, including among Lebanese there, thus reinforcing remittances and deposit growth in Lebanon, said the report.

However, a decrease in oil prices would not necessarily lead to contractionary fiscal policies in GCC countries that would impact the employment of Lebanese or affect remittances to Lebanon, it said.

“The drop in oil prices would have positive effects on Lebanon’s twin deficits, i.e. the fiscal deficit and the current-account deficit, the first being tied to savings in transfers to EDL and the second being tied to savings in the import bill at large,” the bank was quoted as saying.

Government allocations to EDL since June last year declined by nearly $500 million, according to Finance Minister Ali Hasan Khalil, who projected a further decline if oil prices remain low in 2015.

“Lebanon’s twin deficits, both ranking in the highest quartile around the world, with a current account deficit of 13 percent of GDP and a public finance deficit of eight percent in 2014 (global rankings of 14th and 29th respectively out of 188 countries), represent the most significant imbalances of the Lebanese economy of nowadays,” the report explained.

The fall in oil prices could have a negative effect on Lebanon’s exports, said the report.

“This could be partially offset by some adverse effects on exports, as oil exporters account for about one-third of Lebanon’s goods exports and tourism receipts,” Audi said.

The report also stressed that Lebanon’s banking sector saw one of the highest growths in 2008 and 2009 despite the global financial crisis.

“The world saw a drastic drop in oil prices in 2009 and 2010 amid the global financial crisis but this did not contract deposit growth in Lebanon, which paradoxically reported a strong growth pace during these two years,” Audi said.

Audi noted that despite the difficult economic and political environment, the Lebanese economy in 2014 performed better than 2013.

As far as the banking sector is concerned, the report said the percentage of growth achieved by the lenders in 2014 was slightly lower than 2013.

“Lebanon’s banking sector reported sound growth throughout the year 2014, though lower than in the previous year, amid difficult operating conditions in the country and unsettled security conditions in neighboring countries,” the Audi report said.

The balance sheets of banks operating in Lebanon recorded a gross 6.6 per cent increase last year, compared to a higher 8.5 per cent year-on-year increase in 2013.

Tags: economy | Oil | Bank | Audi | price | deficit | fiscal | decline |

More Finance & Capital Market Stories

calendarCalendar of Events