Lebanon: Seeing the Bigger Picture

Lebanon is in need of urgent economic and political reform.

BY Joe Sarrouh

The Lebanese banking sector has accumulated, over the years, significant skills in management and operations.
This has enabled to it to adapt to the most difficult and often threatening political, economic and security circumstances. Such steadfastness has earned the sector a reputation for being resilient in the face of internal and external challenges.

The banking sector is highly regulated and has strictly adhered to international and local multi-dimensional compliance requirements. It enjoys also solid financial strength, ample liquidity, the ability to maintain depositors’ trust and intrinsic growth dynamics sufficient to finance the short and medium term needs of Lebanese private and public sectors.

The banking sector’s strengths are further consolidated by the wise and prudent strategy of Lebanon’s Central Bank to maintain the currency stability policy and interest rates level on solid and sustainable grounds.

The sector’s historical track record in this regard is its best testimonial. Saudi Arabia, and the Arab Gulf in general, have provided instrumental support to the currency stability policy since its inception in 1993. This support is represented by deposits.

In this context, the matured deposits were redeemed on time, in the normal course of business, and in the same course, the last deposit maturing in 2017 would have to be redeemed as well. However, let us put in context Saudi Arabia’s recent decision to suspend its $4 billion package deal for the Lebanese army and the country’s internal security forces.

The context so far appears to be politically motivated, in the sense that it was initiated by a country that has always acted as Lebanon’s “older brother,” and has been its first and last resort whenever there was a need, whether in times of war or peace.

The unprecedented, and unexpected, move comes at a time when the Lebanese economy has been growing for the past few years at a slow rate of 1 to 1.5 percent, at a time when Lebanon is in need of high-digit growth.

Deficit in Lebanon’s 2015 balance of payments was estimated at $4 billion, despite a decrease in the trade balance at $2.2 billion, indicating a drop in the inflow of capital and workers remittances. A reversal in this drop is expected in 2016 against the backdrop of persisting lower oil prices and how it drew back on growth in Saudi Arabia, in particular, and the oil-exporting Gulf Cooperation Council nation, in general.

Lebanese public finances are bound in a vicious circle of growing debt and deficit, with no scope for fiscal and economic reform or budget expected to materialize any time soon.
Lebanon has not had a parliament-approved national budget for over 10 years. In fact, thanks to a persisting political impasse, the last approved national budget, which the country’s parliament had endorsed, was in 2005.

On a bright note, the Lebanese Army and internal security forces are maintaining law and order inside Lebanon and along its borders, supported by a minimum level of consensus among the political parties through a quasi-political dialogue.

The geopolitical events in some of Arab countries are increasingly about political positioning and military action, mainly in Iraq and Syria, which is witnessing a violent and messy transformation.
All the players, national, regional and international, share the same grounds and skies with conflicting interests and dominating strategic ambiguities.

The domestic political divide and the regional geopolitical events have weighed and continues to weigh heavily on Lebanon in all three aspects: politically, economically and socially.
The Saudi decision to suspend its aid adds high power threats to an already very threating and complicated environment in Lebanon by all standards.

Saudi Arabia and other Arab Gulf states have been both qualitatively and quantatively, a historical lifeline for Lebanon.
The state’s failure to get its act together over many pressing issues, including its inability to make good on a pledge to neutralize Lebanon in the conflicts gripping the region, has placed Lebanon between a rock and a hard place vis-à-vis the Saudi position.

Lebanon has recently failed to vote in line with its Arab counterparts on a resolution that condemns the attacks on the Saudi diplomatic missions in Iran, which took place last month, a matter which has drawn criticism from Saudi Arabia, among other Arab Gulf states who have indirectly accused Lebanon of siding with Iran.

Having said this, and while I do recognize the possibility that Saudi Arabia might widen the scope of its decision further, I do not yet subscribe to the speculations that the Saudi move will snowball.
However, the situation, as it stands, is very alarming and should be dealt with urgently.
we need a serious and unified approach on the national level.

If not, Lebanon’s best interest will be deeply compromised as the country faces a monumental challenge, in the short term, but which might be far more harmful in the longer term.

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