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FINANCIAL CRISIS

Bank Audi quarterly report details Lebanon's financial struggles in 2021 and what's ahead in 2022

Bank Audi quarterly report details Lebanon's financial struggles in 2021 and what's ahead in 2022

In its quarterly report, published today, Bank Audi provided a detailed analysis of the performance of the Lebanese economy in 2021, as well as its overview of the challenges facing the country in the coming year. (Credit: AFP)

BEIRUT – Bank Audi is estimating Lebanon’s GDP to have contracted by 11 percent in 2021. This is the second double-digit drop since the onset of the crisis, after 2020 saw a drop of 25 percent. In its quarterly report, published today, the bank provided a detailed analysis of the performance of the Lebanese economy in 2021, as well as its overview of the challenges facing the country in the coming year.

Here’s what we know:

    • The report mentions that investments as a percentage of GDP are at a record low, unseen since the end of the Lebanese Civil War.

    • Lebanon's Balance of payments improved from a deficit of $10.6 billion in 2020 to a deficit of $2 billion in 2021. The report attributes the improvement to a drop in imports, the transfer of $1.135 billion in Special Drawing Rights from the IMF, and the discontinuation of most subsidies by the central bank.

    • The report notes that banks’ deposits have contracted from $168.4 billion at the end of October 2019, to $129.4 billion at the end of December 2021. Meanwhile, loans dropped from $54.2 billion to $27.7 billion.

    • Banks’ Eurobonds holding declined from $9.4 billion at the end of 2020 to $4.8 billion at the end of 2021, and shareholders’ equity dropped from $19.9 billion to $17.7 billion for the same period.

    • Lebanese Eurobonds converged in price, ending 2021 at 10 cents on the dollar, declining from 14 cents on the dollar in 2020. This implies a loss of 90 percent for bondholders.

    • On the other hand, the Lebanese equity market was the best performer in the MENA region in 2021, registering an increase of 48.1 percent. Solidere A and B were up by 76.5 and 82.2 percent for the year, respectively. The total market capitalization of the Beirut Stock Exchange increased to $10.62 billion.

    • As far as the challenges foreseen in 2022, the bank notes the following milestones as important to the country’s recovery process: First, the signing of a deal with the International Monetary Fund, which should ensure the proper implementation of reforms and would lead to a reengagement of donor countries in the recovery process.

    • Second, the implementation of a capital control law, even if late, is a cornerstone for any recovery plan and is a core condition of the IMF, according to the report.

    • The report said the adoption of an austere budget for 2022, leading to a deficit of no more than 2 percent of GDP, as well as increasing the customs dollar, would have a positive effect on the trade deficit and the budget deficit.

    • The stability of the exchange rate will also be a challenge for Lebanon, the report indicated, after the lira lost more than 90 percent of its value and currency in circulation exploded to LL45 trillion.

    • Bank Audi also sees improvement in electricity production as essential for Lebanon’s recovery. The challenge is that the acquisition of electricity from Jordan and Egypt would require external financing, and as for local tariffs, there continues to be a big gap between the cost per kWh at 27 cents and tariffs at 1 cent per kWh.  

BEIRUT – Bank Audi is estimating Lebanon’s GDP to have contracted by 11 percent in 2021. This is the second double-digit drop since the onset of the crisis, after 2020 saw a drop of 25 percent. In its quarterly report, published today, the bank provided a detailed analysis of the performance of the Lebanese economy in 2021, as well as its overview of the challenges facing the country in the...