
The road that runs along the Beirut corniche, Wednesday, Jan. 15, 2024. (Credit: Mohammad Yassin/L'Orient Today)
BEIRUT — In its latest quarterly report on the Lebanese economy, Bank Audi's research department pondered possible scenarios in the current context marked by a very positive momentum following the election of Joseph Aoun as president and the appointment of Nawaf Salam as prime minister, but also by a high degree of uncertainty regarding the future of the cease-fire between Israel and Hezbollah.
The report outlines three scenarios, a positive one, an intermediate one, and a negative one, with probabilities of realization of 60 percent, 30 percent, and 10 percent, respectively, to try to anticipate the trajectory of the country in the short and medium term.
In the first case, the department led by Marwan Barakat is betting on a GDP increase of no less than 8 percenr in 2025, which would be accompanied by a decrease in inflation "below global levels," an increase in the country's foreign exchange reserves, and a "balance of payments surplus [the balance of a country's transactions with the rest of the world] of no less than 4 billion dollars."
This idyllic scenario would only occur if all indicators were green: a cease-fire that holds throughout 2025, the launch of a vast project to rebuild large areas of the country destroyed by the Israeli aggression, the end of political deadlock, the formation of an effective government, and finally, the launch of reforms that would pave the way for an International Monetary Fund (IMF) assistance program.
Bank liquidity
Many factors that could restore the confidence of investors and citizens in the country and its institutions. Barakat noted that although the expected Lebanese growth seems excessively optimistic, it starts from a "low base."
Indeed, GDP fell not only due to the war in 2024, by 5.7 percent according to the World Bank, compared to six percent according to Bank Audi, but also due to the years of economic crisis ongoing since 2019, for a cumulative drop of nearly 40 percemt, according to the World Bank. Inflation was over 15 percent annually last November, awaiting the next update of the Central Administration of Statistics expected this week. The reserves of the BDL reached 10.13 billion dollars at the end of December 2024.
The intermediate scenario keeps as a prerequisite the maintenance of a cease-fire in 2025, but assumes that political deadlocks persist and reforms remain stagnant. In this case, Bank Audi still expects the country to record 2 percent growth, but with an inflation rate of 30 percent. Reserve levels would stagnate, and the balance of payments would show some balance.
Unsurprisingly, the third scenario predicts a deterioration of security conditions, persistent political deadlocks, and a complete lack of reform. In this situation, the impact would be disastrous for the Lebanese economy, with GDP collapsing by 15 percent and inflation soaring to 200 percent, but also 10 billion dollars and some of the country's remaining foreign exchange reserves being depleted — excluding gold, a priori — and the balance of payments showing a deficit of five billion dollars.
Bank Audi specifies that, given the monetary policy practiced by the Bank of Lebanon "for the past 18 months," a period corresponding to when interim governor Wassim Manssouri took office, the exchange rate between the Lebanese pound and the dollar should probably remain stable even in the intermediate scenario, but it will surely detach if the worst of the three scenarios occurs.
Regarding 2024 indicators, Bank Audi notably highlights the decrease in Lebanese banks' foreign liquidity, falling from 4.460 billion to 4.153 billion between the end of 2023 and the end of 2024, according to Bank of Lebanon figures. Bank Audi recalls that these same liquidities were more than double their current level at the end of 2019 (8.389 billion dollars). It adds that banks also hold 924 million dollars in cash in the BDL vaults, according to a count dating from late October 2024.