Financial and capital inflows to Lebanon in 2017 are expected to rise by 20 percent, an economist said Monday. “The return to normalcy, election of the president and creation of a government will encourage investors and depositors to pump money in Lebanon again. We expect the customer deposits to increase by $10 billion this year,” the economist said, who spoke on condition of anonymity. He added that the rise in capital inflows will allow Lebanon to achieve a surplus in its balance of payment in 2017.
The new projection came following the release of a report by Bank Audi that indicated that the financial inflows to Lebanon in the first 11 months of 2016 jumped by 40 percent compared to the same period of 2015. “Lebanon’s foreign sector reported a significant improvement in activity on the back of a noticeable 40 percent growth in financial inflows over the first 11 months of 2016, generating a net surplus in the balance of payments of $332 million, following a large deficit the year before,” Bank Audi said in its weekly bulletin.
The economist told The Daily Star that the financial engineering of the central bank was the main reason behind the remarkable surge in financial inflows to the country.
“While the year started with a large BOP deficit in the early months of the year, the financial engineering operations of the central bank were key to attract significant inflows in the second half, leading to a corollary rise in the net foreign assets of the financial system,” the report explained. According to Bank Audi, the financial inflows increased from $10.5 billion over the first 11 months of 2015 to $14.8 billion over the 2016 equivalent period.
The economist did not expect the same scenario to be repeated again in the future. “I don’t think BDL will repeat the same scenario again. It was a onetime shot because the foreign currency reserves were dwindling, the growth of customer deposits were slower than previous years,” he added. But despite the increase in capital inflows in the first 11 months of last year, Lebanon’s trade deficit increased slightly.
“The trade deficit moved from $13.5 billion to $14.4 billion over the same periods, a yearly growth of 6.9 percent. The rise in the trade deficit comes within the context of a 5.8 percent growth in imports while exports barely grew by 0.6 percent. As such, the coverage ratio of imports by exports declined from 16.7 percent in the first 11 months of 2015 to 15.9 percent in the 2016 equivalent period,” Audi reported.
It added that land exports declined by 48.3 percent, maritime exports dropped by 8.2 percent, and exports by air rose by 43.6 percent.
The closure of the Syrian border as a result of the ongoing war has dealt a big blow to the Lebanese economy because most of Lebanon’s exports to Arab states go through this border. “The breakdown of exports by category suggests that the most significant increase was reported by exports of jewelry with a 91.9 percent growth year-on-year, followed by fats and oils with 12.9 percent and plastic products with 2.5 percent year-on-year over the first 11 months of 2016 relative to the 2015 corresponding period,” Audi said.
