News / Economy

Loyal Banks, Diaspora Help Lebanon Ride Out Region's Turmoil

A money exchange vendor displays Lebanese pound banknotes at his shop in Beirut, Feb. 7, 2012.
A money exchange vendor displays Lebanese pound banknotes at his shop in Beirut, Feb. 7, 2012.
Lebanon's politics are descending into sectarian conflict and its economy is starved of investment. But its sovereign bonds are steady, foreign reserves are holding up and there is no sign of serious pressure on its currency.

That striking contrast suggests the country may avoid the economic crisis which has engulfed other nations during the Arab Spring uprisings, even though it is suffering increasing damage from the civil war in neighboring Syria.

An overseas diaspora of around 14 million people, more than three times the size of Lebanon's domestic population of about 4 million, continues to send billions of dollars back to the country each year.

This is swelling bank deposits and allowing banks to keep buying government debt, which means the government can boost spending to try to ease social tensions - and maintain a minimum level of political stability needed to attract more remittances.

It is a three-pronged arrangement based on mutual need that has sustained Lebanon during repeated political crises since the end of its civil war in 1990, and which is so far working well in the current instability, bankers and economists say.

“The situation is not ideal but people aren't panicking,” said Nassib Ghobril, chief economist at the Byblos Bank Group in Beirut. “The country has coped with similar situations before.”

Reduced inflows

By triggering a flare-up of sectarian tensions in Lebanon, the Syrian civil war is taking a heavy toll on the Lebanese economy.

Prime Minister-designate Tammam Salam has been unable to form a Cabinet since March, when his predecessor quit, and  parliamentary elections have been delayed until November 2014. Rival militias and the army have been battling in the coastal cities of Sidon and Tripoli.

This has slashed inflows of portfolio and direct investment; tourism revenues have also tumbled as wealthy Gulf states and other countries have issued travel warnings to their citizens because of poor security.

The result has been a sharp reduction of capital flows into Lebanon. Net private capital inflows shrank to $2.4 billion last year from a peak of $12 billion in 2009, and are expected to drop further to just $1.6 billion in 2013, according to the Institute of International Finance, a global banking body.

For an economy with a gross domestic product of about $45 billion, that is a big blow. From levels around 8 percent in 2007-2010, economic growth slipped to just 1.3 percent last year, and it is expected to be close to that level this year.

But inflows of remittances from Lebanese abroad have been stable. The World Bank estimates they totalled $7.5 billion last year, flat from 2011, and bankers in Beirut say the latest political turmoil has not affected them significantly.

This has allowed deposits at Lebanese commercial banks to continue growing; combined deposits of private sector residents and non-residents at commercial banks climbed to 182.6 trillion Lebanese pounds ($121 billion) in May from 168.3 trillion pounds a year earlier, according to central bank data.

Philippe El Hajj, deputy general manager at Fransabank in Beirut, estimated banking system deposits grew 3 percent in the first half of 2013 and predicted a 5-6 percent increase in 2013.

“This is mainly driven by Lebanese expats and by the accumulated interest on deposits. I don't see why remittances to Lebanon should decrease - those helping their families at home won't stop and will find many ways to continue supporting them.”

Rising deposits have in turn permitted Lebanese banks to continue buying their government's debt, and to buy into any selling by foreign investors, keeping prices of the country's bonds remarkably stable.

Bid at 6.05 percent, the yield on Lebanon's $650 million bond maturing in 2019 is up just 40 basis points since mid-May, outperforming many emerging market bonds, where yields have jumped 100 bps or more because of concern about rising U.S. Treasury yields.

One potential threat to Lebanese remittances is a political backlash against Shi'ism in the Sunni Gulf; Gulf Arab states are punishing Lebanon's Hezbollah for its intervention in Syria by expelling Lebanese expatriates linked to the group, and are keen to block any illicit fund flows to Lebanon.

But it is not clear that the number of people affected will be nearly large enough to cut the global amount of remittances. Meanwhile, other events abroad have helped Lebanon; the debt crisis in Cyprus caused Lebanese to bring back hundreds of millions of dollars from that country this year, bankers said.


Lebanon's dependence on remittances is not without costs. For example, its banks keep their interest rates about 3 percentage points higher than U.S. rates in order to attract deposits, even though the Lebanese pound is pegged to the U.S. dollar. This slows lending and economic growth.

But as long as the currency peg holds, sustaining the diaspora's confidence that their remittances will not lose value, the system is a robust one.

So far, in contrast to some other crises in the past two decades, the current political instability has not appeared to threaten a run on the pound. The central bank's combined holdings of foreign currencies and gold edged up to $44.4 billion in May from $44.0 billion a year earlier.

Ghobril said the pound came under pressure three times in recent years. The assassination of former prime minister Rafik al-Hariri in 2005 caused an outflow of bank deposits worth 5 percent of GDP over several weeks; Israel's attack on Hezbollah in 2006 prompted a 3 percent outflow; and the 2011 fall of Saad al-Hariri's government led to an outflow of under 1 percent.

Since the peg survived those incidents, a bigger political shock would be needed to even raise the possibility of it being dislodged in future, he said.

Another vulnerability is the risk that state debt, now about 140 percent of GDP, could expand beyond the capacity of the banks to fund it. The current disarray in the government could worsen the problem by blocking efforts to control spending; the International Monetary Fund expects the budget deficit to rise to 9.7 percent of GDP this year from 9.0 percent in 2012.

But with commercial bank deposits at roughly twice the level of government debt, there appears to be little risk of banks losing their capacity to buy bonds for the foreseeable future - as long as deposits do not fall sharply.

“The pound's peg to the dollar survived throughout the past 30 years despite a 15-year civil war, conflicts with Syria and multiple Israeli wars,” said a source close to the central bank, declining to be named because of the sensitivity of the subject.

“Why would that change now? It's quite impossible.”

You May Like

Video Americans, Tourists, Reflect on Meaning of Thanksgiving

VOA garnered opinions from several people soon after November 13 Paris attacks, which colored many of their thoughts

Video Thais Send Security Concerns Down the River

In northern Thailand, the annual tradition of constructing floating baskets to carry away the year’s bad spirits highlights the Loy Krathong festival

Video Tree Houses - A Branch of American Dream

Workshops aimed at teaching people how to build tree houses have become widely popular in America in recent years

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continuesi
Ayesha Tanzeem
November 25, 2015 10:46 PM
One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continues

One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Islamic State Unfazed by Losses in Iraq, Syria

Progress in the U.S.-led effort to beat Islamic State on its home turf in Iraq and Syria has led some to speculate the terror group may be growing desperate. But counterterror officials say that is not the case, and warn the recent spate of terror attacks is merely part of the group’s evolution. VOA National Security correspondent Jeff Seldin has more.

Video Taiwan Looks for Role in South China Sea Dispute

The Taiwanese government is one of several that claims territory in the hotly contested South China Sea, but Taipei has long been sidelined in the dispute, overshadowed by China. Now, as the Philippines challenges Beijing’s claims in an international court at The Hague, Taipei is looking to publicly assert its claims. VOA’s Bill Ide has more from Beijing.

Video Syrian Refugees in US Express Concern for Those Left Behind

Syrian immigrants in the United States are concerned about the negative tide of public opinion and the politicians who want to block a U.S. plan to accept 10,000 Syrian refugees. Zlatica Hoke reports many Americans are fighting to dispel suspicions linking refugees to terrorists.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs

World Currencies


Rates may not be current.