What is behind lebanon’s deepening financial crisis?

What is behind lebanon’s deepening financial crisis?
adm2mhanna September 22, 2020

What Is Behind Lebanon’s Deepening Financial Crisis?

On the final Monday of 2019, protesters staged a sit-in at the Beirut offices of Bank Audi, Lebanon’s largest bank. Chants of “We want the money!” were heard as the furious protesters—many of them Audi’s clients—demanded that tellers give them their funds. But with stringent withdrawal limits imposed across much of the country’s banking sector that are now confining customers to just a few hundred dollars per week, Lebanon’s worst financial crisis since the days of its civil war has left much of the country strapped for cash.

Several factors have led to Lebanon’s current quagmire, but few have been more impactful than the country’s rather bemusing monetary policy over the last decade. During this time, the central bank “Banque du Liban” liberally hiked its interest rate for depositors to fund the government’s spiralling debt problem, as well as to pay for its substantial volume of imports, and to draw in dollars to help maintain the Lebanese pound’s 22-year-old peg to the US currency. As such, the period following the financial crisis saw Lebanon being one of the very few countries to offer investors highly attractive rates of return, while much of the rest of the world slashed rates to stimulate economic recovery. This made the small Middle Eastern nation a magnet for wealthy investors from around the world.

But relying on overseas dollars was a dangerous policy. The central bank continued to pay higher and higher rates to attract funds into the country, despite those dollars being insufficient to cover interest and capital payments. According to the International Monetary Fund (IMF), its US-dollar reference lending rate rose from around 7 percent in early 2018 to 9.7 percent in June 2019, which in turn led to higher Lebanese-pound lending rates. With economic conditions deteriorating, poverty rising, and interest rates continuing to rise, the impact within Lebanon was truly felt once the number of deposits at commercial banks started to decline precipitously in early 2018, with foreign deposits spectacularly crashing about a year later.

Many have called the central bank’s behaviour during this time as being akin to running a Ponzi scheme. Banks’ incoming customer dollars were lent to the central bank at attractively high rates, and in return, they purchased government debt, all the while making consistent profits on such transactions. It is not surprising, then, that deposits placed with the central bank between 2017 and August 2019 swelled by a whopping 70 percent. The dividends paid out by banks, moreover, went to shareholders, of whom many were politicians and who were thus incentivised to continue with the scheme.

The government, meanwhile, kept amassing debt, partly through often misguided spending measures, such as expanded public hiring as a way to buy votes and ill-conceived solutions for Lebanon’s ailing electricity sector. By 2019, almost half of the government’s fiscal revenues went to servicing external and domestic debt, and most of the rest was used to pay public-sector salaries. Indeed, the debt has ballooned to such alarming levels that Lebanon stands today as the world’s third-most indebted nation with a 152-percent debt-to-GDP ratio, behind only Japan and Greece.

But the fuse inside the country was decisively lit on October 17 when lawmakers somewhat bizarrely attempted to rein in this widening fiscal deficit by imposing an unprecedented tax on the usage of the popular WhatsApp messaging application.

Protests then intensified when Prime Minister Saad al-Hariri resigned a couple of weeks later. Hariri mysteriously disappeared for 10 days before emerging in Saudi Arabia to announce his departure, which triggered much speculation and concern that he had been abducted by Saudi officials. As such, the incident prompted many of the affluent Lebanese to move their deposits out of the country.

Concerns have also grown since then that the government is prioritising foreign creditors, who together hold around $12-billion worth of Lebanese debt, at the expense of ordinary citizens, who continue to face strict withdrawal limits. Indeed, with banks across the country closing during the final quarter, analysts suspect that such drastic measures have been taken due to the crippling dollar shortage, which has prompted banks to minimise the risk of capital flight. But by closing and then imposing withdrawal restrictions, more panic has set in throughout the country. And with protests growing, more depositors have tried to withdraw their money to send abroad. But the banks have placed such huge sums of deposits with the central bank that imposing stringent controls on dollar accounts has become their only option, other than resorting to depleting the country’s reserves.

Depositors now fear that their savings could be at risk, despite government assurances to the contrary. With the banking sector identified as one of the chief culprits in causing the country’s recent troubles, commercial lenders have been on the receiving end of much of the ire, which has only become worse since the capital controls came into effect. With the cash shortage seemingly all but confirmed, frustrations have grown to such an extent that rioting protesters have smashed up banks and automated teller machines, while one protestor even took a bank employee hostage. Reports citing judicial sources confirm that dozens of lawsuits have also been filed by depositors against banks for withholding their money. And with the sector having long enjoyed a cosy relationship with Lebanon’s political elite, protesters have taken particular aim at the resulting corruption, demanding the recovery of funds that were purportedly embezzled by politicians. Indeed, many are demanding that the entire governing regime steps down.

Lebanon’s woes can also partly be attributed to external factors. The civil war in neighbouring Syria, for instance, has not helped matters. With refugees streaming into the country, significant pressure has been placed on public services such as water and electricity, while tourism has also taken a nosedive. And lower oil prices have only exacerbated the situation, as the substantial number of remittances from Lebanese expatriates in neighbouring oil-rich countries has declined. With the likes of Saudi Arabia having recently threatened to expel Lebanese nationals, the declining inflow of remittances has reduced the contribution towards Lebanese banks’ efforts to fund additional debt, while the remittance dollars that previously helped to support the pound’s peg has significantly diminished.

Indeed, the Lebanese pound is now under mounting pressure. Although the official peg is at 1,500 pounds, the economic downturn has meant that foreign-exchange dealers have been trading dollars at more than 2,600 pounds in recent weeks. The IMF also recently acknowledged that the pound is around 50 percent overvalued.

Unsurprisingly, comments by Lebanon’s central bank governor, Riad Salameh, that “nobody knows” how much more the cost of dollars traded on the black market will increase have not been received well, while fears continue to grow over a potential devaluation of the pound that would seriously hurt the country’s savers.

Speaking to the Financial Times, Sibylle Rizk, the public policy director at lobby group Kulluna Irada, noted that despite all of the dollars that have flowed into Lebanon, “We have no infrastructure, no productive sector. We have nothing. All this money was burnt on consumption… through imports and real estate, which is a bubble, and to defend the peg.”

Hariri remains as caretaker leader in the interim and has resorted to asking the IMF and the World Bank for support amid growing concern over a possible default. His successor, Prime Minister-designate Hassan Diab, was named on December 19, although he is also accused by protesters of being part of the corrupt ruling elite.

Diab is backed by militant group Hezbollah, which is an integral part of the Lebanese government but is also designated as a terrorist organisation by the United States and has been recently on the receiving end of new sanctions that have only put further pressure on Lebanese citizens.

The World Bank (WB) believes that Lebanon’s economy contracted by 0.2 percent in 2019 and possibly by even more, given the deteriorating environment of the final quarter. “Balance of payments constraints are leading to dire conditions for businesses and workers. Declining confidence in the economy is also causing higher dollarization of deposits, which impose a heavy toll on the balance sheets of banks and Lebanon’s central bank.” As such, the World Bank believes that the poverty level could rise to half from around a third (by 2018 estimates) should a worsening situation materialise. “Unemployment, especially among youth, is already high and could further rise sharply,” the WB observed in November.

There are now growing calls for banks to service imports rather than debts, with Lebanese officials having asked for help from foreign countries and banks to secure capital for this purpose. “We will ask the international donors to provide Lebanon with $4 billion to $5 billion in soft loans to finance the purchasing of wheat, fuel oil and pharmaceuticals,” Ghazi Wazni, the newly appointed finance minister, told a local newspaper. “This injection will cover the country’s needs for one year and will also help reduce the run on the US dollar.” But donors are demanding that Lebanon implement reforms and tackle systemic corruption before they agree to provide support.

To date, the central bank is managing to fulfil its repayment obligations to domestic banks, although Lebanon’s sovereign debt has been downgraded several times, and investors are increasingly concerned that it could default on its next bond payment in March. Ratings-agency Fitch recently predicted that Lebanon will default on $88 billion of public borrowing, while S&P Global Ratings downgraded the long-term issuer credit ratings for three of Lebanon’s biggest banks to “selective default” from CCC. And with the private sector continuing to default on loans, some believe that Lebanon’s banking sector now has a higher rate of bad debt on its books than the United States did in 2008. As talk of collapse continues to grow, Lebanon remains on course to face arguably the most challenging financial moment in its history.

Source: International Banker (February 10, 2020)

8 Comments

  • Another excellent shoulder dumbbell exercise is the seated dumbbell shoulder press, which resembles
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    You ought to goal to do lateral raises 2-3 times per week, depending on the frequency of
    visits and your total exercise goals. This roundup of the most effective shoulder
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    Your delts are the star of the present in phrases of building out your shoulder
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    They’re split into three sections, the anterior, the posterior, and the medial delts make up the triangle-shaped guardians of your
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    the workouts will use a slow, controlled tempo, while others are more explosive.

    Below you may find my favorite four workout routines
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    lookout for an alternative, you must take a glance at the monkey row.
    It’s some of the well-liked compound movements because of this.

    This is very true if you want to construct strength in your shoulders or create extra definition. Use a dumbbell
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    do to help develop bigger, stronger, well-rounded muscular tissues – here’s the
    list. Rear delt flys target the posterior deltoids, which
    are often neglected but essential for balanced shoulder growth.
    As such, when designing your deltoid exercise, it’s essential to choose
    on the right train for the deltoid head you want to develop.
    He’s a writer and editor with a decade’s value of experience covering well being, health, tech and sports activities.

    Keep on the lighter aspect along with your dumbbell choice, trying to maintain only a minimal bend in your elbows.
    You’ll likely recognize the traps as being that triangle-shaped muscle on your
    upper back. Separated into three key areas, it’s the center trapezius
    that runs directly throughout the highest of the shoulders.
    From arm abduction to lateral and exterior rotation, the rotator
    cuff permits the shoulder joint’s ball and socket to maneuver freely in varied directions.

    Some arguments in gyms have been with regard to the most
    effective hand position for better concentrating on the rear deltoids.

    There are many who believe that the pronated grip is healthier for focusing on the rear deltoids.
    However, for the sake of ending the debate and picking a winner, a
    model new examine suggests that it’s the neutral grip.
    The medial or aspect deltoids have one main perform — arm abduction, which suggests they raise them out and away
    from the midline of your physique.
    As Quickly As you’re into your exercise, you have to handle the weight you are lifting.
    If you start to battle, drop the burden or pickup
    a lighter choice. Go onerous or go house may work
    for some muscular tissues, but in relation to shoulder workouts it’s simply not price it.
    This train strengthens the rear delts and improves shoulder stability, lowering the danger of harm.

    Otherwise, Wednesday or Thursday are classic days for shoulders, maybe with some traps thrown in afterward.
    If you’re after larger and stronger shoulders, physiologist Dr.
    Mike Israetel has 5 workout routines in mind that can help you reach that goal.
    On March 10, 2025, he took to his YouTube channel
    to interrupt down these actions, backed up by science-based reasoning.
    [newline]Together, these heads of the deltoid are answerable for
    the arm’s movement in a number of instructions, taking
    part in a key function in pushing and pulling actions. Focus on rowing your higher arms straight out to the edges, and squeezing
    your shoulder blades again and together within the high of the movement.
    With the front and aspect delts taken care of, it’s time to
    turn our attention to the rear delts.
    While barbells are perfect for strength, utilizing dumbbells requires extra stabilization because of only utilizing one arm.
    This causes an increase in activation which can translate to greater positive aspects,
    which allows you to construct more muscle. They’re
    effective, straightforward to use, and are found in principally each
    single industrial health club.
    It is really helpful to carry out shoulder
    exercises 2-3 times per It is really helpful that shoulder workout
    routines be carried out 2-3 occasions per week, with no much less than one day
    of relaxation between each session. The Reverse Cable Crossover helps you to 
    strengthen and tone the rear deltoid muscles. When doing a shoulder exercise with a cable machine, you’ll find a way to add loads of single-arm exercises to right potential imbalances.
    Cable exercises are an excellent place to begin out if you want to add some variety to
    your shoulder exercise routine.
    Compound workout routines just like the bench press and overhead press
    heavily involve the entrance delts along with different muscle teams.
    For many individuals, particularly novices and intermediate lifters,
    they are sufficient for the front delts to develop.
    When you elevate your arm out to the aspect, the lateral deltoids (side delts)
    are the muscular tissues doing a lot of the job, like when you do lateral raises.

    Differ your delt coaching by sitting or kneeling as a
    substitute of standing to remove assistance from neighboring muscle teams and isolate your shoulders extra successfully.

    Utilizing multiplanar training reduces muscular imbalances, prevents harm, and will increase your useful power and fitness.

    Having coated the advantages of the overhead press, it’s potential to make a slight adjustment to
    extend the difficulty and problem of the exercise.
    By sitting, it instantly becomes rather more difficult to make use of momentum to repeatedly push the bar upward from the chest.

    Compound actions like push-ups and chin-ups are a good way to include a number of muscle groups within the higher body, difficult it as a system.
    The seated neutral-grip overhead dumbbell press is a unbelievable train for constructing power and definition in your shoulders, particularly
    your anterior deltoids and lateral deltoids. What
    units the Seated Rear Dumbbell Lateral Elevate aside is its capacity to isolate the rear deltoids.

    By performing this exercise seated, you eliminate many of the body momentum
    that can detract from pure muscle work.
    That doesn’t imply grabbing the heavy weights and doing
    dumbbell aspect lateral raises by which you begin bringing your traps,
    arms, again and momentum into it. Rear delts are commonly lagging for novices and bodybuilding professionals alike.
    Merely put, they do not get as a lot stimulation, provided that the entrance and
    middle delts are involved in chest- and shoulder-pressing moves.
    Whereas the rears are referred to as into motion on again day, all too many lifters
    focus on mirror muscles.
    You might be shocked to know that the rotator cuff is the
    most important muscle of the shoulder. It refers to a bunch
    of muscles and tendons that surround the shoulder joints.
    A wider grip has been demonstrated to both considerably improve delt activation and likewise minimizing the biceps’ role within the
    motion. You can also carry out these one arm
    at a time to get the identical effect. For power features, you possibly can go lower than this and use heavier weights;
    about 1–5 reps per set is probably the most effective for power.

    That’s greater than enough nice exercises for a front delt exercise
    regardless of your coaching experience. Carry Out the
    movement with a slight forward lean and allow your elbows to flare out barely to emphasise your chest and
    the front of your shoulders rather than your triceps.
    When you do entrance raises or raise your arm in front of you, your entrance delts spring into action. If you retain chiseling away at your muscles without giving yourself the chance to recover between exercise
    sessions then you’ll face an identical
    destiny. If you can build a broad chest while constructing broad shoulders, that will drastically enhance
    the meant effect, leaving you with a physique you could be proud of working towards.
    Pike push ups (especially elevated pike push ups), Wall walks, Handstands (and kick ups) are all good workouts for your center delts.
    This is a troublesome exercise that’s going to hammer your
    shoulders and traps.
    Whereas the Cuban press is usually carried out using a
    barbell or dumbbells, it may also be done utilizing a low cable machine and a revolving bar.
    If you wish to construct broad, muscular shoulders, contemplate this exercise from famous bodybuilder Arnold Schwarzenegger.
    His take on the dumbbell overhead press engages all three sections
    of your deltoids.
    Your shoulders are already working all day long, helping you do every little
    thing from brushing your enamel to capturing hoops to driving to work.
    So you have to work them hard with one of the best shoulder
    workouts to get them to hear to the message to grow!
    With the setup right here, we’re stripping all the method down to the naked essentials.

    References:

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