Press Release
In FRANSABANK’s Economic Bulletin for the third quarter of 2006:
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The Israeli war on Lebanon and its adverse consequences, along the
escalating political tension in Lebanon continue to contract the aggregate
economic activity.
Paris III Conference should be looked at as a serious and novel
opportunity to revive the national economy and support the
reconstruction process of Lebanon.
FRANSABANK published its economic bulletin for the third quarter 2006 which
includes a report on Lebanon’s economic performance during the first nine months of
2006, and a study on the role of the Arab financial sector in the reconstruction and
rebuilding of Lebanon.
In the economic report, FRANSABANK noted that the aggregate economic activity
of Lebanon continued to be slow, affected mainly by the negative implications of the
latest Israeli war and the upsurge in domestic political conflict to critical levels.
The report mentioned that the economic activity for the third quarter of 2006 recorded
a regression of 8.6% in the tourism activity, 18.8% in the number of departing and
arriving passengers through Rafic Hariri International Airport, 21.8% in the number
of ships through Beirut’s Port, 0.33% in the industrial exports, 15.4% in the imports
of industrial machinery, and 1.2% in the value of cleared checks, all in comparison
with the same period of last year.
The report noted that the overall fiscal deficit reached 35.7% of total expenditures
over the first nine months of the year, rising by 9.4% when compared to the ratio of
the same period of the previous year. The deterioration is the result of a moderate
0.5% decline in public revenues that was significantly outweighed by a 14.1% rise in
expenditures over the said periods. Debt service increased by 34.4% to exceed one
billion US Dollars, while the overall public finance deficit reached almost 2 billion
US Dollars in the first nine months of the year, or the equivalent of 35.7% of total
expenditures.
The report clarified that the gross public debt had reached USD 40 billion at the end
of September 2006, up by 4.0% from the end of December 2005, and by 8.75% since
the same month of the previous year. Net public debt reached USD 36.4 billion. Thus,
gross public debt is estimated to have reached 184% of GPD while net public debt is
estimated at 168% at end - September 2006. Gross public debt constitutes of USD
19.6 billion of domestic debt and USD 20.4 billion of foreign debt.
As to the banking activity, the report highlighted the record high growth registered
despite the war impact and the unfavorable political turbulence. Total assets amounted
to USD 73.5 billion, at the end of September 2006, up by 7.2%. Deposits grew by
3.1% amounting to USD 58.8 billion at end- September 2006. Private loans’ portfolio
increased by 9.7% to reach USD 18.5 billion.
The private funds of commercial banks increased by 43.2% to USD 6.3 billion during
the period under study.
The report mentioned that the activity on the Beirut Stock Exchange (BSE) witnessed
a relatively significant improvement despite the turbulent conditions, whereby the
total value of shares traded for the first nine months of 2006 reached USD 1.82
billion, up by 267% compared to the same period last year. Moreover, the market
capitalization of the BSE reached USD 7.14 billion up by 98.3% during the same
period.
The report noted that despite the inappropriate circumstances and the increasing
political tension in the country, and the unfavorable economic conditions, the
monetary sector has maintained its stability. The exchange rate of the Lebanese pound
vis-à-vis the US dollar has maintained its rate, and the Central Bank's gross foreign
currency reserves reached USD 13.5 billion on September 2006, increasing by USD
3.1 billion. However, the rate of the dollarization rate grew to almost 80.9% on
September 2006, and the inflation rate increased by 4.4%.
On the level of foreign trade and balance of payments, the report stated that the total
volume of goods exchanged registered a humble increase of 1.5% in the first nine
months of 2006 compared to the same period of 2005. Imports declined by 3.1% over
the same period reaching USD 6.7 billion by the end of September 2006, while the
exports' growth was reduced to 25.1% thus amounting to USD 1.7 billion in the same
period. Accordingly, the trade deficit declined by 10% to approximately USD 5
billion during this period. The cumulative balance of payments recorded a remarkable
surplus of USD 2,247 million compared to a deficit of USD 191.7 million in the first
nine months of 2005. This is mainly attributed to a surplus of USD 7.23 billion
incoming to Lebanon during the same period directly linked to the Arab and
international financial support Lebanon attained during and in the post-Israeli war
period.
The report mentioned that segregation could be done among the preceding periods of
this year; whereby the first period extending from January till June was characterized
by strong economic performance, leading to an improvement in the first and second
quarters. The second period however, or the third quarter of 2006, was marked by a
remarkable economic retreat resulting from the growing disturbed political and
economic situation which is prevailing until the moment. This resulted in:
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A regression of 54.8% in the number of tourists, 51.2% in the number of
passengers through the Airport, 53.9% in the number of ships through Beirut
Port, 40.9% in the import of industrial machinery, 17.3% in the number of
cleared checks, 26.5% in the construction licenses, and 28.6% in the external
trade. These rates are all in comparison with the average rate of the first and
second quarters of 2006. Industrial imports however declined by USD 20
million during the third quarter of 2006.
A notable increase in the cumulative monetary deficit by USD 1.2 billion
during the third quarter of the current year, an increase in the average of
monetary deficit to total expenditure to approximately 35.7% as compared to
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around 22.3% in the first half, and an increase in the public debt services by
USD 658 million during the same period.
A regression in the surplus of balance of payments by approximately USD 350
million during the third quarter of this year, due to the increase in the trade
deficit by USD 1.3 billion and the growth of external capital inflows at a
slower pace whereby they amounted to USD 930 million during the same
period.
The report cited that Lebanon ranked 106th internationally and 14th regionally on the
scale of country risk. Lebanon is as well ranked 78th internationally and 8th regionally
with respect to human development. The report ranked Lebanon in the 86th place in
terms of ease of doing business. Lebanon held the 63rd position internationally and 9th
position regionally in terms of corruption.
FRANSABANK concluded its report on Lebanon by mentioning that the previously
expected economic growth of 5-6 % is now forecasted to decrease down to zero
percent and perhaps contract this year. The report focused on the importance of
putting a quick end to the ongoing political conflict and to develop a complete and
efficient economic plan in preparation for the upcoming Paris-III Conference.
Accordingly, this conference will not only help us in the reconstruction process, but
also in launching the development program of the Lebanese economy on sound and
stable grounds.