Why do government banks offer poor services


Before the civil war in 1975, Lebanon was one of the most important financial centers in the Middle East. Beirut was the banking metropolis of the Orient, a link between Europe and the Gulf States. From this an economy developed based on the brokerage, trade and service economy. With the end of the civil war, the then Prime Minister Hariri tried to regain this status. However, this was not easily possible. The economic relations between Europe and the Gulf States have meanwhile been expanded, Dubai replaced Beirut. The capital that had fled during the civil war did not return when the war ended, leaving Lebanon with a lack of important investments for reconstruction. This in turn meant that the reconstruction was refinanced through public debt. Lebanon today suffers from a huge mountain of debt. The country is over-indebted with more than US $ 85 billion. According to the rating agency Standard and Poor's (S&P), national debt is one of the highest in the world, at around 170 percent of gross domestic product. Debt service accounted for nearly 50% of government spending in 2019. The Lebanese state is thus sitting on a huge mountain of debt. In 2019, government spending was around 50 percent above income. In March 2020, the Lebanese Prime Minister Hassan Diab said in a televised address that the state would not repay the loan that is due. The economic situation in Lebanon is worse than it has been since the civil war from 1975 to 1990. The country is struggling with foreign exchange bottlenecks, banks are on the verge of collapse. Savers do not have access to their accounts.

To support the troubled economy, Lebanon needs an immediate injection of liquidity in dollars. The IMF and the EU have indicated their readiness to lead stabilization aid. However, they set conditions that the country should meet in advance. To this end, the government must draw up a transparent and verifiable economic and financial plan. The high spending of the public sector should be cut, and politics must stop abusing state institutions. In particular, the electricity sector, which is a major contributor to the annual budget deficit, needs reform.

The country's most important resource and source of income is its well-trained workforce, who send foreign currency to Lebanon from abroad. Young people in particular also protest against the expensive education system. Students have to pay the equivalent of up to US $ 9,000 per semester - while the minimum wage is less than US $ 200 per month.

The literacy rate is 89.6%. 8% of Lebanon's GDP is generated by the agricultural sector, 23% by the industrial sector and 69% by the service sector. The country has had high trade deficits for years. Due to the strong domestic political turbulence and not least the Syria conflict, it can be assumed for the current year 2020 that the trade deficit of 14 billion US dollars will be exceeded by far. In 2015, exports to the Gulf States collapsed completely. Due to the Corona crisis as well as the political situation and the resulting security deficits, it can be assumed that the tourism sector will continue to be affected, so that the high unemployment will continue to rise. The hurdle of 30% has already been exceeded. Youth unemployment is estimated to be over 63%, which increases labor migration from Lebanon. Well-trained engineers, doctors and economists in particular are leaving the country. Necessary investments are not made. Around 350,000 Lebanese abroad work in the Gulf States. For the year 2019, the World Bank puts the transfers of the Lebanese diaspora at 7.9 billion USD. According to estimates, the Lebanese abroad contribute up to 15% of the gross national product in this way.

The 100 piasters Lebanese pound is issued by the Banque du Liban, which acts as the central bank, and is pegged to the US dollar. With the Lebanese Central Bank's high foreign exchange reserves of USD 54 billion at the end of May 2018, the Lebanese banking and financial sector proved its role as the backbone of the Lebanese economy. The Lebanese banking system has come under increasing pressure since October 2019. The central bank is having massive problems defending the Lebanese pound. Since Lebanon's debt is mostly in US dollars, the burden of debt would increase dramatically if it were devalued. However, a necessary restructuring of the debt is not in sight. Rather, the Lebanese are desperately trying to keep the dollar peg.

Over the past few months, the Lebanese pound has depreciated against the dollar. As a result, imported resources such as grain and gasoline, which are traded in dollars, became more expensive. The insecurity within the population increased again significantly when some Lebanese banks limited withdrawals in US currency. The trust of the people in the banking system was permanently damaged, whereupon a black market developed as a result of the dollar shortage. There the Lebanese pound is traded at 7000/1 in relation to the US $. The prices for basic goods have risen by over 60 percent since March. And inflation for 2020 is estimated by the government at 25 percent.

In 2019, Lebanon imported the majority of its consumer and capital goods from China (10.9%), Italy (8%), Greece (7%), Germany (6.2%) and the USA (5%). About 70% of Lebanese imports come into the country through the port of Beirut, just under 21% through Beirut airport, 7% through the port in Tripoli and the remaining 1% through the port in Saida. Among other things, you can export Food, chemical products, jewelery, textiles, machines and electrical appliances as well as products of the metal processing industry. While Lebanon exports goods worth US $ 3.5 billion, Lebanon imports goods worth more than US $ 20 billion. The foreign trade deficit is enormous and has a significant negative impact on the country's economic development. According to the IMF, real economic growth in Lebanon was 1.0% in 2018, 0% in 2019 and negative growth is expected for 2020.

Lebanon needs the equivalent of just under 1.9 billion euros over the next three years to cope with the consequences of the civil war in neighboring Syria. Millions of refugees have to be supplied with food, electricity and schooling. In addition, as the fighting spread to Lebanon and the participation of Lebanese in the Syrian civil war, there has been a painful decline in income from tourism. Every second Lebanese between 15 and 34 is unemployed, which has a massive impact on health, education and the social system. More than a million Lebanese already live in poverty. The World Bank expects that due to the poor economic outlook, 170,000 more people could slip below the poverty line. The international community wants to provide more than USD 11 billion (approx. EUR 9 billion) in low-interest loans and donations for crisis-ridden Lebanon. This was the result of the Paris CEDAR conference, which took place in April 2018. However, the promised funds are tied to the implementation of urgent reforms that can only be tackled with the new government, but the government has so far failed to implement urgently needed reforms. The attempt, as requested, to increase tax revenue in the 2019/20 budget planning threw Lebanon into an economic and financial crisis. The Prime Minister even resigned under pressure from the protesting population, and the resulting political crisis led the country to a dead end. It is not yet possible to foresee how the situation will develop. The prices of government bonds have lost 30 percent of their value since the beginning of the year.

If the financial markets continue to withdraw confidence in Lebanon, Lebanon will not be able to avoid a state bankruptcy.

The. Publishes important data and statistics Central Administration of Statistics (CAS). You can also find out more important facts about the economy of Lebanon from the following links: