|
|
|
|
|
The Financial Action Task Force (FATF) is on the brink of placing Lebanon on its "grey list" due to inadequate measures against money laundering and terrorism financing, fueled in part by the country's substantial cash economy, which constitutes roughly half of its economic activity. LIMS notes a severe financial crisis gripping the nation since 2019, reflected in the banking system's collapse. This crisis rendered banks incapable of honoring pre-2019 deposits, eroding trust among depositors and investors, prompting a shift towards holding cash rather than risking it in banks.
|
|
|
For LIMS, a potential downgrade by the FATF would disrupt local banks' relationships with correspondent banks, with the latter likely opting for de-risking by severing ties or imposing heightened compliance costs on Lebanese banks. These elevated costs, in turn, inflate expenses for foreign trade and remittances, casting a shadow on Lebanon's economic prospects. Moreover, Lebanon's tarnished reputation could deter foreign investors wary of accusations related to terrorism financing or money laundering, dampening foreign investment crucial for sustained economic growth.
In the absence of a fully functioning banking sector to address this issue, the International Monetary Fund (IMF) suggests restructuring the banking system, a proposal that the parliament is reluctant to pass. This dispute between the parliament and the IMF extended a five-year deadlock that has hindered economic recovery and disproportionately burdened vulnerable segments of society.
LIMS emphasizes the urgent need for a banking sector revival to jumpstart economic activity, advocating for measures such as segregating pre-crisis and post-crisis dollar deposits while waiting for the banking sector's restructuring phase. Additionally, permitting Lebanese banks to accept and lend fresh dollar deposits and welcoming new, reputable banks into the market can help rebuild confidence and reduce cash dependency among the public, bolstering Lebanon's financial resilience.
|
|
|
LIMS Urges a Switch Towards Private Renewable Energy to Preserve Foreign Exchange Reserves
|
|
|
|
In a high-profile announcement, the Minister of Energy declared the collection of $80 million worth of electricity bills. LIMS suggested that this move is a strategic attempt to exert pressure on the central bank. Electricité du Liban (EDL) typically relies on central bank funding for fuel rather than bill collections. The acting central bank governor has refused to lend money to the government, aiming to maintain currency stability but the energy minister seeks to overturn this policy. LIMS highlighted the lack of coordination between the Ministry of Energy and Water, the Ministry of Finance, and the central bank, which has hindered the Iraq fuel deal. Despite recent electricity price hikes, EDL remains far from achieving the promised eight hours of daily electricity supply by 2028.
|
|
|
|
Under program PRISM (Private Initiatives to Service Municipalities), LIMS underscores the importance of enabling the private sector to take the lead in supplying renewable energy at the local level, working hand in hand with municipalities. This strategy holds the potential to effectively tackle the persistent challenges associated with fuel procurement and payment in hard currency. Moreover, it promises to deliver a higher number of daily electricity hours compared to the current offerings by EDL. Toula’s solar farm stands as a successful example of enhancing local electricity production. The solar farm has improved power supply and reduced electricity bills. Beyond electricity provision, this model of private sector involvement in service delivery at the municipal level holds broader applicability. For instance, it can be extended to encompass other essential services like waste management, underlining the potential for improvement and sustainable development within local communities.
|
|
|
How Lebanese Ministers Skew Public Procurement to Favor Cronies?
|
|
|
|
LIMS has unveiled a policy brief under the APPLE C program (Apply Public Procurement Law to End Corruption), highlighting systematic breaches and manipulative tactics by various Lebanese ministries to evade the Public Procurement Law. These ministries often favor pre-selected cronies while discouraging genuine competition. One method involves ministers announcing tenders at the last minute, making it virtually impossible for other bidders to participate due to the restricted timeframe. This is achieved by (1) failing to publish annual procurement plans and (2) deliberately shortening the deadlines for tender announcements. Moreover, when tenders are finally announced, they frequently lack comprehensive and pertinent information. Ministries also often find reasons to reject bids, further skewing the process. LIMS asserts that these practices not only facilitate corruption by eliminating competition but also result in single-bidder scenarios, which cost the economy millions of dollars and significantly erode public trust in Lebanon's institutions.
|
|
|
War in South Lebanon Sparks Fears of Currency Depreciation
|
|
|
|
The ongoing conflict in South Lebanon, which erupted in October 2023, has raised serious concerns about a potential resurgence of currency devaluation. The Lebanese pound, having suffered the world's steepest depreciation—plummeting over 83% since the onset of the financial crisis in 2019—had only recently achieved a semblance of stability by mid-2023.
|
|
|
|
LIMS attributes the currency's previous collapse to rampant money printing, which fueled inflation, devaluation, and a depletion of central bank reserves. The acting governor of the central bank managed to stabilize the currency over the past year by tightening money supply. However, LIMS warns that this stability is contingent on maintaining strict monetary discipline. To prevent future manipulation of the money supply, LIMS advocates for amending the law to place rigorous controls on monetary policy or a transition to full dollarization, which would limit the government's capacity to interfere with the money supply.
The war's impact on Lebanon's economy has been severe. LIMS reports a significant hit to tourism and travel, with a 20% drop in passenger traffic at Beirut's international airport compared to the previous year. Daily tourism spending, previously at $60 million before the crisis, has declined by 10%, amounting to a $6 million daily loss over the past six months.
Further escalation of the conflict threatens to destroy critical infrastructure, complicating future reconstruction efforts and deterring foreign investment. The volatile situation has already led investors to reconsider their positions, with many seeking to withdraw their investments from the Lebanese market, exacerbating the country's economic woes.
|
|
|
Policy Workshop to Tackle Local Economic Challenges
|
|
|
|
LIMS Leader’s Academy LLA301: Shaping Public Policy Workshop took place in North Lebanon on April 21, 2024, and in Beirut on April 27, 2024. The workshops gathered participants who actively engaged in discussions to devise solutions for local economic issues and strategized advocacy campaigns to effectively spread their messages.
|
|
|
|
Participants prioritized successful pilot projects that allow for the identification and resolution of issues on a smaller scale before committing to larger investments. This approach enables stakeholders to gather valuable data, refine strategies, and build confidence in the project's effectiveness. It also fosters collaboration among various stakeholders, ensuring that the projects are well-adapted to local needs and conditions.
|
|
One initiative involved adopting the Ras el-Nabeh water distribution model, where water is sourced directly from a spring and redistributed to nearby homes without government involvement. Another suggestion was a pilot project for enhancing security, modeled after the Adma community project or the Ras el-Metn initiative. Providing waste management services to businesses by collecting monthly subscriptions was also proposed.
To stimulate economic and tourism activity, a pilot project would be launched in a mixed residential-commercial neighborhood, encouraging local traders to unite in cleaning and lighting the areas in front of their shops. A proposal for solar energy coordination, involving municipalities, generator owners, and the private sector, was recommended. Lastly, addressing pollution from cement factories involved organizing a campaign with affected citizens, securing funding from tourism institutions for a pollution monitoring station, and advocating for a law allowing cement imports in order to reduce pollution and curb monopolies.
As these initiatives move forward, they hold the potential to significantly improve the quality of life in Lebanon by tackling economic development and environmental challenges on the grassroot level. The workshops not only provided a platform for sharing ideas but also set the stage for actionable plans that could transform Lebanon’s landscape.
|
|
|
References
LIMS Media Interviews
|
|
|
|
Lebanon Faces Grey List Threat Over Money Laundering and Terrorism Financing
- Reforming The Banking Sector And Supporting Economic Growth: Proposed Solutions For Lebanon, April 8, 2024: VDL, Radio Interview AR
- Poverty Rate In Lebanon Soars To Over 80%, April 18, 2024: ANHA, TV Interview AR
- Lebanon: Do We Really Pay Taxes? April 16, 2024: Naqd, Article EN
- Economic Solutions To Address Lebanon's Challenges: Policies To Restore Growth And Attract Investments, April 29, 2024: MTV, TV Interview AR
- Financial Situation Left Hanging, Crisis of Addressing Lebanese Deposits Remains Unresolved, April 24, 2024: Beirut24, Article AR
LIMS Urges a Switch Towards Private Renewable Energy to Preserve Foreign Exchange Reserves
- How Does Monopoly Hinder The Development Of Infrastructure And Improvement Of Services In Vital Sectors In? April 18, 2024: RLL, Radio Interview AR
- $80 Million Transferred to Lebanon Electricity Establishment Account... Illusionary Success or Improvement in Nutrition? April 18, 2024: This Is Lebanon, Article AR
- Does Partnership Between The Public And Private Sectors Have A Positive Impact On The Economic Situation? April 24, 2024: VDL, Radio Interview AR
How Lebanese Ministers Skew Public Procurement to Favor Cronies?
- LIMS Exclusive: Ministries Dodge Public Procurement Law to Maintain Patronage, April 15, 2024: Limslb, Article AR
- Lebanon's Sole Gateway At Risk: Will Airport Operating Hours Be Determined? April 18, 2024: Lebanon On, Article AR
War in South Lebanon Sparks Fears of Currency Depreciation
- Lebanese Poors Call Out: "We've Had Enough" Promises, April 8, 2024: Al Safa News, Article AR
- What Is The Benefit Of Keeping The Lebanese Pound? April 16, 2024: Naqd, Article AR
- Benefits And Warnings Of Cryptocurrencies: The Real Solution To Financial Crises In Lebanon? April 17, 2024: VDL, Radio Interview AR
- How Did The War Reflect On The Lebanese Economy And The Tourism Sector? April 22, 2024: CNBC, TV Interview AR
- War Negatively Impacts Various Sectors And "Screens Out" Investments, April 26, 2024: Yemen Today, TV Interview AR
- How Did Robo-Advisors Contribute To Shortening Time And Reducing Investment Costs In Financial Instruments? April 30, 2024: MTV, TV Interview AR
|
|
|
|
|
|
|
|
