LIMS explained that Lebanon did not discover any gas fields yet that can be commercially viable and therefore Lebanon is not an oil or gas exporting nation. If natural gas is found in the future, economic benefits will take a minimum of 5 years to show, but only under perfect stipulations. Chance and time are not the only matter at hand. LIMS believes that the Lebanese government is unable to properly run a cash cow sector like oil and gas. The risk of cronyism and kickbacks would be high in the extraction and payment process. Already, the electricity sector is burdened with these types of shady deals.  

Unfortunately, the portion of the money allocated to the sovereign fund would not be managed properly. In Lebanon’s case, the closest example to a sovereign fund, was the central bank’s foreign exchange reserves. The central bank was supposed to be independent and only invest in low-risk money market securities. Yet, the money was looted, by financing government expenditure in foreign currency at an undervalued exchange rate. LIMS suggested giving ownership of natural resources directly to the population without going through the government.  

LIMS news and opinion website released an exclusive article showing that the Central Bank of Lebanon managed to increase foreign exchange reserves by around half a billion dollars. The central bank expanded Lebanese pounds (LBP) in circulation by around 25% in one month to buy US dollars, taking advantage of the positive atmosphere that came with the maritime boarder deal. By the end of the month, the central bank announced that it would stop buying US dollars and would limit the use of its Sayrafa exchange platform to selling dollars. This prompted an appreciation of the LBP against the US dollar for the black-market exchange rate.

LIMS explained that adopting full dollarization would solve the currency instability in Lebanon, thus prompting growth and reducing poverty. Allowing private businesses to set their prices in US dollars would make it possible for them to pay their employees in US dollars as well. Thus, taxes could be paid in US dollars, allowing the government to pay public sector employees in hard currency. Having such a system would halt the devaluation stress, that has been haunting most residents with incomes denominated in LBP. Income earners, who get their pay in the local currency, keep losing purchasing power due to the LBP devaluation.

LIMS explained that given the innovation in renewable energy, a solution has emerged on the municipal level. Renewable electricity licensing should shift to municipalities avoiding all the national impediments. This would attract private electricity projects, especially in solar power, given Lebanon’s 300 days of sun per year. An opportunity exists in the Lebanese electricity sector, due to the heavy outages and expensive private generators. The cost of producing solar energy over the lifecycle of the system is lower than both EDL’s cost and the private generators’ cost, creating a potential business venture for private investors.

LIMS Media Interviews: 

• Mining And Its Environmental Risks, October 10, 2022: MTV, TV Interview AR  

• How Will The Demarcation Agreement Be Reflected On The Economic File? With Economist Patrick Mardini On “Talking About Politics” October 18, 2022: VDL, Radio Interview AR  

• “Reviving Lebanon’s Economy”...Why Do Experts Doubt Government's Ability To Implement The Project? October 18, 2022: Al Estiklal Net, Article AR  

• Electricite Du Liban, 10 Hours Per Day In Early December, October 29, 2022: Al Jadeed, TV Interview AR  

For the second session, speakers looked into the 2022 budget and explored ways to reform the public sector in Lebanon. Fiscal policy, customs and tax evasion, government-owned monopolies and government spending were thoroughly analyzed, and solutions were suggested. Speakers included: Dr. Bassem Bawab, board member of the Beirut Traders Association, Dr. Mohamad Fheili, financial risk expert and economic researcher, Mr. Nicholas Chikhani, financial and banking expert, and Mr. Garabed Fakrajian, policy analyst at LIMS.  

At the third session, a solution to stopping the currency crisis in Lebanon was proposed. Lebanon is a highly dollarized country, making traditional prescriptions unfit. Alternative routes, such as establishing a currency board or adopting full dollarization were explored and heavily debated. The speakers at the session were: Dr. Layal Mansour, visiting lecturer at George Washington University, and Dr. Walid Marrouch, professor of economics and assistant dean of graduate studies and research at the Lebanese American University (LAU).
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1. The 2022 budget law, facilitated by Dr. Rajaa Charrif, director of public accounting at the Ministry of Finance and Dr. Elia Elia, professor of political science and international relations at the University of Balamand. 

2. Electricity reform, facilitated by Mr. Ghassan Baydoun, the previous director general of investment at the Ministry of Energy and Water and Mr. Anthony Zina, policy analyst at LIMS.  

3. Capital control law, facilitated by Esq. Richard Deeb, partner in the law firm D&C for Legal Services and Mr. Garabed Fakrajian, policy analyst at LIMS.   

4. Education law, facilitated by Dr. Mazen Derawan, founder and CEO of one of the largest meat processing companies in the Middle East, and Dr. Rajaa Charrif, director of public accounting at the Ministry of Finance. 

5. Public procurement law, facilitated by Dr. Jean Ellieh, president of the public procurement authority and Judge Rana Akoum, head of the execution court in Jdeidet El Metn. 

Dr. Mardini, CEO of LIMS, started off the workshop with a plenary session on the five axes of reforms that constitute the base of the negotiations between Lebanon and the IMF, namely: currency reform, fiscal reform, banking sector reform, electricity reform, and anti-corruption and money laundering reform. By the end of the workshop, each group selected a representative to present their findings to all participants and experts who discussed those findings.  

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During October, the approved 2022 budget law was not published in the official gazette, making it applicable for only the last quarter of the year. Such repercussions of the 2022 budget are still being discussed in Lebanon, especially the increase in public sector employees’ salaries by three-fold, and the official devaluation of the exchange rate from 1,500 Lebanese pounds (LBP) to the dollar to 15,000 LBP to the dollar.

Salaries should be related to labor productivity, and public sector employees currently have poor job performance, not even showing up to work most of the time, LIMS explained. Therefore, any raise should be achieved through a public sector restructuring that would effectively decrease the number of employees. Already, this number is inflated at 300 thousand public sector employees, for the 4 million citizens.  

On the other hand, increasing taxes and tariffs will only lead to a higher burden on businesses and people, creating further tax evasion or complete shutdown. A better approach would be to apply a flat tax rate, while simultaneously decreasing it. This would disincentivize evasion and attract investments, prompting growth that would in return increase the overall revenue.

LIMS Media Interviews: 

• Mardini To Janoubia: New Dollar Multiplies Prices 10 Times! October 1, 2022: Janoubia, TV Interview AR 

• Farewell To The Dollar, The Beautiful Times Have Started, October 1, 2022: Lebanon Debate, Article AR 

• New Exchange Rate Is 15,000 Lebanese Pounds If Applied...What Costs And Catastrophic Effects Will This Have On People?! October 3, 2022: El Nashra, Article AR 

• Special Report: President Aoun's Most Important Achievements Amid Deteriorating Conditions And Decline In Standard Of Living For Lebanese Day-By-Day, October 26, 2022: VDL, Article AR 

• In Addition To Abolition Of Customs And Real Estate Fees…Fakrajian: Reducing Taxes Increases Chances Of Collecting Them! October 3, 2022: Nidaa Alwatan, Article AR 

• 2022 Budget Punishes Producers, Drives Away Investors, Fuels Inflation, And Is Heading Towards The Continued Collapse Of The Lebanese Pound Price, October 4, 2022: MTV Lebanon, Article AR 

• Customs Dollar And Salary Increase Will Eliminate Rest Of The Sectors. Private Companies Threatened With Bankruptcy And No Reforms Yet, October 4, 2022: Addiyar, Article AR 

• Is Lebanon Really At The End Of The Crisis? October 5, 2022: Lebeconomy, Article AR 

• Raising Public Sector Salaries Increases Exchange Rate Craze, October 7, 2022: Annahar, Article AR 

LIMS explained that historically, Lebanon boasted a strict banking secrecy law that attracted large funds from the Middle East. Those funds were seeking refuge away from tyrannical regimes. The current financial crisis and economic crises highlighted the size of corruption in public administration in Lebanon, that can potentially hide behind the bank secrecy shield. However, LIMS differentiated between (1) removing banking secrecy, (2) identifying stolen funds and (3) uncovering the money transferred abroad after 2019. Those are three different operations that pundits often confuse. Money generated from illicit activities may have left Lebanon before 2019 and money transferred after 2019 may well be legal money. Removing bank secrecy does not recover either. It would rather help regain some transparency in the banking system and facilitate international integration.

LIMS Media Interviews: 

• Did Banking Secrecy Law Come To Consolidate Political Power? October 15, 2022: RLL Radio Interview AR 

• Lifting Banking Secrecy: Most Prominent Conditions Of IMF, October 18, 2022: NBN, TV Interview AR

LIMS explained that total deposits at the Lebanese banks add up to around 100 billion US dollars. Still, the central bank holds only 10 billion USD in foreign exchange reserves. Even if commercial banks are liquidated, the sum won’t exceed 20 billion US dollars. In other words, depositors have lost most of their deposits regardless of the banks’ strike. This loss is seen via the “lirafication” of their withdrawals. Such happens when deposits in dollars are being settled by the local currency—the Lebanese pound (LBP)—at a lower value than the market rate. To illustrate, this low value is in the range of 8,000 to 12,000 LBP to the dollar while the market rate averages around 38,600 LPB to the dollar, effectively forcing a haircut on withdrawals. The Lebanese government is currently negotiating with the IMF on a plan that would impose a direct haircut on deposits (instead of the lirafication of withdrawals) to settle the banking crisis. 

LIMS Media Interviews: 

• BBC Extra: Partial Bank Closures In Lebanon Continues, October 13, 2022: BBC Arabic, Radio Interview AR 

LIMS explained that global inflation is due to the increase in money supply worldwide following COVID lockdowns, on top of quantitative easing policies. To make matters worse, the war on Ukraine caused an issue with the world’s energy supply. Heating, cooling, and transportation costs have been on the rise. The US dollar was able to strengthen against other currencies due to the Federal Reserve’s ability to increase interest rates. The European Central Bank on the other hand, maintained low interest rates, and could not restrict the money supply, due to the critical situation in Europe. Interest rate differential and security risks explain the historical depreciation of the euro. 

LIMS Media Interviews: 

• An Economist: United States Has Become Safe Haven For Capital And the World Economy Has Entered A Recession, October 9, 2022: Arb Majalla, Article AR