The World Bank released its Lebanon Economic Monitor (LEM) Fall-2022 report titled “Time for an Equitable Banking Resolution” in which it showcases Lebanon’s major economic developments and policies over the past six months. The report first commented that Lebanon was one of only three countries (along with Zambia and Palau) to be downgraded to a lower income category, with Lebanon being reclassified to a lower middle income country down from an upper middle income country (a position that it held for 25 years). The report also added that Lebanon signed on April 2022 a staff level agreement with the IMF concerning a conditional $3 billion funding facility that will be distributed over 46 months in the event the country implements pivotal reform actions. The report also mentioned that the recent parliamentary elections in May led to indecisive results with the country lingering at present in a presidential and governmental vacuum while adding on another hand that the maritime border deal that Lebanon struck with Israel in October 2022 could bring relative stability and pave the way for gas exploration. However, the report warned that any viable gas reserves could take years to start generating revenues denting as such any hopes to extinguish financial sector losses from said revenues. In this vein, LEM indicated that the Association of Banks in Lebanon along with Lebanon’s Economic Committees are suggesting the use of various sources such as state owned enterprises, gold reserves, public real estate and future government revenues to extinguish the financial sector’s losses, as opposed to the suggested bail in solutions that would wipe out the equity of banks. The report also pointed out to the Lebanese parliament’s recent ratification of the 2022 budget that estimates government expenditures at LBP 41 trillion and revenues at LBP 30 trillion, thus a deficit of LBP 11 trillion, while noting that tax revenues will be calculated at an exchange rate of LBP 15,000 per USD. As far as recent economic and financial developments are concerned, the World Bank revealed that it will be upwardly revising its estimation for 2021’s GDP contraction to 7% from 10.4% previously, as some sectors such as tourism (132% y-o-y increase)  and real estate (74.3% increase in construction permits y-o-y) over-performed. On the public finance front, public finances improved in 2021 as the drop in expenditures (10.5 percentage points) outpaced the contraction in revenues (down by 6.5 percentage points to 6.6 percent of GDP, one of the lowest globally), leading to an unprecedented surplus of 0.7% of GDP. The report added that the debt to GDP ratio has declined from 179.2% in 2020 to 172.5% in 2021 as the depreciation of the local currency eroded the dollar value of local currency debt. The report also pointed to a 34% increase in the current account deficit in 2021 as the rise in energy imports outweighed the rebound in tourism activity, which when coupled with the sharp decline in capital inflows has depleted FX reserves to $14.8 billion, taking into account that said figure incorporates sovereign Eurobonds that are currently in default status.  The World Bank also commented that the war in Ukraine rubbed salt on the wounds of the Lebanese economy, driving the prices of wheat up by around 40%, compelling Lebanon to search for alternative sources of wheat (Russia and Ukraine constituted 96% of wheat imports previously) and propelling the price of the oil barrel from an average of $70 in 2021 to an expected average of $100 in 2022. The World Bank pointed out that the Lebanese pound depreciated by 145% in the first ten months of 2022, added to depreciations of 219% and 137% in 2021 and 2020 on a respective basis. The depreciation of the pound coupled with external factors such as the Russian war on Ukraine propelled inflation to exceed the 390% level on an annual basis in June 2022, dealing a hefty blow to poor people and those living on a fixed income such as pensioners. The report pointed out that as of August 2022, 72% of the banking sector’s assets were concentrated in sovereign securities (64% with BDL and 8% in government securities). On the liabilities front, the World Bank pointed out that customer deposits at commercial banks have declined by $5.7 billion in the first seven months of 2022, on top of a $9.6 billion drop in 2021 and a $19.8 billion fall in 2020. Nevertheless, customer deposits still represent 80% of banks’ liabilities (down from 90% at the onset of the crisis), highlighting that said deposits are highly concentrated as 50% of deposits were held by 1% of depositors before the start of the crisis. Always as per the report, said figure is likely to have worsened on a post crisis basis as small & medium depositors were compelled to withdraw their deposits on a lirafied scheme to weather the surging inflation. The report added that lending by BDL has allowed banks to settle liabilities to correspondent banks, with deposits and liabilities to non-resident financial institutions dropping from $6.8 billion & $8.8 billion in December 2019, to $4.6 billion & $4.9 billion in December 2021 and $4 billion & $4.4 billion as at end of August 2022. The World Bank also reported that nine Lebanese banks have already completed or are in the process of exiting the Cypriot market, while also indicating that banks have been winding down their operations in Iraq. As far as Lebanon’s outlook is concerned, the World Bank projected real GDP to contract by 5.4% in 2022, on the assumption that policy response remains inadequate and that stability on the political and security scenes remains at a minimum level. The report also anticipated inflation to average 186% in 2022 (amongst the highest rates globally) on the back of the depreciation of the exchange rate which outweighed the effect of the contraction of money supply in the first eight months of 2022. The World Bank also projects the current account deficit to widen to 14.2% of GDP in 2022 (taking in consideration that imports increased by 34% during the first seven months of 2022 in comparison with a 12% rise in exports), exerting further pressure on BDL’s foreign currency reserves.