Banque du Liban recently issued a report where it recapped the major monetary, banking and financial developments in Lebanon for the year 2023. In details, the report commented that Lebanon has been facing a myriad of crises for the fourth consecutive year, leading to a collapse of the local currency, high unemployment levels and disrupted public services. In figures, the report revealed that the Lebanese economy has contracted by around 40%, whereas inflation levels are expected to have attained 221.3% in 2023 compared to 171.2% in 2022. The report added that the recently appointed acting governor has prepared a comprehensive recovery roadmap that hinges on the following pillars:

• Commitment to issuance of feasible annual budgets within constitutional deadlines
• Implementation of a Capital Control law
• Banking sector restructuring via the Lebanese Banks Restructuring Law
• Enactment of the Gap Resolution Law

In this regard, BDL commented that the implementation of the above pillars will serve in addressing fiscal imbalances, lowering the current account deficit, placing the public debt on a downward trajectory, rebuilding confidence and restoring the stability of the financial sector. The report added that, in accordance with this plan, BDL refrained from funding the Lebanese government as of August 2023, driving the latter to reduce public spending to achieve a zero deficit. BDL also, and in coordination with the Lebanese government, shifted the exchange rate system from a fixed system to a floating system, and discontinued the “Sayrafa Platform” in favor of an auction mechanism on the International Provider Platform, in cooperation with the American “Bloomberg” network, to fend any speculative attacks on the local currency. BDL commented that the new monetary policy has yielded positive results, particularly in the field of exchange rate stabilization, as it levelled at LBP 89,500 per USD since the month of July 2023. Similarly, the Central Bank’s foreign currency reserves stopped their decline and assumed a positive trend, increasing by 8.8% from $8.573 billion when the acting governor assumed office to $9.326 billion by end of year 2023. The increase in reserves was mainly achieved by controlling the LBP money supply, which dropped by 27% during the year 2023 (vs a 75% increase in 2022) to LBP 58 trillion by end of year 2023. BDL commented that the banking sector continues to face challenges and a restrained activity, as deposits and loans have contracted by 45% and 85% since the onset of the crisis to $94 billion and $8.1 billion on a respective basis at end of year 2023. The report further explained that early loan redemptions have been the major contributor to the deposit drop, added to local currency withdrawals, foreign currency disbursements as per BDL circulars, and settlement of bills and taxes. Always in the same vein, BDL commented that lending activity remains constrained, with its revival hinging on the implementation of laws that protect borrowers and lenders. Finally, BDL stressed on the efforts it made to combat the cash economy, namely the development of the domestic payment infrastructure, the implementation of circular 165 related to the settlement of fresh funds’ check and cash transfers, and the amendment of circular 69 related to electronic wallets.