BEIRUT: Financial strains in Lebanon have been brought into focus by turbulence on markets where its dollar-denominated sovereign bonds suffered a heavy sell-off last week following comments by the finance minister about the public debt.
The bonds recovered this week on assurances the government is “absolutely not” planning to restructure the debt and is committed to paying its maturing debt and interest payments at predetermined dates.
But the episode has added to the debate of Lebanon’s debt sustainability after warnings from politicians, the IMF and World Bank over economic and financial conditions in a country that has suffered years of low economic growth.
Lebanon’s factional politics has led to years of policy paralysis and obstructed reforms needed to boost investor confidence. More than eight months after an election, politicians have been unable to agree to a new government.
Lebanon has one of the world’s biggest public debts compared to the size of its economy, largely generated by servicing existing debt and high state spending. It amounts to roughly 150 percent of GDP.
The World Bank has estimated that financial transfers to the state-owned power producer alone averaged 3.8 percent of GDP from 2008 to 2017. A public-sector wage increase in 2017 and higher interest rates have added to pressures on the budget deficit.
Lebanon also has a current account deficit because it imports far more than it exports.
Financing these two deficits has depended on critical financial transfers from its diaspora.
But questions over this model have grown.
“At the heart of concerns is the recent slowdown in remittance/deposit inflows, which have traditionally funded a large part- if not all of Lebanon’s financing requirement,” Goldman Sachs said in a December analysis.
The World Bank, in an October report, said Lebanon was exposed to significant refinancing risks. “Attracting sufficient capital, and in particular deposits, to finance significantly larger budgetary and current account deficits is proving challenging in light of slower deposit growth.”
Lower oil prices have been seen by economists as a major cause of the slowdown, with many Lebanese working in oil-producing Gulf Arab states. Political instability and lower growth in Lebanon have also been cited as factors.
Economic growth rates have fallen to 1-2% from 8-10% in the four years before Syria’s civil war began in 2011.
Central bank governor Riad Salameh said last month the banking sector was capable of financing the state’s foreign and domestic debt in 2019. The central bank’s net foreign assets stand at around $40 billion.
The financial system has proven resilient through political crises, assassinations, and war. The Lebanese pound peg against the US dollar has been stable for over two decades.
Often in the absence of effective government, the central bank has maintained stability using stimulus packages and unorthodox financial operations, made possible by large diaspora deposits into the banks.
But since 2016, the slowdown in non-resident inflows prompted the central bank to embark on “financial engineering” to draw more dollars to its reserves.
The World Bank and IMF have praised the central bank for a critical role. But the World Bank’s October report noted some central bank tools were becoming less effective and that Lebanon’s risk profile was rising sharply.
Confidence is critical to encouraging the inflows upon which the system rests. This would be boosted if a new government was agreed and moved quickly toward making reforms of the power sector.
This could unlock some $11 billion in funding pledged by foreign states and institutions last year for a capital investment program.
The power wielded by the Iran-backed Lebanese Shiite group Hezbollah is at the heart of tension between Lebanon and Gulf states such as Saudi Arabia that once supported Beirut but have turned their attention elsewhere in recent years.
Goldman Sachs noted that one cause of the slowdown in remittance and deposit growth was “the perceived reduced likelihood of external support in light of heightened tensions between Lebanon and the oil-rich Gulf countries.”
The heavily armed group is listed as a terrorist group by the United States and fought a war with Israel in 2006.
“We have warned for some time that if there was a fresh escalation of tensions with Gulf countries or Israel, that could lead to another period of capital flight that puts the dollar peg under pressure,” Jason Tuvey of Capital Economics said.
The United States has tightened financial sanctions against Hezbollah, part of its wider effort to counter Iran. The Lebanese banking sector has been applying these measures and anti-money laundering legislation.
Lebanon lobbied Washington in 2017 to balance its tough anti-Hezbollah stance with the need to preserve the country’s financial stability. Consequently, sanctions were altered enough to allay fears of major economic damage.
The application of such measures may have weighed on some inflows to Lebanon, though it is difficult to know to what extent, Tuvey said.
Once Prime Minister-designate Saad Al-Hariri manages to form a government, investors will be looking for follow-through on promises of reducing the budget deficit. But there are concerns that politics could get in the way of reforms once again.
“Lebanese and international stakeholders agree that the budget deficit needs to narrow, but a credible, actionable plan for achieving this is still lacking and it remains unclear if political dynamics will allow for a concerted fiscal adjustment,” Fitch Ratings said.
How pressing is Lebanon’s financial challenge?
How pressing is Lebanon’s financial challenge?
- Lebanon has a current account deficit because it imports more than it exports
- Lebanese banking sector has been applying financial sanctions and anti-money laundering legislation
Israel rallies global support to win release of a woman believed kidnapped in Iraq
Israel and Iraq do not have diplomatic relations
JERUSALEM: A senior Israeli official says the government is working with allies in a renewed push to win the freedom of an Israeli-Russian researcher who is believed to have been kidnapped in Iraq nearly two years ago.
The official said Thursday that the matter was raised in a meeting of special envoys for hostage affairs in Jerusalem this week.
He said the envoys met the family of Elizabeth Tsurkov and that Israel asked the representatives – from the US, UK, Germany, Austria and Canada – to have their embassies in Baghdad lobby the Iraqi government and search for a way to start negotiations. Israel and Iraq do not have diplomatic relations. He said he hopes other countries will help.
“We are counting on our allies,” the official said, speaking on condition of anonymity because he was discussing closed-door discussions. “And I hope that other nations will suggest assistance in helping us release Elizabeth. Many nations have embassies and contacts with the Iraqi government.”
Tsurkov, a 38-year-old student at Princeton University, disappeared in Baghdad in March 2023 while doing research for her doctorate. She had entered the country on her Russian passport. The only sign she was alive has been a video broadcast in November 2023 on an Iraqi television station and circulated on pro-Iranian social media purporting to show her.
No group has claimed responsibility for the kidnapping. But Israel believes she is being held by Kataib Hezbollah, an Iranian-backed Iraqi militia that it says also has ties to the Iraqi government.
The Israeli official said that after months of covert efforts, Israel believes the “changes in the region” have created an opportunity to work publicly for her release.
During 15 months of war, Israel has struck Iran and its allies, and Iran’s regional influence has diminished. Iraq also appears to have pressured militia groups into halting their aerial attacks against Israel.
Gaza war deaths pass 46,000
- The ministry said a total of 46,006 Palestinians have been killed and 109,378 wounded
- The Israeli military says it has killed over 17,000 militants
GAZA: Gaza’s Health Ministry said Thursday that more than 46,000 Palestinians have been killed in the Israel-Hamas war, with no end in sight to the 15-month conflict.
The ministry said a total of 46,006 Palestinians have been killed and 109,378 wounded. It has said women and children make up more than half the fatalities, but does not say how many of the dead were fighters or civilians.
The Israeli military says it has killed over 17,000 militants, without providing evidence. It blames Hamas for their deaths because it says the militants operate in residential areas.
Hundreds of thousands of Palestinians are now packed into sprawling tent camps along the coast with limited access to food and other essentials. Israel has also repeatedly struck what it claims are militants hiding in shelters and hospitals, often killing women and children.
The war began when Hamas-led militants stormed into southern Israel on Oct. 7, 2023, killing some 1,200 people and abducting around 250. A third of the 100 hostages still held in Gaza are believed to be dead.
All Jordanians living in Los Angeles are fine, Foreign Ministry says
- At least 5 people have been killed by wildfires raging in and around the US city; more than 100,000 forced to flee homes
LONDON: The Jordanian Ministry of Foreign Affairs and Expatriates said on Thursday that all Jordanian nationals living in Los Angeles, California, are “fine” as deadly wildfires continue to rage through neighborhoods in several areas in and around the US city.
The fires have claimed at least five lives, more than 100,000 people have been forced to evacuate their homes, and hundreds of buildings have burned down.
The ministry sent its sincere condolences to the victims, the American people and the US government, the Jordan News Agency reported.
Japan grants Sudan about $1 million in food aid
- The statement underscored the urgency of the situation in Sudan
- The humanitarian situation has significantly worsened as the fighting areas have expanded
TOKYO: Japan, in cooperation with the World Food Programme (WFP), decided to grant Sudan 150 million yen (nearly $1 million) as ‘food aid’ to improve the situation in that country, the Foreign Ministry in Tokyo stated.
Suzuki Satoshi, Japan’s Ambassador to International Organizations in Rome, and Ms. Rania Dagash-Kamara, Assistant Executive Director of the Partnerships and Innovation Department, World Food Programme, signed and exchanged notes regarding the grant aid in Rome on January 8th.
The statement underscored the urgency of the situation in Sudan, where armed conflict between the national army and the Rapid Support Forces (RSF) erupted in April 2023.
The humanitarian situation has significantly worsened as the fighting areas have expanded and become protracted.
According to the WFP, several regions in Sudan are at risk of famine, approximately half of the population is facing acute food insecurity, and hunger-related deaths have been recorded.
At the Eighth Tokyo International Conference on African Development (TICAD 8) held in August 2022, Japan announced its commitment to “responding to the food crisis and supporting sustainable agricultural production.” This cooperation is a concrete step in realizing this commitment.
The Republic of Sudan has an area of approximately 1.88 million square kilometers (about five times the size of Japan), a population of approximately 50.04 million, and a gross national income (GNI) per capita of $880, according to the 2023 World Bank data.
Lebanon’s President Joseph Aoun, respected army chief
- Aoun has since 2017 headed the army, an institution that serves as a rare source of unity in Lebanon
- The man of few words was able to count on his good relations across the divided Lebanese political class to see him elected
BEIRUT: Joseph Aoun, Lebanon’s army chief who was elected president on Thursday, is a political neophyte whose position as head of one of the country’s most respected institutions helped end a two-year deadlock.
Widely seen as the preferred pick of army backer the United States, he is perceived as being best placed to maintain a fragile ceasefire and pull the country out of financial collapse.
After being sworn in at parliament, Aoun said “a new phase in Lebanon’s history” was beginning.
Analysts said Aoun, who turns 61 on Friday and is considered a man of “personal integrity,” was the right candidate to finally replace Michel Aoun — no relation — whose term as president ended in October 2022, without a successor until now.
A dozen previous attempts to choose a president failed amid tensions between Hezbollah and its opponents, who have accused the Shiite group of seeking to impose its preferred candidate.
Aoun has since 2017 headed the army, an institution that serves as a rare source of unity in a country riven by sectarian and political divides.
He has navigated it through a blistering financial crisis that has drastically slashed the salaries of its 80,000 soldiers, forcing him to accept international aid.
Since late November, he oversaw the gradual mobilization of the armed forces in south Lebanon after a ceasefire ended more than a year of hostilities between Israel and Hezbollah.
Under the truce, the Lebanese army has been deploying progressively alongside UN peacekeepers in the south as Israeli forces withdraw, a process they have to finish by January 26.
Speaking on Thursday, Aoun said the state would have “a monopoly” on arms.
The general with broad shoulders and a shaved head has stepped up talks with visiting foreign dignitaries since becoming army chief.
The man of few words was able to count on his good relations across the divided Lebanese political class to see him elected.
Aoun “has a reputation of personal integrity,” said Karim Bitar, an international relations expert at Beirut’s Saint-Joseph University.
He came to prominence after leading the army in a battle to drive out Daesh from a mountainous area along the Syrian border.
“Within the Lebanese army, he is perceived as someone who is dedicated... who has the national interest at heart, and who has been trying to consolidate this institution, which is the last non-sectarian institution still on its feet in the country,” Bitar told AFP.
Aoun was set to retire in January last year, but has had his mandate extended twice — most recently in November.
Mohanad Hage Ali, from the Carnegie Middle East Center, noted that “being the head of US-backed Lebanese Armed Forces, Joseph Aoun has ties to the United States.”
“While he maintained relations with everyone, Hezbollah-affiliated media often criticized him” for those US ties, he told AFP.
Washington is the main financial backer of Lebanon’s army, which also receives support from other countries including Qatar.
An international conference in Paris last month raised $200 million to support the armed forces.
The military has been hit hard by Lebanon’s economic crisis, and at one point in 2020 it said it had cut out meat from the meals offered to on-duty soldiers due to rising food prices.
Aoun, who speaks Arabic, English and French, hails from Lebanon’s Christian community and has two children.
By convention, the presidency goes to a Maronite Christian, the premiership is reserved for a Sunni Muslim and the post of parliament speaker goes to a Shiite Muslim.
Aoun is Lebanon’s fifth army commander to become president, and the fourth in a row.
Military chiefs, by convention, are also Maronites.