The Lebanese economy extended its stay in the tunnel during 2016 despite the election of a president and the formation of a government. These 2 events relaxed the political atmosphere that was negatively weighing on investors’ confidence, and were essential to put the political stability on track. However there is still the uncertainty of getting to an agreement on the electoral law and holding the elections this year.
On the financial front, 2016 was marked by the swap operation between the central bank (BDL) and commercial banks. This swap operation or financial engineering helped boost the gross foreign reserves of BDL, and the tier I capital of banks ahead of the implementation of IFRS 9 standards in 2018. However it was neutral when it comes to its impact on the economy as the central bank absorbed all the increase in money supply that resulted from the operation. Therefore no inflationary pressures were felt especially that the liquidity was created in Lebanese pounds (LBP) and only 25% of banks’ lending is in domestic currency.
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2016 in Review and Outlook for 2017 – Deterioration Stopped, Recovery is yet to come